10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2006 OR

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

Commission File Number 0-8672

___________________________

ST. JUDE MEDICAL, INC.

(Exact name of registrant as specified in its charter)

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

One Lillehei Plaza, St. Paul, Minnesota 55117

(Address of principal executive offices, including zip code)

(651) 483-2000

(Registrant’s telephone number, including area code)

_________________

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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

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

Large accelerated filer x    Accelerated filer o    Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes o No x

The number of shares of common stock, par value $.10 per share, outstanding on July 30, 2006 was 352,649,031.

TABLE OF CONTENTS

ITEM DESCRIPTION PAGE

PART I  – FINANCIAL INFORMATION
1.	Financial Statements	1
	Index to Financial Statements:
	Condensed Consolidated Statements of Earnings	1
	Condensed Consolidated Balance Sheets	2
	Condensed Consolidated Statements of Cash Flows	3
	Notes to Condensed Consolidated Financial Statements	4
	Note 1 – Basis of Presentation	4
	Note 2 – New Accounting Pronouncement	4
	Note 3 – Stock-Based Compensation	4
	Note 4 – Acquisitions and Minority Investment	8
	Note 5 – Goodwill and Other Intangible Assets	9
	Note 6 – Inventories	10
	Note 7 – Commitments and Contingencies	10
	Note 8 – Purchased In-Process Research and Development (IPR&D) Charges	16
	Note 9 – Debt	17
	Note 10 – Shareholders’ Equity	17
	Note 11 – Net Earnings Per Share	18
	Note 12 – Comprehensive Income	18
	Note 13 – Other (Expense) Income	18
	Note 14 – Segment and Geographic Information	19
2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
	Index to Management’s Discussion and Analysis:
	Overview	21
	New Accounting Pronouncement	22
	Critical Accounting Policies and Estimates	22
	Acquisitions and Minority Investment	23
	Segment Performance	23
	Results of Operations	26
	Liquidity	28
	Share Repurchase Program	30
	Debt and Credit Facilities	30
	Commitments and Contingencies	30
	Cautionary Statements	31
3.	Quantitative and Qualitative Disclosures About Market Risk	32
4.	Controls and Procedures	32
PART II – OTHER INFORMATION
1.	Legal Proceedings	32
1A.	Risk Factors	32
2.	Unregistered Sales of Equity Securities and Use of Proceeds	32
4.	Submission of Matters to a Vote of Security Holders	33
6.	Exhibits	33
	Signature	34
	Index to Exhibits	35

PART I FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

ST. JUDE MEDICAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended June 30,					Six Months Ended June 30,
	2006			2005		2006			2005
Net sales	$	832,922		$	723,655	$	1,617,338		$	1,387,564
Cost of sales		226,964			201,018		435,411			388,901
Gross profit		605,958			522,637		1,181,927			998,663
Selling, general and administrative expense		301,022			237,586		585,230			456,633
Research and development expense		108,840			89,807		214,098			166,792
Purchased in-process research and development charges		—			13,700		—			26,100
Operating profit		196,096			181,544		382,599			349,138
Other (expense) income – net		(5,219	)		1,389		(5,923	)		3,121
Earnings before income taxes		190,877			182,933		376,676			352,259
Income tax expense		49,845			81,452		98,575			131,427
Net earnings	$	141,032		$	101,481	$	278,101		$	220,832
Net earnings per share:
Basic	$	0.39		$	0.28	$	0.76		$	0.61
Diluted	$	0.38		$	0.27	$	0.73		$	0.59
Weighted average shares outstanding:
Basic		362,175			362,419		365,441			361,361
Diluted		375,141			376,964		380,069			376,247

See notes to condensed consolidated financial statements.

1

ST. JUDE MEDICAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

	June 30, 2006 (Unaudited)			December 31, 2005
ASSETS
Current Assets
Cash and cash equivalents	$	314,955		$	534,568
Accounts receivable, less allowance for doubtful accounts of     $33,839 at June 30, 2006 and $33,319 at December 31, 2005		836,950			793,929
Inventories		430,209			378,456
Deferred income taxes, net		105,564			100,272
Other		160,447			133,916
Total current assets		1,848,125			1,941,141
Property, plant and equipment – at cost		1,049,656			930,594
Less accumulated depreciation		(511,259	)		(492,178	)
Net property, plant and equipment		538,397			438,416
Other Assets
Goodwill		1,639,063			1,634,973
Other intangible assets, net		554,686			572,246
Other		274,579			258,064
Total other assets		2,468,328			2,465,283
TOTAL ASSETS	$	4,854,850		$	4,844,840
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Current portion of long-term debt	$	660,000		$	876,000
Accounts payable		177,835			169,296
Income taxes payable		90,741			108,910
Accrued expenses
Employee compensation and related benefits		187,358			204,089
Other		161,779			176,087
Total current liabilities		1,277,713			1,534,382
Long-Term Debt		714,344			176,970
Deferred Income Taxes, net		157,329			157,443
Other Liabilities		105,646			93,000
Total liabilities		2,255,032			1,961,795
Commitments and Contingencies (Note 7)		—			—
Shareholders’ Equity
Preferred stock		—			—
Common stock (352,491,992 and 367,904,418 shares issued and outstanding
at June 30, 2006 and December 31, 2005, respectively)		35,249			36,790
Additional paid-in capital		27,793			514,360
Unearned compensation		—			(5,641	)
Retained earnings		2,516,942			2,345,311
Accumulated other comprehensive income (loss):
Cumulative translation adjustment		236			(29,231	)
Unrealized gain on available-for-sale securities		19,598			21,456
Total shareholders’ equity		2,599,818			2,883,045
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	4,854,850		$	4,844,840

See notes to condensed consolidated financial statements.

2

ST. JUDE MEDICAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

Six Months Ended June 30,	2006			2005
OPERATING ACTIVITIES
Net earnings	$	278,101		$	220,832
Adjustments to reconcile net earnings to net cash from operating activities:
Depreciation		42,753			34,879
Amortization		35,099			25,110
Stock-based compensation		35,520			—
Purchased in-process research and development charges		—			26,100
Deferred income taxes		(4,386	)		10,583
Changes in operating assets and liabilities, net of business acquisitions:
Accounts receivable		(24,721	)		(92,012	)
Inventories		(45,279	)		(11,299	)
Other current assets		(27,567	)		(2,781	)
Accounts payable and accrued expenses		(30,755	)		(4,704	)
Income taxes payable		(13,063	)		57,774
Net cash provided by operating activities		245,702			264,482
INVESTING ACTIVITIES
Purchases of property, plant and equipment		(138,010	)		(69,266	)
Business acquisition payments, net of cash acquired		(6,047	)		(362,353	)
Other – net		(15,692	)		(9,996	)
Net cash used in investing activities		(159,749	)		(441,615	)
FINANCING ACTIVITIES
Proceeds from exercise of stock options and stock issued		45,549			61,007
Excess tax benefits from stock-based compensation		24,477			—
Common stock repurchased		(700,000	)		—
Borrowings under debt facilities		1,442,600			2,577,023
Payments under debt facilities		(1,123,413	)		(2,610,950	)
Net cash (used in) provided by financing activities		(310,787	)		27,080
Effect of currency exchange rate changes on cash and cash equivalents		5,221			(20,537	)
Net decrease in cash and equivalents		(219,613	)		(170,590	)
Cash and cash equivalents at beginning of period		534,568			688,040
Cash and cash equivalents at end of period	$	314,955		$	517,450

See notes to condensed consolidated financial statements.

3

ST. JUDE MEDICAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of St. Jude Medical, Inc. (St. Jude Medical or the Company) have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, these statements include all adjustments (consisting of normal recurring adjustments) considered necessary to present a fair statement of our consolidated results of operations, financial position and cash flows. Operating results for any interim period are not necessarily indicative of the results that may be expected for the full year. Preparation of the Company’s 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 financial statements and footnotes. Actual results could differ from those estimates. This Quarterly Report on Form 10-Q should be read in conjunction with the Company’s consolidated financial statements and footnotes included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2005 (2005 Annual Report on Form 10-K). Certain prior period balance sheet amounts have been reclassified to conform to current period presentation.

NOTE 2 – NEW ACCOUNTING PRONOUNCEMENT

In June 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN No. 48) which clarifies the accounting for uncertainty in income taxes recognized in accordance with SFAS No. 109, Accounting for Income Taxes (SFAS No. 109). FIN No. 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN No. 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosure. FIN No. 48 is effective for fiscal years beginning after December 15, 2006 and is required to be adopted by the Company effective January 1, 2007. The Company is currently evaluating the impact of this standard on its financial statements.

NOTE 3 – STOCK-BASED COMPENSATION

Effective January 1, 2006, the Company adopted the provisions of, and accounts for stock-based compensation in accordance with, FASB Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004), Share-Based Payment (SFAS No. 123(R)) which replaced SFAS No. 123, Accounting for Stock-Based Compensation (SFAS No. 123) and supersedes Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees (APB Opinion No. 25). Under the fair value recognition provisions of SFAS No. 123(R), the Company measures stock-based compensation cost at the grant date based on the fair value of the award and recognizes the compensation expense over the requisite service period, which is the vesting period. The Company elected the modified-prospective method of adopting SFAS No. 123(R), under which prior periods are not retroactively revised. For the Company, the valuation provisions of SFAS No. 123(R) apply to awards granted after the January 1, 2006 effective date. Stock-based compensation expense for awards granted prior to the effective date but that remain unvested on the effective date is being recognized over the remaining service period using the compensation cost estimated for the SFAS No. 123 pro forma disclosures. The adoption of SFAS No. 123(R) had a material impact on the Company’s consolidated results of operations and statement of cash flows.

Stock Options and Stock Appreciation Rights

Stock option awards are generally granted to officers and key employees at exercise prices equal to the fair market value of the Company’s common stock on the grant date. The majority of the Company’s stock option awards are non-qualified stock options with an eight-year life and a four-year ratable vesting term. The Company currently grants stock options under the 1997 Stock Option Plan, the 2000 Stock Plan (as amended), the 2002 Stock Plan (as amended) and the 2006 Stock Plan. At June 30, 2006, approximately 7.2 million shares were available for stock option grants under these plans.

On May 10, 2006, the Company’s shareholders approved the 2006 Stock Plan, authorizing the issuance of an aggregate of 5.0 million shares of the Company’s common stock through grants of stock options and stock appreciation rights (SARs). Similar to stock options, SARs reward holders if the fair market value of the Company’s common stock rises above the price on the SAR grant date. Upon exercise of the SAR, the holder receives cash or stock equivalent to the excess of the fair market value of the Company’s common stock on the exercise date over the grant price of the SAR. The Company did not have any SARs outstanding as of June 30, 2006.

4

Restricted Stock

Restricted stock awards are granted to officers and key employees. Restricted stock awards are independent of stock option awards and are subject to forfeiture if employment terminates prior to the release of the restrictions. The Company grants restricted stock which generally vests ratably over a four-year period. Directors can elect to receive half or all of their annual retainer in the form of a restricted stock grant with six-month vesting terms. During the vesting period, ownership of the shares cannot be transferred. Restricted stock is considered issued and outstanding at the grant date and has the same dividend and voting rights as other common stock. The Company grants restricted stock under the 2000 Stock Plan. At June 30, 2006, 110,939 shares were available for restricted stock grants under this plan.

Employee Stock Purchase Plan

The Company’s 2000 Employee Stock Purchase Savings Plan (ESPP) allows participating employees to purchase newly issued shares of the Company’s common stock at a discount through payroll deductions. The ESPP consists of a twelve-month offering period. Employees can purchase shares at 85% of the market value at either the beginning of the offering period or the end of the offering period, whichever price is lower. The maximum number of shares that employees can purchase is established at the beginning of the offering period, which is on or around August 1 of each year. At June 30, 2006, approximately 1.3 million shares of additional common stock were available for purchase under the ESPP.

Valuation Assumptions

The Company uses the Black-Scholes standard option pricing model (Black-Scholes model) to determine the fair value of stock options and ESPP share options. The determination of the fair value of the awards on the date of grant using the Black-Scholes model is affected by the Company’s stock price as well as assumptions of other variables, including projected employee stock option exercise behaviors, risk-free interest rate, expected volatility of the Company’s stock price in future periods and expected dividends. The fair value of restricted stock awards is based on the Company’s closing stock price on the date of grant.

The following table provides the weighted average fair value of stock options granted to employees and the related assumptions used in the Black-Scholes model:

	Three Months Ended June 30,						Six Months Ended June 30,
	2006			2005			2006			2005
Fair value of options granted	$	11.55		$	11.74		$	11.66		$	11.70
Assumptions used:
Expected life (years)		4.2			4.8			4.1			4.8
Risk-free interest rate		5.0	%		4.0	%		5.0	%		3.9	%
Volatility		27.3	%		27.5	%		27.1	%		27.5	%
Dividend yield		0	%		0	%		0	%		0	%

The following table provides the weighted average assumptions used in the Black-Scholes model to estimate the fair value of ESPP share options on the beginning of the twelve-month offering period:

	Three and Six Months Ended June 30,
	2006			2005
Expected life (years)		1.0			1.0
Risk-free interest rate		3.8	%		2.0	%
Volatility		30.0	%		30.0	%
Dividend yield		0	%		0	%

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

5

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

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

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

Stock-Based Compensation Expense

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

SFAS No. 123(R) requires compensation cost for share-based awards to be recognized over the requisite service period, which, for the Company, is the award’s vesting term. The Company’s awards are not eligible to vest early in the event of retirement, however, the majority of the Company’s awards vest early in the event of death, disability or change in control.

The amount of stock-based compensation expense recognized during a period is based on the portion of the awards that are ultimately expected to vest. The Company estimates pre-vesting option forfeitures at the time of grant by analyzing historical data and revises those estimates in subsequent periods if actual forfeitures differ from those estimates. Ultimately, the total expense recognized over the vesting period will only be for those awards that vest.

The following tables present the statement of earnings classification of pre-tax stock-based compensation expense recognized during the three and six months ended June 30, 2006 (in thousands):

	Three Months Ended June 30, 2006		Six Months Ended June 30, 2006
Cost of sales	$	1,337	$	2,733
Selling, general and administrative expense		4,372		8,828
Research and development expense		11,961		23,959
	$	17,670	$	35,520

In connection with the acquisition of Advanced Neuromodulation Systems, Inc. (ANS) in November 2005, the Company granted replacement unvested stock options and replacement unvested restricted stock to ANS employees who had unvested stock options and unvested restricted stock outstanding at the date of acquisition. ANS employees are required to render future service in order to vest in the replacement stock options and restricted stock. The Company issued 790,737 replacement St. Jude Medical stock options having a weighted average exercise price of $24.00, which vest over one to four year periods. The fair values of the replacement stock options were determined on the replacement grant date using the Black-Scholes model. The weighted average fair value of the replacement stock options was $27.79. Additionally, the Company issued 209,364 shares of replacement St. Jude Medical restricted stock at a weighted average grant price of $48.17, which vest over a four year period. Included in the $17.7 million and $35.5 million of total pre-tax stock-based compensation expense recognized for the three and six months ended June 30, 2006, respectively, is $2.4 million and $5.2 million of expense relating to these ANS replacement awards, respectively.

At June 30, 2006, there was $80.5 million of total unrecognized stock-based compensation expense, adjusted for estimated forfeitures, related to unvested stock options and unvested restricted stock. Unrecognized stock-based compensation expense is expected to be recognized over a weighted average period of 1.3 years and will be adjusted for any future changes in estimated forfeitures. Included in total unrecognized stock-based compensation expense is approximately $4.0 million related to replacement stock options and $6.9 million related to replacement restricted stock that the Company issued in connection with the acquisition of ANS, which is expected to be recognized over weighted average periods of 1.0 years and 1.8 years, respectively.

6

Prior to January 1, 2006, the Company accounted for its stock-based employee compensation plans under the recognition and measurement principles of APB Opinion No. 25 and related interpretations. The following table illustrates the effect on net earnings and net earnings per share for the three and six months ended June 30, 2005 if the Company had applied the fair value recognition provisions of SFAS No. 123 to its stock-based employee compensation (in thousands, except per share amounts):

	Three Months Ended June 30, 2005			Six Months Ended June 30, 2005
Net earnings, as reported	$	101,481		$	220,832
Less: Total stock-based compensation expense
determined under fair value based method for
all awards, net of related tax effects		(10,965	)		(21,775	)
Pro forma net earnings	$	90,516		$	199,057
Net earnings per share:
Basic – as reported	$	0.28		$	0.61
Basic – pro forma	$	0.25		$	0.55
Diluted – as reported	$	0.27		$	0.59
Diluted – pro forma	$	0.24		$	0.53

Statement of Cash Flows Change in Classification

Prior to the adoption of SFAS No. 123(R), benefits of tax deductions in excess of recognized stock-based compensation expense were reported as operating cash flows. Under SFAS No. 123(R), such excess tax benefits are reported as financing cash flows. Although total cash flows under SFAS No. 123(R) remain unchanged from what would have been reported under prior accounting standards, net operating cash flows are reduced and net financing cash flows are increased due to the adoption of SFAS No. 123(R). For the six months ended June 30, 2006, there were excess tax benefits of $24.5 million, which are classified as financing cash flows. For the six months ended June 30, 2005, there were excess tax benefits of $45.5 million, which are classified as operating cash flows as part of the change in income taxes payable.

General Stock Option and Restricted Stock Information

The following table summarizes stock option activity during the six months ended June 30, 2006:

	Options Outstanding			Weighted Average Exercise Price
Balance at December 31, 2005		45,887,344		$	23.34
Granted		304,950			38.79
Canceled		(562,486	)		35.72
Exercised		(3,143,042	)		14.31
Balance at June 30, 2006		42,486,766		$	23.96

7

The following tables summarize information concerning stock options outstanding and exercisable at June 30, 2006:

Options Outstanding								Options Exercisable
Ranges of Exercise Prices		Number Outstanding		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (years)		Number Outstanding		Weighted Average Exercise Price
$	5.02 – $  9.30		6,923,728	$	7.69		1.6		6,923,728	$	7.69
$	9.31 – $17.36		11,601,682		15.20		3.7		9,920,831		14.91
$	17.38 – $30.89		8,276,516		19.61		4.1		7,642,406		19.22
$	30.95 – $41.45		7,702,668		32.35		5.7		3,415,240		31.81
$	41.47 – $51.91		7,982,172		47.18		7.0		1,034,545		42.89
			42,486,766	$	23.96		4.4		28,936,750	$	17.32

The total intrinsic value of options exercised during the six months ended June 30, 2006 was $87.1 million. The total intrinsic value of options outstanding and exercisable at June 30, 2006 was $486.0 million and $450.2 million, respectively. The total intrinsic value at June 30, 2006 is based on the Company’s closing stock price on the last trading day of the quarter for in-the-money options.

The following table summarizes restricted stock activity during the six months ended June 30, 2006:

	Unvested Shares Outstanding			Weighted Average Grant Price
Balance at December 31, 2005		221,556		$	47.79
Granted		9,581			33.90
Vested		(2,500	)		35.90
Canceled		(658	)		48.17
Balance at June 30, 2006		227,979		$	47.33

NOTE 4 – ACQUISITIONS AND MINORITY INVESTMENT

Acquisitions

The results of operations of businesses acquired are included in the Company’s consolidated results of operations from the dates of acquisition. Refer to Note 2 to the Consolidated Financial Statements included in the Company’s 2005 Annual Report on Form 10-K for additional information regarding the Company’s acquisitions. Other than the acquisition of ANS, pro forma results of operations have not been presented for these acquisitions since the effects of these business acquisitions were not material to the Company either individually or in the aggregate.

Advanced Neuromodulation Systems, Inc. (ANS):   On November 29, 2005, the Company completed its acquisition of ANS. ANS designs, develops, manufactures and markets implantable neuromodulation devices used primarily to manage chronic severe pain. The ANS acquisition expanded the Company’s implantable microelectronics technology programs and provided the Company an immediate presence in the neuromodulation segment of the medical device industry.

The aggregate ANS purchase price was allocated on a preliminary basis to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The purchase price allocation is preliminary as a result of uncertainty surrounding the estimation of probable and future legal costs relating to legal proceedings outstanding on the acquisition date (see Note 7). Upon finalization, there could be a change in the current liabilities and goodwill. See Note 2 of the Consolidated Financial Statements included in the Company’s 2005 Annual Report on Form 10-K for the preliminary ANS purchase price allocation.

8

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

	(Unaudited)
	Three Months Ended June 30, 2005		Six Months Ended June 30, 2005
Revenue	$	762,348	$	1,458,593
Net earnings		98,981		269,314
Net earnings per share:
Basic	$	0.27	$	0.75
Diluted	$	0.26	$	0.72

Pro forma adjustments relate to amortization of identified intangible assets, interest expense resulting from acquisition financing and certain other adjustments together with related income tax effects. Pro forma net earnings for the six months ended June 30, 2005 include an $85.2 million pre-tax gain on the sale of ANS’s investment in common stock of Cyberonics, Inc., which was recorded by ANS in its historical results of operations for the six months ended June 30, 2005. The above unaudited pro forma consolidated results of operations are for comparative purposes only and are not necessarily indicative of results that would have occurred had the acquisition occurred as of the beginning of the period presented, nor are they necessarily indicative of future results.

Other Acquisitions: During the six months ended June 30, 2006, the Company also acquired various businesses involved in the distribution of the Company’s products for aggregate cash consideration of $6.1 million.

Minority Investment

The Company made an initial $12.5 million investment in ProRhythm, Inc. (ProRhythm) in January 2005, which approximated a 9% ownership interest. In January 2006, the Company made a second $12.5 million investment in ProRhythm, increasing its total ownership interest to approximately 18%. ProRhythm is a privately-held company that is focused on the development of a high intensity focused ultrasound catheter-based ablation system for the treatment of atrial fibrillation. In connection with making the initial equity investment, the Company also entered into a purchase agreement under which the Company has the exclusive right, but not the obligation, through the later of three months after the date ProRhythm delivers certain clinical trial data or March 31, 2007, to acquire the remaining capital stock of ProRhythm for $125.0 million in cash, with additional cash consideration payable to the non-St. Jude Medical shareholders after the consummation of the acquisition if ProRhythm achieves certain performance-related milestones. The ProRhythm investment is being accounted for under the cost method of accounting.

NOTE 5 – GOODWILL AND OTHER INTANGIBLE ASSETS

The changes in the carrying amount of goodwill for each of the Company’s reportable segments (see Note 14) for the six months ended June 30, 2006 are as follows (in thousands):

	CRM/CS/NEURO		CD/AF		Total
Balance at December 31, 2005	$	1,184,412	$	450,561	$	1,634,973
Foreign currency translation		3,907		183		4,090
Balance at June 30, 2006	$	1,188,319	$	450,744	$	1,639,063

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

	June 30, 2006				December 31, 2005
	Gross carrying amount		Accumulated amortization		Gross carrying amount		Accumulated amortization
Amortized intangible assets:
Purchased technology and patents	$	472,977	$	54,956	$	474,994	$	41,402
Customer lists and relationships		104,425		28,373		98,282		23,009
Distribution agreements		42,674		13,805		42,164		11,486
Trademarks and tradenames		23,300		906		23,300		129
Licenses and other		7,483		2,297		7,184		1,765
	$	650,859	$	100,337	$	645,924	$	77,791
Indefinite-lived intangible assets:
Trademarks	$	4,164			$	4,113

NOTE 6 – INVENTORIES

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

	June 30, 2006		December 31, 2005
Finished goods	$	295,243	$	262,640
Work in process		45,181		34,531
Raw materials		89,785		81,285
	$	430,209	$	378,456

NOTE 7 – COMMITMENTS AND CONTINGENCIES

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

Subsequent to the Company’s voluntary field action, the Company has been sued in various jurisdictions by some patients who received a product with Silzone® coating and, as of July 30, 2006, such cases are pending in the United States, Canada, United Kingdom, Ireland and France. Some of these claimants allege bodily injuries as a result of an explant or other complications, which they attribute to Silzone®-coated products. Others, who have not had their Silzone®-coated heart valve explanted, seek compensation for past and future costs of special monitoring they allege they need over and above the medical monitoring all replacement heart valve patients receive. Some of the lawsuits seeking the cost of monitoring have been initiated by patients who are asymptomatic and who have no apparent clinical injury to date. The Company has vigorously defended against the claims that have been asserted and expects to continue to do so with respect to any remaining claims.

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

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

Certain plaintiffs requested the District Court to allow some cases to proceed as class actions. The first complaint seeking class-action status was served upon the Company on April 27, 2000 and all eight original class-action complaints were consolidated into one case by the District Court 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 monetary damages. In response to the requests of the claimants in these cases, the District Court issued several rulings concerning class action certification. The Company requested the Eighth Circuit Court of Appeals (the Eighth Circuit) to review the District Court’s class certification orders.

On October 12, 2005, the Eighth Circuit issued a decision reversing the District Court’s class certification rulings. More specifically, the Eighth Circuit ruled that the District Court erred in certifying a consumer protection class seeking damages based on Minnesota’s consumer protection statutes, and required the District Court in further proceedings to conduct a thorough conflicts-of-law analysis as to each plaintiff class member before applying Minnesota law. In addition, in its October 12, 2005 opinion, the Eighth Circuit also ruled that the District Court’s certification of a medical monitoring class was an abuse of discretion and thus reversed the District Court’s certification of a medical monitoring class involving the products with Silzone® coating.

The parties have submitted briefs to the District Court providing their analysis concerning next steps in the proceedings, including analysis on the conflicts-of-law issue mentioned above. Oral argument concerning the issues that were briefed occurred on April 26, 2006.

In addition, as of July 30, 2006, there are 12individual Silzone® cases pending in various federal courts where plaintiffs are requesting damages ranging from $10 thousand to $120.5 million and, in some cases, seeking an unspecified amount. 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 February 21, 2006. These cases, which are consolidated before the District Court, are proceeding in accordance with the scheduling orders rendered. Actions involving products with Silzone® coating in various state courts in the United States may or may not be coordinated with the matters presently before the District Court.

There are 23 individual state court suits concerning Silzone®-coated products pending as of July 30, 2006, involving 31 patients. These cases are venued in Florida, Minnesota, Missouri, Nevada, Pennsylvania and Texas. There is also a case in Texas which has been dismissed but remains on appeal. 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 July 19, 2006. The complaints in these state court cases request damages ranging from $10 thousand to $100 thousand and, in some cases, seek an unspecified amount. These state court cases are proceeding in accordance with the orders issued by the judges in those matters.

In addition, a lawsuit seeking a class action for all persons residing in the European Economic Union member jurisdictions who have had a heart valve replacement and/or repair procedure using a product with Silzone® coating was filed in Minnesota state court and served upon the Company on February 11, 2004, by two European citizens who now live in Canada. The complaint seeks damages in an unspecified amount for the class, and in excess of $50 thousand for each plaintiff. The complaint also seeks injunctive relief in the form of medical monitoring. The Company is opposing the plaintiffs’ pursuit of this case on jurisdictional, procedural and substantive grounds.

There are also four class-action cases and one individual case pending against the Company in Canada. In one such case in Ontario, the court certified that a class action may proceed involving Silzone® patients. The Company’s request for leave to appeal the rulings on certification was rejected, and the trial of the initial phase of this matter is now scheduled for September 2007. A second case seeking class action in Ontario has been stayed pending resolution of the other Ontario action, and a case seeking class action in British Columbia is also proceeding but is in its early stages. A court in the Province of Quebec has certified a class action, and that matter is proceeding in accordance with the orders in that court. Additionally, on December 22, 2005, the Company was served with a lawsuit by the Quebec Provincial health insurer. The lawsuit asserts a subrogation right to recover the cost of insured services furnished or to be furnished to class members in the class action pending in Quebec. The complaints in these cases each request damages ranging from 1.5 million to 2.0 billion Canadian dollars (the equivalent to $1.3 million to $1.8 billion at June 30, 2006).

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In the United Kingdom, one case involving one plaintiff is pending as of July 30, 2006. The Particulars of Claim in this case was served on December 21, 2004. The plaintiff in this case requests damages of approximately 0.2 million British pounds (the equivalent to approximately $0.4 million at June 30, 2006).

In Ireland, one case involving one plaintiff is pending as of July 30, 2006. The complaint in this case was served on December 30, 2004, and seeks an unspecified amount in damages.

In France, one case involving one plaintiff is pending as of July 30, 2006. It was initiated by way of an Injunctive Summons to Appear that was served on November 3, 2004, and requests damages in excess of 3 million Euros (the equivalent to $3.8 million at June 30, 2006).

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

The Company has recorded an accrual for probable legal costs that it will incur to defend the various cases involving Silzone®-coated products, and the Company has recorded a receivable from its product liability insurance carriers for amounts expected to be recovered. The Company has not accrued for any amounts associated with settlements or judgments because management cannot reasonably estimate such amounts. Any Silzone® litigation settlement or judgment reserve established by the Company is not based on the amount of the claims because, based on the Company’s 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. Furthermore, management expects 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 product liability insurance, subject to the insurance companies’ performance under the policies, which is discussed below. As such, management expects that any costs (the material components of which are settlements, judgments, legal fees and other related defense costs) not covered by the Company’s product liability insurance policies or existing reserves will not have a material adverse effect on the Company’s consolidated financial position, although such costs may be material to the Company’s consolidated earnings and cash flows of a future period.

A summary of the activity relating to the Silzone® litigation reserve is as follows (in thousands):

	Legal and monitoring costs
Balance at December 31, 2004	$	26,435
Accrued cost		9,800
Cash payments		(1,328	)
Balance at December 31, 2005		34,907
Cash payments		(618	)
Balance at June 30, 2006	$	34,289

The Company records insurance receivables for amounts related to probable future legal costs associated with the Silzone® litigation that are expected to be reimbursable by the Company’s insurance carriers. In 2005, the Company determined that the Silzone® reserves should be increased by $9.8 million as a result of an increase in management’s estimate of the probable future legal costs that would be incurred. The Company also increased the receivable from the Company’s insurance carriers as the Company expects such costs to be reimbursable by the Company’s insurance carriers. At June 30, 2006 and December 31, 2005, the Company’s receivables from insurance carriers were $23.6 million and $24.1 million, respectively.

The Company’s remaining product liability insurance (approximately $128.0 million at July 30, 2006) for Silzone® claims consists of a number of layers, each of which is covered by one or more insurance companies. Part of the Company’s final layer of insurance ($20 million of the final $50 million layer) 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 Kemper is unable to pay claims directed to it, the Company believes the other insurance carriers in the final layer of insurance will take the position that the Company will be directly liable for any claims and costs that Kemper is unable to pay. It is possible that Silzone® costs and expenses will reach the limit of the final Kemper layer of insurance coverage, and it is possible that Kemper will be unable to meet its full obligations to the Company. If this were to happen, the Company could incur expense of up to approximately $20 million. The Company has not accrued for any such losses as potential losses are possible, but not estimable, at this time.

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Symmetry™ Bypass System Aortic Connector Litigation:  The Company has been sued in various jurisdictions by claimants who allege that the Company’s Symmetry™ device caused bodily injury or might cause bodily injury. The Company’s Symmetry™ device was cleared through a 510(K) submission to the U.S. Food and Drug Administration (FDA), and therefore, the Company is unable to rely on a 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.

Although four cases asserted against the Company involving the Symmetry™ device sought class-action status, no class actions were certified in those cases, and all four cases have now been dismissed. In one of those matters seeking class action status, the case was dismissed by the court, and the plaintiff appealed the dismissal. In another, a Magistrate Judge recommended that the case not proceed as a class action. In the third case, the trial judge denied class certification in a July 26, 2005 decision that was not appealed. No motion requesting the court to certify a class action was ever pursued in the fourth case. Therefore, as of July 30, 2006, no class actions have been certified in cases involving the Symmetry™ device, and all four cases where class actions were initially sought have now been resolved, including the case where the plaintiff appealed the court’s dismissal of the case.

Since August 2003, when the first lawsuit involving the Symmetry™ device was filed against the Company, through July 30, 2006, the Company has resolved the claims involving over 90% of the plaintiffs that have initiated lawsuits against the Company involving the Symmetry™ device. As of July 30, 2006, all but five of the cases which allege that the Symmetry™ device caused bodily injury or might cause bodily injury have been resolved. Four of the five unresolved cases were initiated in the second quarter of 2006. Four of the five unresolved cases involving the Symmetry™ device are pending in state court in Minnesota and one is pending in federal court in South Carolina. The first of the unresolved cases involving the Symmetry™ device was commenced against the Company on June 17, 2004, and the most recently initiated unresolved case was commenced against the Company on June 12, 2006. Each of the complaints in these unresolved cases request damages in excess of $50 thousand. In addition to this litigation, some persons have made claims against the Company involving the Symmetry™ device without filing a lawsuit, although, as with the lawsuits, the vast majority of the claims that the Company has been made aware of as of July 30, 2006 have been resolved.

Potential losses arising from future settlements or judgments of unresolved cases and claims are possible, but not estimable, at this time. Moreover, the Company currently expects that any costs (the material components of which are settlements, judgments, legal fees and other related defense costs) not covered by any remaining reserve will not have a material adverse effect on the Company’s consolidated financial position, although such costs may be material to the Company’s consolidated earnings and cash flows of a future period.

Guidant 1996 Patent Litigation:  In November 1996, Guidant, a subsidiary of Boston Scientific Corporation, sued the Company in federal district court for the Southern District of Indiana alleging that the Company did not have a license to certain patents controlled by Guidant covering tachycardia implantable cardioverter defibrillator system (ICD) products and alleging that the Company was infringing those patents. The Company’s contention was that it had obtained a license from Guidant to the patents at issue when it acquired certain assets of Telectronics in November 1996. In July 2000, an arbitrator rejected the Company’s position, and in May 2001, a federal district court judge also ruled that the Guidant patent license with Telectronics had not transferred to the Company.

Guidant’s suit originally alleged infringement of four patents by the Company. 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 the Company 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 $140.0 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 the Company, thereby eliminating the $140.0 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 ($140.0 million) be transferred to the ‘288 patent infringement claim.

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On August 31, 2004, a three judge panel of the Court of Appeals for the Federal Circuit (CAFC) issued a ruling on Guidant’s appeal of the trial court decision concerning the ‘288 patent. The CAFC reversed the decision of the trial court judge that the ‘288 patent was invalid. The court also ruled that the trial judge’s claim construction of the ‘288 patent was incorrect and, therefore, the jury’s verdict of non-infringement was set aside. Guidant’s request to transfer the $140.0 million to the ‘288 patent was rejected. The court also ruled on other issues that were raised by the parties. The Company’s request for re-hearing of the matter by the panel and the entire CAFC court was rejected.

The case was returned to the district court in Indiana in November 2004, but since that time, further appellate activity has occurred. In this regard, the U.S. Supreme Court rejected the Company’s request that it review certain aspects of the CAFC decision. In addition, further appellate review has occurred after Guidant brought motion in the district court seeking to have a new judge assigned to handle the case in lieu of the judge that oversaw the prior trial. On a motion reconsideration, the judge reversed his initial decision in response to Guidant’s motion and agreed to have the case reassigned to a new judge, but also certified the issue to the CAFC. On July 20, 2005, the CAFC ruled that the original judge should continue with the case. A hearing on claims construction issues and various motions for summary judgment brought by both parties was held on December 20, 2005, and the District Court issued rulings on claims construction and in response to some of the motions for summary judgment on March 1, 2006. In response to the District Court ruling, on March 21, 2006, Guidant filed a special request with the CAFC to appeal certain of the March 1, 2006 rulings, or to clarify the August 31, 2005 CAFC decision. The Company filed responses to these filings on April 7, 2006, and, on June 2, 2006, the CAFC rejected Guidant’s special request to an appeal. As a result, the case is proceeding in accordance with deadlines established by the District Court, with trial currently scheduled for April 30, 2007. On July 30, 2006, the parties agreed to jointly approach the court to request a new schedule for the case.

The ‘288 patent expired in December 2003. Accordingly, the final outcome of the lawsuit involving the ‘288 patent cannot result in an injunction precluding the Company from selling ICD products in the future. Sales of the Company’s ICD products which Guidant asserts infringed the ‘288 patent were approximately 18% and 16% of the Company’s consolidated net sales during the fiscal years ended December 31, 2003 and 2002, respectively.

On July 30, 2006, in exchange for the Company agreeing not to pursue the recovery of attorneys’ fees or assert certain claims and defenses, Guidant agreed that it would not seek to recover lost profits in the case, that the maximum royalty rate that it would seek for any patents found to be infringed by the Company would not exceed 3% of net sales, and that it would not seek prejudgment interest. These agreements have the effect of limiting the Company’s financial exposure. However, any potential losses arising from any legal settlements or judgments could be material to the Company’s consolidated earnings, financial position and cash flows. The Company has not accrued any amounts for legal settlements or judgments related to the Guidant 1996 patent litigation. Although the Company believes that the assertions and claims in these matters are without merit, potential losses arising from any legal settlements or judgments are possible, but not estimable, at this time.

Guidant 2004 Patent Litigation:  In February 2004, Guidant sued the Company in federal district court in Delaware alleging that the Company’s Epic® HF ICD, Atlas®+ HF ICD and Frontier™ devices infringe U.S Patent No. RE 38,119E (the ‘119 patent). A competitor of the Company, Medtronic, Inc., which has a license to the ‘119 patent, is contending in a separate lawsuit with Guidant in the same court that the ‘119 patent is invalid. In July 2005, the court ruled against Medtronic’s claim of invalidity, but Medtronic is appealing that decision. By agreement with Guidant, Medtronic had presented limited arguments of invalidity in its case and did not address infringement. On January 6, 2006, the Court ruled against the Company in response to a motion for summary judgment it had filed in June 2005. The Company expects to assert invalidity arguments that were not made by Medtronic and also defend against Guidant’s claims of infringement. Pursuant to a recent order of the Court, this matter is presently set for trial in March 2007, and it is otherwise proceeding in accordance with deadlines established by the Court.

On July 30, 2006, in exchange for the Company agreeing not to pursue the recovery of attorneys’ fees or assert certain defenses, Guidant agreed that it would not seek to recover lost profits in the case, that the maximum royalty rate that it would seek for any patents found to be infringed by the Company would not exceed 3% of net sales, that it would not seek prejudgment interest, and that it would not pursue an injunction against the Company until all appeals have been exhausted and any judgment of infringement is final and no longer can be appealed. These agreements have the effect of limiting the Company’s financial and operational exposure. However, any potential losses arising from any legal settlements or judgments could be material to the Company’s consolidated earnings, financial position and cash flows. The Company has not accrued any amounts for legal settlements or judgments related to the outstanding Guidant 2004 patent litigation. Although the Company believes that the assertions and claims in the outstanding Guidant 2004 patent litigation are without merit, potential losses arising from any legal settlements or judgments are possible, but not estimable, at this time.

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 later amended its complaint to allege that the QuickSite® 1056K and the QuickSite® 1056T pacing leads infringe U.S. Patent No. 6,901,288, as well as the ‘766 patent. The parties settled this suit on July 30, 2006.

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Advanced Bionics Patent Litigation:  On July 30, 2006, the Company settled the litigation between its recently acquired subsidiary, ANS, and Advanced Bionics, a subsidiary of Boston Scientific Corporation. That litigation had involved patent infringement claims by both parties.

Securities Class Action Litigation:  In April and May 2006, five shareholders, each purporting to act on behalf of a class of purchasers during the period January 25 through April 4, 2006 (the Class Period), separately sued the Company and certain officers in Minnesota Federal District Court alleging that the Company made materially false and misleading statements during the Class Period relating to financial performance, projected earnings guidance, and projected sales of ICDs. The complaints, which all seek unspecified damages and other relief, as well as attorneys’ fees, have all been consolidated. A lead plaintiff has not yet been appointed. The Company intends to vigorously defend against the claims asserted in these actions. The Company’s directors and officers liability insurance provide $75 million of insurance coverage for the Company, the officers and the directors, after a $15 million self-insured retention level has been reached.

Additionally, the Company’s recently acquired subsidiary, ANS, has outstanding securities class action legal proceedings. In late May 2005, the U.S. District Court for the Eastern District of Texas, Sherman Division, granted an order consolidating three previously filed cases which sought class action status for claims asserted against ANS and certain of the individuals who were serving as ANS’s officers and directors at that time (the Class Action Litigation), on behalf of purchasers of ANS securities between April 24, 2003 and February 16, 2005, inclusive (the ANS Class Period).

The court also granted an order appointing lead and liaison counsel and appointing the lead plaintiff in the Class Action Litigation. The three previously filed suits each alleged that ANS violated federal securities laws by allegedly issuing false and misleading statements to the market regarding ANS’s financial performance throughout the ANS Class Period, which statements allegedly had the effect of artificially inflating the market price of the ANS’s securities. In particular, the claims alleged that improper marketing and sales practices accounted for ANS’s revenue growth, citing, among other things, ANS’s public announcement made on February 17, 2005 that the Company had received a subpoena from the Office of the Inspector General, Department of Health and Human Services (OIG), requesting documents related to sales and marketing, reimbursement, Medicare and Medicaid billing and other business practices. The plaintiffs in the Class Action Litigation are seeking unspecified compensatory damages and costs and expenses of litigation. No class has been certified at this time. The plaintiffs filed an amended consolidated complaint in September 2005. By agreement with the plaintiffs, ANS filed its Motion to Dismiss on January 13, 2006. The Company intends to vigorously defend against the claims made in the Class Action Litigation and believes the claims asserted in the Class Action Litigation are without merit. ANS’s directors and officers liability insurance policy provides coverage of up to $10 million. As of June 30, 2006, ANS has met its deductible under this policy, and any future costs of defense, settlements and judgments up to $10 million associated with ANS’s outstanding securities class action legal proceeding against directors and officers are covered by the policy.

Other Litigation and Governmental Investigation Matters:  The Company has been named in the report of the Independent Inquiry Committee into the United Nations (U.N.) Oil-For-Food Programme as having made payments to the Iraqi government in connection with certain product sales made by the Company to Iraq under the U.N. Oil-For-Food Programme in 2001, 2002 and 2003. The Company is investigating the allegations. In February 2006, the Company received a subpoena from the SEC requesting the Company to produce documents concerning transactions under the U.N. Oil-for-Food Programme. The Company is cooperating with the SEC’s request.

In late January 2005, ANS received a subpoena from the OIG requesting documents related to certain of its sales and marketing, reimbursement, Medicare and Medicaid billings, and other business practices of ANS. The Company is cooperating with the OIG’s request for documents.

In October 2005, the Company received a subpoena for documents relating to business practices in its cardiac rhythm management business from the U.S. Attorney’s Office in Boston as part of an industry-wide investigation. The Company is cooperating with the investigation.

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

Product Warranties: The Company offers a warranty on various products, the most significant of which relates to its bradycardia pacemaker systems (pacemakers) and ICDs. 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 the three and six months ended June 30, 2006 and 2005 were as follows (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2006			2005			2006			2005
Balance at beginning of period	$	19,674		$	13,004		$	19,897		$	13,235
Warranty expense recognized		(1,222	)		105			51			253
Warranty credits issued		(2,559	)		(299	)		(4,055	)		(678	)
Balance at end of period	$	15,893		$	12,810		$	15,893		$	12,810

Other Commitments: The Company has certain contingent commitments to acquire various businesses involved in the distribution of the Company’s products and other contingent acquisition consideration payments. While it is not certain if and/or when these payments will be made, as of June 30, 2006, the Company estimates it could be required to pay approximately $277 million in future periods to satisfy such commitments. Refer to Part II, Item 7A, Management’s Discussion and Analysis of Financial Condition and Results of Operations – Off-Balance Sheet Arrangements and Contractual Obligations of the Company’s 2005 Annual Report on Form 10-K for additional information.

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

Refer to Note 7 to the Consolidated Financial Statements included in the Company’s 2005 Annual Report on Form 10-K for additional information regarding IPR&D acquired as part of the Company’s recent acquisitions. There has been no material changes in the completion status of IPR&D projects acquired and the estimated total cost to complete each project, as estimated on the acquisition dates, from that previously disclosed in our 2005 Annual Report on Form 10-K.

Velocimed, LLC (Velocimed): In April 2005,the Company acquired Velocimed to further enhance the Company’s portfolio of products in the interventional cardiology market. At the date of acquisition, $13.7 million of the purchase price was expensed as IPR&D related to projects for the Proxis™ embolic protection device (Proxis™) that had not yet reached technological feasibility in the United States and other geographies and had no future alternative use. The device is used to help minimize the risk of heart attack or stroke if plaque or other debris is dislodged into the blood stream during interventional cardiology procedures. In 2005 the Company incurred $3.4 million in costs related to these projects. The Company has incurred $1.9 million in the first six months of 2006 and expects to incur an additional $1.3 million through 2007 to bring this acquired technology to commercial viability.

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

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NOTE 9 – DEBT

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

	June 30, 2006		December 31, 2005
2.80% Convertible Senior Debentures	$	660,000	$	660,000
1.02% Yen-denominated notes		179,124		176,937
Commercial paper borrowings		535,200		216,000
Other		20		33
Total long-term debt	$	1,374,344	$	1,052,970
Less: current portion of long-term debt		660,000		876,000
Long-term debt	$	714,344	$	176,970

The 2.80% Convertible Senior Debentures, that mature on December 15, 2035, have been classified as current portion of long-term debt as the Company may be required to redeem these obligations on December 15, 2006. The Company’s commercial paper borrowings are classified as long-term debt at June 30, 2006. The Company normally classifies all of its commercial paper borrowings as long-term debt as the Company has the ability to repay any short-term maturity with available cash from its existing long-term, committed credit facilities. Because the Company repaid all of its outstanding commercial paper borrowings in January 2006, the Company classified the December 31, 2005 balance as current portion of long-term debt.

NOTE 10 – SHAREHOLDERS’ EQUITY

Capital Stock

The Company’s authorized capital consists of 25 million shares of $1.00 per share par value preferred stock and 500 million shares of $0.10 per share par value common stock. The Company has designated 1.1 million of the authorized preferred shares as a Series B Junior Preferred Stock for its shareholder rights plan. There were no shares of preferred stock issued or outstanding at June 30, 2006 or December 31, 2005.

Share Repurchase Program

On April 18, 2006, the Company’s Board of Directors authorized a new share repurchase program of up to $700 million of the Company’s outstanding common stock. The $700 million share repurchase program replaced an earlier share repurchase program, under which the Company was authorized to repurchase up to $300 million of its outstanding common stock. No stock had been repurchased under the earlier program. On April 21, 2006, the Company began making share repurchases through transactions in the open market in accordance with applicable securities laws. On May 26, 2006, the Company had repurchased the maximum amount authorized by the Board of Directors under the repurchase program. Approximately 18.6 million shares were repurchased for a total of $700 million, which was financed through cash from operations and proceeds from the issuance of commercial paper. The $700 million share repurchase was recorded as a $593.5 million aggregate reduction of common stock and additional paid-in capital and a $106.5 million reduction in retained earnings.

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NOTE 11 – NET EARNINGS PER SHARE

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2006		2005		2006		2005
Numerator:
Net earnings	$	141,032	$	101,481	$	278,101	$	220,832
Denominator:
Basic weighted average shares outstanding		362,175		362,419		365,441		361,361
Effect of dilutive securities:
Employee stock options		12,944		14,531		14,506		14,869
Restricted shares		22		14		122		17
Diluted weighted average shares outstanding		375,141		376,964		380,069		376,247
Basic net earnings per share	$	0.39	$	0.28	$	0.76	$	0.61
Diluted net earnings per share	$	0.38	$	0.27	$	0.73	$	0.59

Diluted-weighted average shares outstanding have not been adjusted for certain stock options and restricted stock where the effect of those securities would not have been dilutive. Approximately 9.7 million and 4.1 million shares of common stock subject to stock options and restricted stock were excluded from the diluted net earnings per share computation for the three months ended June 30, 2006 and 2005, respectively, because they were anti-dilutive. Approximately 7.1 million and 4.4 million shares of common stock subject to stock options and restricted stock were excluded from the diluted net earnings per share computation for the six months ended June 30, 2006 and 2005, respectively, because they were anti-dilutive.

NOTE 12 – COMPREHENSIVE INCOME

	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2006			2005			2006			2005
Net earnings	$	141,032		$	101,481		$	278,101		$	220,832
Other comprensive income (loss):
Cumulative translation adjustment – net		23,795			(35,810	)		29,467			(67,580	)
Available-for-sale securities, unrealized gain (loss) – net		(4,249	)		801			(1,858	)		9,756
Total comprehensive income	$	160,578		$	66,472		$	305,710		$	163,008

The amounts in other comprehensive income (loss) are presented net of the related income tax impact.

NOTE 13 – OTHER (EXPENSE) INCOME

	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2006			2005			2006			2005
Interest income	$	3,589		$	4,218		$	7,706		$	8,276
Interest expense		(9,383	)		(2,406	)		(15,854	)		(4,712	)
Other		575			(423	)		2,225			(443	)
Total other (expense) income	$	(5,219	)	$	1,389		$	(5,923	)	$	3,121

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NOTE 14 – SEGMENT AND GEOGRAPHIC INFORMATION

Segment Information

The Company develops, manufactures and distributes cardiovascular medical devices for the global cardiac rhythm management, cardiac surgery, cardiology and atrial fibrillation therapy areas and implantable neuromodulation devices. The Company’s five operating segments are Cardiac Rhythm Management (CRM), Cardiac Surgery (CS), Neuromodulation (NEURO), Cardiology (CD) and Atrial Fibrillation (AF). The Company formed the NEURO operating segment in November 2005 in connection with the acquisition of ANS. Each operating segment focuses on developing and manufacturing products for its respective therapy area. The primary products produced by each operating segment are: CRM – ICDs and pacemakers; CS – mechanical and tissue heart valves and valve repair products; NEURO – neurostimulation devices; CD – vascular closure devices, hemostasis introducers, patent foramen ovale closure devices, guidewires, embolic protection devices and other cardiology products; and AF – EP catheters, advanced cardiac mapping systems and ablation systems.

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

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

	CRM/CS/NEURO		CD/AF			Other			Total
Three Months ended June 30, 2006:
Net sales	$	638,164	$	194,758		$	—		$	832,922
Operating profit		383,300		79,085			(266,289	)		196,096
Three Months ended June 30, 2005:
Net sales	$	550,752	$	172,903		$	—		$	723,655
Operating profit		338,635		61,656	(a)		(218,747	)		181,544
Six Months ended June 30, 2006:
Net sales	$	1,237,208	$	380,130		$	—		$	1,617,338
Operating profit		744,746		159,463			(521,610	)		382,599
Six Months ended June 30, 2005:
Net sales	$	1,045,948	$	341,616		$	—		$	1,387,564
Operating profit		649,559		124,245	(b)		(424,666	)		349,138

(a) Included in CD/AF operating profit for the three months ended June 30, 2005 is an IPR&D charge of $13.7 million relating to the acquisition of Velocimed.

(b) Included in CD/AF operating profit for the six months ended June 30, 2005 are IPR&D charges of $13.7 million and $12.4 million related to the acquisitions of Velocimed and ESI, respectively.

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The following table presents the Company’s total assets by reportable segment (in thousands):

	June 30, 2006		December 31, 2005
CRM/CS/NEURO	$	1,999,111	$	1,936,915
CD/AF		688,471		679,973
Other		2,167,268		2,227,952
	$	4,854,850	$	4,844,840

Geographic Information

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

	Three Months Ended June 30,				Six Months Ended June 30,
Net Sales (a)	2006		2005		2006		2005
United States	$	483,995	$	417,248	$	948,151	$	790,644
International
Europe		205,666		174,610		394,798		344,356
Japan		71,778		71,746		139,765		139,766
Other (b)		71,483		60,051		134,624		112,798
		348,927		306,407		669,187		596,920
	$	832,922	$	723,655	$	1,617,338	$	1,387,564

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

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

Long-Lived Assets	June 30, 2006		December 31, 2005
United States	$	2,683,044	$	2,596,513
International
Europe		111,676		100,068
Japan		124,471		125,962
Other		87,534		81,156
		323,681		307,186
	$	3,006,725	$	2,903,699

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF 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, cardiac surgery, cardiology and atrial fibrillation therapy areas and implantable neuromodulation devices. We sell our products in more than 100 countries around the world. Our largest geographic markets are the United States, Europe and Japan. Our five operating segments are Cardiac Rhythm Management (CRM), Cardiac Surgery (CS), Neuromodulation (NEURO), Cardiology (CD) and Atrial Fibrillation (AF). Each operating segment focuses on developing and manufacturing products for its respective therapy area. Our principal products in each operating segment are as follows: CRM – tachycardia implantable cardioverter defibrillator systems (ICDs) and bradycardia pacemaker systems (pacemakers); CS – mechanical and tissue heart valves and valve repair products; NEURO – neurostimulation devices; CD – vascular closure devices, hemostasis introducers, patent foramen ovale closure devices, guidewires, embolic protection devices and other cardiology products; and AF – electrophysiology (EP) catheters, advanced cardiac mapping systems and ablation systems. References to “St. Jude Medical,” “St. Jude,” “the Company,” “we,” “us” and “our” are to St. Jude Medical, Inc. and its subsidiaries.

Net sales in the second quarter and first six months of 2006 were $832.9 million and $1,617.3 million, respectively, an increase of approximately 15% and 17% over the second quarter and first six months of 2005, respectively, led by growth in sales of our ICDs as well as neuromodulation product sales from the acquisition of Advanced Neuromodulation Systems, Inc. (ANS). Our ICD net sales grew approximately 14% to $278.1 million in the second quarter of 2006 and increased approximately 20% to $540.5 million in the first six months of 2006. The acquisition of ANS in the fourth quarter of 2005 contributed $43.5 million and $85.5 million to our sales growth in the second quarter and first six months of 2006, respectively. AF net sales increased approximately 33% to $80.1 million in the second quarter of 2006 and approximately 29% to $153.8 in the first six months of 2006. Unfavorable foreign currency translation comparisons negatively impacted second quarter 2006 sales by $5.7 million and negatively impacted sales for the first six months of 2006 by $27.7 million. Refer to the Segment Performance section below for a more detailed discussion of the results for the respective segments.

The global ICD market grew at an estimated compounded annual growth rate of approximately 28% from 2001 to 2005. We believe the rate of growth declined significantly in the second half of 2005 and first half of 2006 due to a number of factors, including adverse publicity relating to product recalls of a competitor during 2005. We forecast that the overall ICD market will remain depressed in the near term but eventually will rebound. This is because data indicates the potential patient populations remain significantly unpenetrated. We also expect that we can continue to increase our ICD market share; we plan to expand our United States selling organization and to introduce new CRM products in order to help accomplish this.

Net earnings and diluted net earnings per share for the second quarter of 2006 were $141.0 million and $0.38 per diluted share, increases of 39% and 40%, respectively, over the second quarter of 2005. These increases were due to incremental profits resulting from higher sales, as well as a $13.7 million after-tax charge, or $0.04 per diluted share, in the second quarter of 2005, for purchased in-process research and development (IPR&D) related to the acquisition of the businesses of Velocimed, LLC (Velocimed) and $27.0 million income tax expense, or $0.07 per diluted share, in the second quarter of 2005, resulting from the repatriation of $500 million under the American Jobs Creation Act of 2004.These increases were offset by after-tax stock-based compensation expense of $12.5 million, or $0.03 per diluted share, in the second quarter of 2006 resulting from the adoption of Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004), Share-Based Payment (SFAS No. 123(R)), on January 1, 2006. Net earnings and diluted net earnings per share for the first six months of 2006 were $278.1 million and $0.73 per diluted share, increases of 26% and 25%, respectively, over the first six months of 2005. After-tax stock-based compensation expense for the first six months of 2006 was $24.7 million or $0.07 per diluted share. IPR&D charges from the acquisitions of Velocimed and Endocardial Solutions, Inc. (ESI) reduced 2005 year-to-date net earnings by an aggregate of $26.1 million and 2005 year-to-date diluted net earnings per share by $0.07. Income tax expense of $27.0 million resulting from the repatriation of $500 million under the American Jobs Creation Act of 2004 reduced 2005 year-to-date diluted net earnings per share by $0.07.

We generated $245.7 million of operating cash flows for the first six months of 2006, which was a slight decrease compared to the first six months of 2005, but primarily resulted from a change in classification of excess tax benefits from the exercise of stock options resulting from our adoption of SFAS 123(R) on January 1, 2006. In the second quarter of 2006, we repurchased $700 million, or approximately 18.6 million shares, of our outstanding common stock, which was primarily financed through the issuance of commercial paper, thus increasing our total debt by $321.4 million from December 31, 2005. We ended the quarter with $315.0 million of cash and cash equivalents and $1,374.3 million of total debt. We have short-term credit ratings of A2 from Standard & Poor’s and P2 from Moody’s.

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NEW ACCOUNTING PRONOUNCEMENT

Information regarding a new accounting pronouncement is included in Note 2 to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

We have adopted various accounting policies in preparing the consolidated financial statements in accordance with accounting principles generally accepted in the United States. Our significant accounting policies are disclosed in Note 1 to the Consolidated Financial Statements included in our 2005 Annual Report on Form 10-K.

Preparation of our consolidated financial statements in conformity 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. On an ongoing basis, we evaluate our estimates and assumptions, including those related to accounts receivable allowance for doubtful accounts; estimated useful lives of diagnostic equipment; valuation of IPR&D, other intangible assets and goodwill; income taxes; and legal reserves and insurance receivables. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, and the results form the basis for making judgments about the reported values of assets, liabilities, revenue and expenses. Actual results may differ from these estimates. Other than the inclusion of stock-based compensation as a significant accounting policy (see Note 3 to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q) and critical accounting estimate effective with our adoption of SFAS No. 123(R) on January 1, 2006, there have been no material changes to our critical accounting policies and estimates from the information provided in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2005 Annual Report on Form 10-K.

Stock-Based Compensation

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

The adoption of SFAS No. 123(R) had a material impact on our consolidated results of operations and operating cash flows. However, we believe that stock-based compensation aligns the interests of managers and non-employee directors with the interests of shareholders. As a result, we do not currently expect to significantly change our various stock-based compensation programs. See Note 3 to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for further information regarding our stock-based compensation programs.

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

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

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

The Black-Scholes model was developed for use in estimating the fair value of market traded options that have no vesting restrictions and are fully transferable, characteristics not present in our option grants and employee stock purchase plan shares. There is a risk that our estimates of the fair values of our stock-based awards on the grant dates as determined using the Black-Scholes model may bear little resemblance to the actual values realized upon the exercise or forfeiture of those stock-based awards in the future. Some employee stock options may expire without value, or only realize minimal intrinsic value, as compared to the fair values originally estimated on the grant date and recognized in our financial statements. Alternatively, some employee stock options may realize significantly more value than the fair values originally estimated on the grant date and recognized in our financial statements.

The guidance in SFAS No. 123(R) is relatively new. The application of these principles may be subject to further interpretation and refinement over time. There are significant differences among valuation models, and there is a possibility that we may adopt a different valuation model in the future. This may result in a lack of consistency in future periods and materially affect the fair value estimate of stock-based awards. It may also result in a lack of comparability with other companies that use different models, methods and assumptions.

ACQUISITIONS & MINORITY INVESTMENT

We made an initial $12.5 million investment in ProRhythm, Inc. (ProRhythm) in January 2005, which approximated a 9% ownership interest. In January 2006, we made a second $12.5 million investment in ProRhythm, increasing our total ownership interest to approximately 18%. ProRhythm is a privately-held company that is focused on the development of a high intensity focused ultrasound catheter-based ablation system for the treatment of atrial fibrillation. In connection with making the initial equity investment, we also entered into a purchase agreement, under which we have the exclusive right, but not the obligation, through the later of three months after the date ProRhythm delivers certain clinical trial data or March 31, 2007, to acquire the remaining capital stock of ProRhythm for $125.0 million in cash, with additional cash consideration payable to the non-St. Jude Medical shareholders after the consummation of the acquisition if ProRhythm achieves certain performance-related milestones. The ProRhythm investment is being accounted for under the cost method of accounting.

SEGMENT PERFORMANCE

Our five operating segments are Cardiac Rhythm Management (CRM), Cardiac Surgery (CS), Neuromodulation (NEURO), Cardiology (CD) and Atrial Fibrillation (AF). We formed our NEURO operating segment in November 2005 in connection with the acquisition of ANS. Each operating segment focuses on developing and manufacturing products for its respective therapy area. The primary products produced by each operating segment are: CRM – ICDs and pacemakers; CS – mechanical and tissue heart valves and valve repair products; NEURO – neurostimulation devices; CD – vascular closure devices, hemostasis introducers, patent foramen ovale closure devices, guidewires, embolic protection devices and other cardiology products; and AF – EP catheters, advanced cardiac mapping systems and ablation systems.

We aggregate our five operating segments into two reportable segments based upon their similar operational and economic characteristics: CRM/CS/NEURO and CD/AF. Net sales of our reportable segments include end-customer revenue from the sale of products they each develop and manufacture or distribute. The costs included in each of the reportable segments’ operating results include the direct costs of the products sold to end-customers and operating expenses managed by each of the reportable segments. Certain operating expenses managed by our selling and corporate functions, including all stock-based compensation expense, are not included in our reportable segments’ operating profit. Because of this, reportable segment operating profit is not representative of the operating profit of the products in these reportable segments.

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

	CRM/CS/NEURO		CD/AF			Other			Total
Three Months ended June 30, 2006:
Net sales	$	638,164	$	194,758		$	—		$	832,922
Operating profit		383,300		79,085			(266,289	)		196,096
Three Months ended June 30, 2005:
Net sales	$	550,752	$	172,903		$	—		$	723,655
Operating profit		338,635		61,656	(a)		(218,747	)		181,544
Six Months ended June 30, 2006:
Net sales	$	1,237,208	$	380,130		$	—		$	1,617,338
Operating profit		744,746		159,463			(521,610	)		382,599
Six Months ended June 30, 2005:
Net sales	$	1,045,948	$	341,616		$	—		$	1,387,564
Operating profit		649,559		124,245	(b)		(424,666	)		349,138

(a) Included in CD/AF operating profit for the three months ended June 30, 2005 is an IPR&D charge of $13.7 million relating to the acquisition of Velocimed.

(b) Included in CD/AF operating profit for the six months ended June 30, 2005 are IPR&D charges of $13.7 million and $12.4 million related to the acquisitions of Velocimed and ESI, respectively.

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

Cardiac Rhythm Management

	Three Months Ended June 30,							Six Months Ended June 30,
(dollars in thousands)	2006		2005		% Change			2006		2005		% Change
ICD systems	$	278,114	$	243,584		14.2	%	$	540,467	$	449,963		20.1	%
Pacemaker systems		241,008		236,949		1.7	%		461,865		454,043		1.7	%
	$	519,122	$	480,533		8.0	%	$	1,002,332	$	904,006		10.9	%

Cardiac Rhythm Management net sales increased 8% in the second quarter of 2006 over the second quarter of 2005 and 11% in the first six months of 2006 over the same period one year ago. CRM net sales for both the second quarter and first six months of 2006 were favorably impacted by growth in unit volume driven by sales of traditional ICD products and the market penetration of products into the cardiac resynchronization therapy segments of the U.S. pacemaker and ICD market. Foreign currency translation had an unfavorable impact on CRM net sales in the second quarter and first six months of 2006 as compared with these same periods in 2005 of approximately $2.2 million and $13.8 million, respectively. Net sales of ICD systems increased 14% in the second quarter of 2006, due to an 18% increase in ICD unit sales that was partially offset by approximately $0.5 million of unfavorable impact from foreign currency translation as well as a slight decline in average selling price. Net sales of ICD systems increased 20% in the first six months of 2006, due to a 26% increase in ICD unit sales that was partially offset by approximately $4.9 million of unfavorable impact from foreign currency translation as well as a slight decline in average selling price. Net sales of pacemaker systems increased 2% during the second quarter of 2006 due to an 8% increase in pacemaker unit sales that was partially offset by approximately $1.7 million of unfavorable impact from foreign currency translation as well as a slight decline in average selling price. Net sales of pacemaker systems increased 2% during the first six months of 2006 due to an 8% increase in pacemaker unit sales that was partially offset by approximately $9.0 million of unfavorable impact from foreign currency translation as well as a slight decline in average selling price.

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Cardiac Surgery

	Three Months Ended June 30,							Six Months Ended June 30,
(dollars in thousands)	2006		2005		% Change			2006		2005		% Change
Heart valves	$	70,818	$	65,283		8.5	%	$	140,250	$	131,970		6.3	%
Other cardiac surgery products		4,720		4,936		-4.4	%		9,167		9,972		-8.1	%
	$	75,538	$	70,219		7.6	%	$	149,417	$	141,942		5.3	%

Cardiac Surgery net sales increased 8% in the second quarter 2006 over the second quarter of 2005 and 5% in the first six months of 2006 over the same period one year ago. CS net sales for both the second quarter and first six months of 2006 were favorably impacted by growth in unit volume driven by increased sales of tissue heart valves. Foreign currency translation had an unfavorable impact on CS net sales in the second quarter and first six months of 2006 as compared with these same periods in 2005 of approximately $1.0 million and $4.1 million, respectively. Heart valve net sales increased 9% during the second quarter of 2006, due primarily to an increase in unit volume of approximately 15% which was partially offset by a decline in average selling price. Foreign currency translation had an unfavorable impact of $0.6 million. For the first six months of 2006, heart valve net sales increased 6%, due primarily to an increase in unit volume of approximately 13%. Foreign currency translation had an unfavorable impact of $3.2 million while average selling price slightly declined. For both the second quarter and first six months of 2006, sales growth in tissue heart valves continues to be partially offset by declines in mechanical heart valves net sales. Net sales of other cardiac surgery products remained relatively flat during the second quarter and first six months of 2006, respectively, when compared to the same periods in 2005.

Neuromodulation

	Three Months Ended June 30,				Six Months Ended June 30,
(dollars in thousands)	2006		2005		2006		2005
Neuromodulation products	$	43,504	$	—	$	85,459	$	—

St. Jude Medical did not have neuromodulation product sales prior to our acquisition of ANS in November 2005. Second quarter 2006 net sales of $43.5 million represent a 12% increase over ANS’s second quarter 2005 sales of $38.7 million as a stand-alone company. Net sales of $85.5 million for the first six months of 2006 represent a 20% increase over ANS’s net sales of $71.0 million as a stand-alone company for the first six months of 2005.

Cardiology

	Three Months Ended June 30,							Six Months Ended June 30,
(dollars in thousands)	2006		2005		% Change			2006		2005		% Change
Vascular closure devices	$	86,939	$	84,781		2.5	%	$	170,969	$	167,541		2.0	%
Other cardiology products		27,734		27,709		0.1	%		55,324		55,121		0.4	%
	$	114,673	$	112,490		1.9	%	$	226,293	$	222,662		1.6	%

Cardiology net sales increased 2% during both the second quarter and first six months of 2006 as compared with these same periods in 2005. CD net sales for both the second quarter and first six months of 2006 were favorably impacted by growth in unit volume driven by increased sales of vascular closure devices. Foreign currency translation had an unfavorable impact on CD net sales in the second quarter and first six months of 2006 as compared with these same periods in 2005 of approximately $1.7 million and $6.1 million, respectively. Net sales of vascular closure devices increased 3% during the second quarter of 2006 due to a 5% increase in unit sales which was partially offset by a slight decline in average selling price. Foreign currency translation had an unfavorable impact of $0.6 million. For the first six months of 2006, net sales of vascular closure devices increased 2%, due primarily to an increase in unit volume of approximately 5%. Foreign currency translation had an unfavorable impact of $2.9 million while average selling price slightly declined. Net sales of other cardiology products were flat during the second quarter and first six months of 2006, respectively, when compared to the same periods in 2005.

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Atrial Fibrillation

	Three Months Ended June 30,							Six Months Ended June 30,
(dollars in thousands)	2006		2005		% Change			2006		2005		% Change
Atrial fibrillation products	$	80,085	$	60,413		32.6	%	$	153,837	$	118,954		29.3	%

Atrial Fibrillation net sales increased 33% and 29% during the second quarter and first six months of 2006, respectively, when compared to the same periods one year ago. The increases in AF net sales are due to sales of products related to recent acquisitions and an increase in unit volume of existing products. Foreign currency translation had an unfavorable impact of $0.9 million during the second quarter of 2006 and $3.6 million during the first six months of 2006.

RESULTS OF OPERATIONS

Net Sales

	Three Months Ended June 30,							Six Months Ended June 30,
(dollars in thousands)	2006		2005		% Change			2006		2005		% Change
Net sales	$	832,922	$	723,655		15.1	%	$	1,617,338	$	1,387,564		16.6	%

Overall, net sales increased 15% in the second quarter of 2006 over the second quarter of 2005. For the first six months of 2006, net sales increased 17% over the same period one year ago. Incremental revenue resulting from the acquisition of ANS benefited net sales for the second quarter and first six months of 2006 by approximately $43.5 million and $85.5 million, respectively. Sales growth was partially offset by foreign currency translation which had a $5.7 million unfavorable impact on second quarter 2006 net sales and a $27.7 million unfavorable impact on net sales for the first six months of 2006. The unfavorable impact for both the second quarter and first six months of 2006 were due primarily to the strengthening of the U.S. Dollar against the Euro and the Yen. This amount is not indicative of the net earnings impact of foreign currency translation for respective periods of 2006 due to partially offsetting favorable foreign currency translation impacts on cost of sales and operating expenses.

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

	Three Months Ended June 30,				Six Months Ended June 30,
Net Sales (a)	2006		2005		2006		2005
United States	$	483,995	$	417,248	$	948,151	$	790,644
International
Europe		205,666		174,610		394,798		344,356
Japan		71,778		71,746		139,765		139,766
Other (b)		71,483		60,051		134,624		112,798
		348,927		306,407		669,187		596,920
	$	832,922	$	723,655	$	1,617,338	$	1,387,564

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

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

Gross Profit

	Three Months Ended June 30,						Six Months Ended June 30,
(dollars in thousands)	2006			2005			2006			2005
Gross profit	$	605,958		$	522,637		$	1,181,927		$	998,663
Percentage of net sales		72.8	%		72.2	%		73.1	%		72.0	%

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Gross profit for the second quarter of 2006 totaled $606.0 million, or 72.8% of net sales, compared to $522.6 million, or 72.2% of net sales, for the second quarter of 2005. Gross profit for the first six months of 2006 totaled $1,181.9 million, or 73.1% of net sales, compared to $998.7 million, or 72.0% of net sales, for the first six months of 2005. The increase in our gross profit percentage for both the second quarter and first six months of 2006 reflects increased manufacturing efficiencies partially offset by unfavorable changes in product mix for our higher margin products and a slight decrease in the average selling price for these products. Stock-based compensation expense resulted in an unfavorable 0.2 percentage point impact on our gross profit percentage for the second quarter and first six months of 2006.

Selling, General and Administrative (SG&A) Expense

	Three Months Ended June 30,						Six Months Ended June 30,
(dollars in thousands)	2006			2005			2006			2005
Selling, general and administrative	$	301,022		$	237,586		$	585,230		$	456,633
Percentage of net sales		36.1	%		32.8	%		36.2	%		32.9	%

SG&A expense for the second quarter of 2006 totaled $301.0 million, or 36.1% of net sales, compared to $237.6 million, or 32.8% of net sales, for the second quarter of 2005. Approximately 1.4 percentage points of the second quarter 2006 SG&A expense as a percent of net sales relates to $12.0 million of stock-based compensation expense. The remaining 1.9 percentage point increase in SG&A expense as a percent of net sales relates to higher amortization expense resulting from intangible assets acquired as part of fiscal year 2005 acquisitions and higher costs related to the continued expansion of our selling organization infrastructure. SG&A expense for the first six months of 2006 totaled $585.2 million, or 36.2% of net sales, compared to $456.6 million, or 32.9% of net sales, for the first six months of 2005. Approximately 1.5 percentage points of the SG&A expense for the first six months of 2006 as a percent of net sales relates to $24.0 million of stock-based compensation expense. The remaining 1.8 percentage point increase in SG&A expense as a percent of net sales relates to higher amortization expense resulting from intangible assets acquired as part of fiscal year 2005 acquisitions and higher costs related to the continued expansion of our selling organization infrastructure.

Research and Development (R&D) Expense

	Three Months Ended June 30,						Six Months Ended June 30,
(dollars in thousands)	2006			2005			2006			2005
Research and development	$	108,840		$	89,807		$	214,098		$	166,792
Percentage of net sales		13.1	%		12.4	%		13.2	%		12.0	%

R&D expense in the second quarter of 2006 totaled $108.8 million, or 13.1% of net sales, compared to $89.8 million, or 12.4% of net sales, for the second quarter of 2005. Stock-based compensation expense for the second quarter of 2006 of $4.4 million resulted in an unfavorable 0.5 percentage point impact on R&D expense as percent of net sales. R&D expense in the first six months of 2006 totaled $214.1 million, or 13.2% of net sales, compared to $166.8 million, or 12.0% of net sales, for the first six months of 2005. Approximately 0.5 percentage points of R&D expense for the first six months of 2006 as a percent of net sales relates to $8.8 million of stock-based compensation expense. The remaining 0.7 percentage point increase in R&D expense for the first six months of 2006 as a percent of net sales was due primarily to our increased spending on the development of new products and related clinical trials, including products to treat emerging indications including atrial fibrillation.

Purchased In-Process Research and Development Charges

	Three Months Ended June 30,				Six Months Ended June 30,
(dollars in thousands)	2006		2005		2006		2005
Purchased in-process research
and development	$	—	$	13,700	$	—	$	26,100

Velocimed, LLC (Velocimed): In April 2005,we acquired Velocimed to further enhance our portfolio of products in the interventional cardiology market. At the date of acquisition, $13.7 million of the purchase price was expensed as IPR&D related to projects for the Proxis™ embolic protection device (Proxis™) that had not yet reached technological feasibility in the United States and other geographies and had no future alternative use. The device is used to help minimize the risk of heart attack or stroke if plaque or other debris is dislodged into the blood stream during interventional cardiology procedures. In 2005 we incurred $3.4 million in costs related to these projects. We have incurred $1.9 million in the first six months of 2006 and expect to incur an additional $1.3 million through 2007 to bring this acquired technology to commercial viability.

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

Other (Expense) Income

	Three Months Ended June 30,						Six Months Ended June 30,
(dollars in thousands)	2006			2005			2006			2005
Interest income	$	3,589		$	4,218		$	7,706		$	8,276
Interest expense		(9,383	)		(2,406	)		(15,854	)		(4,712	)
Other		575			(423	)		2,225			(443	)
Total other (expense) income	$	(5,219	)	$	1,389		$	(5,923	)	$	3,121

The unfavorable changes in other (expense) income during the second quarter of 2006 and the first six months of 2006 as compared to the same periods in the prior year were due primarily to higher interest expense resulting from the issuance of our convertible subordinated debentures in the fourth quarter of 2005 to fund a portion of the acquisition of ANS as well as higher commercial paper borrowings to finance the majority of the repurchase of $700 million of our common stock in the second quarter of 2006.

Income Taxes

	Three Months Ended June 30,						Six Months Ended June 30,
(as a percent of pre-tax income)	2006			2005			2006			2005
Effective tax rate		26.1	%		44.5	%		26.2	%		37.3	%

Our effective income tax rate was 26.1% and 44.5% for the second quarter of 2006 and 2005, respectively. In the second quarter of 2005, we repatriated $500 million under the American Jobs Creation Act of 2004 and recorded income tax expense of $27.0 million, negatively impacting the effective tax rate for the second quarter of 2005 by 14.8 percentage points. The effective tax rate for the second quarter of 2005 was also negatively impacted by 3.1 percentage points from a $13.7 million IPR&D charge in connection with the acquisition of Velocimed. This IPR&D charge had no related tax benefits because it was non-deductible for income tax purposes.

Our effective income tax rate was 26.2% and 37.3% for the first six months of 2006 and 2005, respectively. The $27.0 million income tax expense recorded as a result of the repatriation of $500 million under the American Jobs Creation Act of 2004 negatively impacted the effective tax rate for the first six months of 2005 by 7.7 percentage points. Non-deductible aggregate IPR&D charges of $26.1 million from the acquisitions of ESI and Velocimed also negatively impacted the effective tax rate for the first six months of 2005 by 2.3 percentage points.

The Federal Research and Development tax credit (R&D tax credit), which provides a tax benefit on certain incremental R&D expenditures, expired on December 31, 2005. Legislation to retroactively reinstate the R&D tax credit is pending in the U.S. Congress, however, it was not enacted and signed into law as of June 30, 2006. Accordingly, no benefit from the R&D tax credit was included in our 2006 effective tax rate. The benefit of the R&D tax credit will be recorded in the period the legislation is enacted and signed into law.

LIQUIDITY

We believe that our existing cash balances, available 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. We have short-term credit ratings of A2 from Standard & Poor’s and P2 from Moody’s.

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In December 2005, we issued $660.0 million aggregate principal amount of 2.80% Convertible Senior Debentures (Convertible Debentures) which permit the holders of the Convertible Debentures to require us to repurchase some or all of the Convertible Debentures for cash on December 15, 2006. If we are required to repurchase some or all of the Convertible Debentures for cash on that date, we believe that we will be able to finance such repurchase through cash from operations, proceeds from the issuance of commercial paper or additional debt financing. Refer to the Debt and Credit Facilities section below for future details on the Convertible Debentures.

At June 30, 2006, a large portion of our cash and cash equivalents were held by our non-U.S. subsidiaries. These funds are only available for use by our U.S. operations if they are repatriated into the United States; however, we are not dependent on the repatriation of these funds to meet our future cash flow needs. In the second quarter of 2005, we repatriated $500 million under the American Jobs Creation Act of 2004.

Cash Flows from Operating Activities

Cash provided by operating activities was $245.7 million for the first six months of 2006, an $18.8 million decrease from the same period one year ago. The decrease in operating cash flow during the first six months of 2006 when compared to the first six months of 2005 results from changes in operating assets and liabilities as well as a required change in classification of excess tax benefits from the exercise of stock options.

Operating cash flows decreased approximately $141.4 million due to changes in operating assets and liabilities, principally accounts receivable and inventory, which increased $24.7 million and $45.3 million, respectively. We use two primary measures that focus on accounts receivable and inventory – days sales outstanding (DSO) and days inventory on hand (DIOH). These measures are not defined under U.S. generally accepted accounting principles and may not be computed the same as similarly titled measures used by other companies. Accounts receivable increased in the first six months of 2006, but our DSO (calculated as average quarterly daily sales divided by ending net accounts receivable) remained unchanged at 91 days at June 30, 2006 and December 31, 2005. We use DSO as a measure that places emphasis on how quickly we collect our accounts receivable balances from customers. Inventory increased to support new CRM and CD product introductions as well as to support our increased sales volumes. As a result, DIOH (calculated as average year-to-date daily cost of sales divided by ending net inventory) increased to 180 days at June 30, 2006 from 159 days at December 31, 2005. We use DIOH, which can also be expressed as a measure of the estimated number of days of cost of sales on hand, as a measure that places emphasis on how efficiently we are managing our inventory levels.

The required change in classification of excess tax benefits from the exercise of stock options resulted from our adoption of SFAS No. 123(R) on January 1, 2006. For the first six months of 2005, these excess tax benefits were classified as operating cash flows as part of the change in income taxes payable, however, for the first six months of 2006, such benefits are now classified as financing cash flows. These excess tax benefits had positively impacted our operating cash flows for the first six months of 2005 by $45.5 million. See Note 3 to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for additional discussion of how adopting SFAS No. 123(R) affected our consolidated results of operations and statement of cash flows.

Cash Flows from Investing Activities

Cash used in investing activities was $159.7 million in the first six months of 2006 compared to $441.6 million in the same period last year. Because we did not make any significant acquisitions in the first six months of 2006, cash used in investing activities decreased when compared to the first six months of 2005, when we acquired ESI for $279.4 million and Velocimed for $70.9 million, less cash acquired. However, we did increase our investments in property, plant and equipment, including next-generation diagnostic equipment such as our Merlin™ Patient Care System. We expect fiscal year 2006 capital expenditures to total approximately $225 million to $250 million, compared to $159 million in fiscal year 2005. If strategic opportunities arise, we have sufficient short-term liquidity sources to fund internal development opportunities and invest in acquisitions and minority investments. In January 2006, we made an additional $12.5 million investment in ProRhythm. Refer to the Acquisitions and Minority Investment section above for more detail on our investment in ProRhythm.

Cash Flows from Financing Activities

Cash used in financing activities was $310.8 million in the first six months of 2006 compared to cash provided by financing activities of $27.1 million in the same period last year. We repurchased $700 million of our common stock in the second quarter of 2006, which was primarily financed through proceeds from the issuance of commercial paper. As discussed previously, excess tax benefits from the exercise of stock options are now classified as financing cash flows, and this amount can fluctuate significantly in future periods as it is dependent upon, among other things, the level of stock option exercises by our employees as well as the fair market value of our common stock on the exercise dates.

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SHARE REPURCHASE PROGRAM

On April 18, 2006, our Board of Directors authorized a new share repurchase program of up to $700 million of our outstanding common stock. The $700 million share repurchase program replaced our earlier share repurchase program, under which we were authorized to repurchase up to $300 million of our outstanding common stock. No stock had been repurchased under this earlier program. On April 21, 2006, we began making share repurchases through transactions in the open market in accordance with applicable securities laws. On May 26, 2006, we had repurchased the maximum amount authorized by the Board of Directors under the repurchase program. Approximately 18.6 million shares were repurchased for a total of $700 million, which was financed through cash from operations and proceeds from the issuance of commercial paper.

DEBT AND CREDIT FACILITIES

Total debt increased to $1.4 billion at June 30, 2006 from $1.1 billion at December 31, 2005 as a result of the issuance of commercial paper to fund the repurchase of $700 million of our common stock. Our commercial paper program provides for the issuance of short-term, unsecured commercial paper with maturities up to 270 days. At June 30, 2006 we had $535.2 million of commercial paper outstanding which bears interest at a weighted average effective interest rate of 5.3% and has a weighted average original maturity of 28 days.

In December 2005, we issued $660.0 million aggregate principal amount of 2.80% Convertible Debentures that mature on December 15, 2035. Interest payments are required on a semi-annual basis. Contingent interest is payable in certain circumstances after December 15, 2006. We have the right to redeem some or all of the Convertible Debentures for cash at any time on or after December 15, 2006. We also may be required to repurchase some or all of the Convertible Debentures for cash upon the occurrence of certain events and on December 15 in the years 2006, 2008, 2010, 2015, 2020, 2025 and 2030. The Convertible Debentures are convertible under certain circumstances for cash and shares of our common stock, if any, at a conversion rate of 15.5009 shares (or an initial conversion price of approximately $64.51 per share of common stock). Upon conversion, we would be required to satisfy up to 100% of the principal amount of the Convertible Debentures solely in cash, with any amounts above the principal amount to be satisfied in shares of our common stock.

In May 2003, we issued 7-year, 1.02% unsecured notes totaling 20.9 billion Yen, or $179.1 million and $176.9 million at June 30, 2006 and December 31, 2005, respectively. Interest payments are required on a semi-annual basis and the entire principal balance is due in May 2010.

On June 30, 2006, we had up to $750.0 million of available borrowings under our committed credit facilities in the United States, consisting of a $350 million revolving credit agreement that expires in September 2008 and a $400 million revolving credit agreement that expires in September 2009. Borrowings under these credit facilities bear interest at variable rates tied to the London InterBank Offered Rate and can be used for general corporate purposes or to support our commercial paper program. In June 2006, we obtained a 1.0 billion Yen (equivalent to approximately $8.6 million at June 30, 2006) credit facility that expires in June 2007. Borrowings under the credit facility bear interest at the floating Tokyo InterBank Offered Rate plus 0.50% per annum. This credit facility replaced a 1.0 billion Yen credit facility that expired in June 2006. There were no outstanding borrowings under our credit facilities at June 30, 2006 or December 31, 2005.

Our 1.02% unsecured notes and revolving credit facilities contain various operating and financial covenants. Specifically, we 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 EBIT (net earnings before interest and income taxes) or total debt to EBITDA (net earnings before interest, income taxes, depreciation and amortization)) not exceeding 3.0 to 1.0, and an interest coverage ratio (defined as the ratio of EBIT to interest expense or the ratio of EBITDA to interest expense) not less than 3.0 to 1.0 or 3.5 to 1.0, as applicable. We also have 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 our debt ratings. We were in compliance with all of our debt covenants at June 30, 2006.

COMMITMENTS AND CONTINGENCIES

A description of our contractual obligations and other commitments is contained in Part II, Item 7A, Management’s Discussion and Analysis of Financial Condition and Results of Operations – Off-Balance Sheet Arrangements and Contractual Obligations, included in our 2005 Annual Report on Form 10-K. As discussed above in Debt and Credit Facilities, our total debt has increased to $1.4 billion at June 30, 2006 from $1.1 billion at December 31, 2005. There have been no other significant changes in our contractual obligations and other commitments as previously disclosed in our 2005 Annual Report on Form 10-K. We have no off-balance sheet financing arrangements other than that previously disclosed in our 2005 Annual Report on Form 10-K. Our significant legal proceedings are discussed in Note 7 to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

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CAUTIONARY STATEMENTS

In this Quarterly Report on Form 10-Q 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” with respect to the financial condition, results of operations, plans, objectives, future performance and business of St. Jude Medical, Inc. and its subsidiaries. Statements preceded by, followed by or that include words such as “may,” “will,” “expect,” “anticipate,” “continue,” “estimate,” “project,” “believes” or similar expressions are intended to identify some of the forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are included, along with this statement, for purposes of complying with the safe harbor provisions of that Act. These forward-looking statements involve risks and uncertainties. By identifying these statements for you in this manner, we are alerting you to the possibility that actual results may differ, possibly materially, from the results indicated by these forward-looking statements. We undertake no obligation to update any forward-looking statements. Actual results may differ materially from those contemplated by the forward-looking statements due to, among others, the risks and uncertainties discussed in Part I, Item 1A, Risk Factors of our 2005 Annual Report on Form 10-K, as well as the various factors described below. Since it is not possible to foresee all such factors, you should not consider these factors to be a complete list of all risks or uncertainties. We believe the most significant factors that could affect our future operations and results are set forth in the list below.

1. Legislative or administrative reforms to the U.S. Medicare or 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, as well as 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, 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-Seal™, 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® product liability insurers 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 the investigation of business practices in the cardiac rhythm management industry by the U.S. Attorney’s Office in Boston.

15. Adverse developments in litigation, including product liability litigation, patent or other intellectual property litigation or shareholder litigation.

16. Inability to successfully integrate the businesses that we have acquired in recent years, including ANS, and that we plan to acquire.

17. Adverse developments arising out of the investigation by the Office of the Inspector General, Department of Health and Human Services into certain business practices of ANS.

18. Failure to successfully complete clinical trials for new indications for our products and failure to successfully develop markets for such new indications.

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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes since December 31, 2005 in our market risk. For further information on market risk, refer to Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk in our 2005 Annual Report on Form 10-K.

Item 4. CONTROLS AND PROCEDURES

As of June 30, 2006, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, 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 Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2006.

During the fiscal quarter ended June 30, 2006, there were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

We are the subject of various pending or threatened legal actions and proceedings, including those that arise in the ordinary course of our business. Such matters are subject to many uncertainties and to outcomes that are not predictable with assurance and that may not be known for extended periods of time. We record a liability in our consolidated financial statements for costs related to claims, including future legal costs, settlements and judgments, where we have assessed that a loss is probable and an amount can be reasonably estimated. Our significant legal proceedings are discussed in Note 7 to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q and are incorporated herein by reference. While it is not possible to predict the outcome for most of the legal proceedings discussed in Note 7, the costs associated with such proceedings could have a material adverse effect on our consolidated earnings, financial position or cash flows of a future period.

Item 1A. RISK FACTORS

The discussion of our business and operations should be read together with the risk factors contained in Part I, Item 1A, Risk Factors in our 2005 Annual Report on Form 10-K, which describe various risks and uncertainties to which we are or may become subject. These risks and uncertainties have the potential to materially impact our business, financial condition or results of operations. We are updating the risk factors set forth in our 2005 Annual Report on Form 10-K by adding the following risk factor:

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

We are planning to convert to a new ERP system. Implementation of the new ERP system is scheduled to occur in phases through 2009. Failure to smoothly execute the implementation of the ERP system could adversely affect the Company’s business, financial condition and results of operations.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

On April 18, 2006, the Company’s Board of Directors authorized a new share repurchase program of up to $700 million of the Company’s outstanding common stock. On May 26, 2006, the Company had repurchased the maximum amount authorized by the Board of Directors under the repurchase program.

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The following table provides information about the shares repurchased by the Company during the second quarter of 2006:

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
04/02/06 – 04/29/06		4,847,000	$	39.52		4,847,000	$	508,455,000
04/30/06 – 06/03/06		13,732,390		37.03		13,732,390		—
06/04/06 – 07/01/06		—		—		—		—
Total		18,579,390	$	37.68		18,579,390	$	—

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

At the Company’s 2006 Annual Meeting of Shareholders held on May 10, 2006, the shareholders voted on and approved the proposals listed below and the results are as follows:

a) A proposal to elect two directors to the Company’s Board of Directors to serve three-year terms ending at the Company’s annual meeting in 2009, as follows:

Director	Votes For	Votes Withheld
John W. Brown	327,888,654	3,467,379
Daniel J. Starks	321,686,490	9,469,543

In addition, the terms of the following directors continued after the meeting: directors with a term ending in 2007 – Michael A. Rocca, David A. Thompson and Stephan K. Widensohler; and directors with a term ending in 2008 – Richard R. Devenuti, Stuart M. Essig, Thomas H. Garrett III and Wendy L. Yarno.

b) A proposal to approve the St. Jude Medical 2006 Stock Plan. The proposal received 247,678,450 votes for and 32,837,365 votes against, with the holders of 2,256,315 shares abstaining; and 48,383,903 were broker non-votes.

c) A proposal to ratify the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for 2006. The proposal received 321,979,276 votes for and 6,964,350 votes against, with the holders of 2,212,407 shares abstaining.

Item 6. EXHIBITS

10.1	Stock Purchase Plan Engagement Agreement between St. Jude Medical, Inc. and Banc of America Securities LLC dated as of April 21, 2006 is incorporated by reference to Exhibit 10.1 to St. Jude Medical’s Current Report on Form 8-K filed on April 21, 2006.
10.2	St. Jude Medical, Inc. 2006 Stock Plan is incorporated by reference to Exhibit 10.1 to St. Jude Medical’s Current Report on Form 8-K filed on May 16, 2006.
10.3	Form of Non-Qualified Stock Option Agreement for Non-Employee Directors under the St. Jude Medical, Inc. 2006 Stock Plan is incorporated by reference to Exhibit 10.2 to St. Jude Medical’s Current Report on Form 8-K filed on May 16, 2006.
10.4	St. Jude Medical, Inc. 2000 Stock Plan, as Amended.

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10.5	St. Jude Medical, Inc. 2002 Stock Plan, as Amended.
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.

SIGNATURE

Pursuant to the requirements 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.
August 7, 2006	/s/   JOHN C. HEINMILLER
DATE	JOHN C. HEINMILLER Executive Vice President and Chief Financial Officer (Duly Authorized Officer and Principal Financial and Accounting Officer)

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INDEX TO EXHIBITS

Exhibit No.	Description
10.1	Stock Purchase Plan Engagement Agreement between St. Jude Medical, Inc. and Banc of America Securities LLC dated as of April 21, 2006 is incorporated by reference to Exhibit 10.1 to St. Jude Medical’s Current Report on Form 8-K filed on April 21, 2006.
10.2	St. Jude Medical, Inc. 2006 Stock Plan is incorporated by reference to Exhibit 10.1 to St. Jude Medical’s Current Report on Form 8-K filed on May 16, 2006.
10.3	Form of Non-Qualified Stock Option Agreement for Non-Employee Directors under the St. Jude Medical, Inc. 2006 Stock Plan is incorporated by reference to Exhibit 10.2 to St. Jude Medical’s Current Report on Form 8-K filed on May 16, 2006.
10.4	St. Jude Medical, Inc. 2000 Stock Plan, as Amended. #
10.5	St. Jude Medical, Inc. 2002 Stock Plan, as Amended. #
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. #

_________________

#  Filed as an exhibit to this Quarterly Report on Form 10-Q.

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EX-10.4

Exhibit 10.4

ST. JUDE MEDICAL, INC.

2000 STOCK PLAN

SECTION 1. General Purpose of Plan; Definitions.

The name of this plan is the St. Jude Medical, Inc. 2000 Stock Plan (the “Plan”). The purpose of the Plan is to enable St. Jude Medical, Inc. and its Subsidiaries (hereinafter, the “Company”) to retain and attract executives and other key employees, non-employee directors and consultants who contribute to the Company’s success by their ability, ingenuity and industry, and to enable such individuals to participate in the long-term success and growth of the Company by giving them a proprietary interest in the Company.

For purposes of the Plan, the following terms shall be defined as set forth below:

a.           “Board” means the Board of Directors of the Company as it may be comprised from time to time.

b.           “Cause” means a felony conviction of a participant or the failure of a participant to contest prosecution for a felony, willful misconduct, dishonesty or intentional violation of a statute, rule or regulation, any of which, in the judgment of the Company, is harmful to the business or reputation of the Company.

c.           “Code” means the Internal Revenue Code of 1986, as amended from time to time, or any successor statute.

d.            “Committee” means the Committee referred to in Section 2 of the Plan. If at any time no Committee shall be in office, then the functions of the Committee specified in the Plan shall be exercised by the Board, unless the Plan specifically states otherwise.

e.            “Consultant” means any person, including an advisor, engaged by the Company, the Parent Corporation or a Subsidiary of the Company to render services and who is compensated for such services and who is not an employee of the Company, the Parent Corporation or any Subsidiary of the Company. A Non-Employee Director may serve as a Consultant.

f.            “Continuous Status as an Employee or Consultant” shall mean the absence of any interruption or termination of service as an Employee or Consultant. Continuous Status as an Employee or Consultant shall not be considered interrupted in the case of sick leave, military leave, or any other leave of absence approved by the Administrator, provided that such leave of absence is for a period of 90 days or less, unless reemployment after such leave of absence is guaranteed by contract or statute.

g.           “Company” means St. Jude Medical, Inc., a corporation organized under the laws of the State of Minnesota (or any successor corporation).

h.           “Disability” means permanent and total disability as determined by the Committee.

i.            “Early Retirement” means retirement, with consent of the Committee at the time of retirement, from active employment with the Company and any Subsidiary or Parent Corporation of the Company.

j.            “Fair Market Value” of Stock on any given date shall be determined by the Committee as follows: (a) if the Stock is listed for trading, on the New York Stock Exchange or one of more national securities exchanges, the last reported sales price on the New York Stock Exchange or such principal exchange on the date in question, or if such Stock shall not have been traded on such principal exchange on such date, the last reported sales price on the New York Stock Exchange or such principal exchange on the first day prior thereto on which such Stock was so traded; or (b) if (a) is not applicable, by any means fair and reasonable by the Committee, which determination shall be final and binding on all parties.

k.           “Incentive Stock Option” means any Stock Option intended to be and designated as an “Incentive Stock Option” within the meaning of Section 422 of the Code.

l.            “Non-Employee Director” means a “Non-Employee Director” within the meaning of Rule 16b-3(b)(3) under the Securities Exchange Act of 1934.

m.          “Non-Qualified Stock Option” means any Stock Option that is not an Incentive Stock Option, and is intended to be and is designated as a “Non-Qualified Stock Option” or an Incentive Stock Option that ceases to so quality due to an amendment to such Stock Option.

n.           “Normal Retirement” means retirement from active employment with the Company and any Subsidiary or Parent Corporation of the Company on or after age 65.

o.           “Outside Director” means a Director who: (a) is not a current employee of the Company or any member of an affiliated group which includes the Company; (b) is not a former employee of the Company who receives compensation for prior services (other than benefits under a tax-qualified retirement plan) during the taxable year; (c) has not been an officer of the Company; (d) does not receive remuneration from the Company, either directly or indirectly, in any capacity other than as a director, except as otherwise permitted under Code Section 162(m) and regulations thereunder. For this purpose, remuneration includes any payment in exchange for good or services. This definition shall be further governed by the provisions of Code Section 162(m) and regulations promulgated thereunder.

p.           “Parent Corporation” means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company if each of the corporations (other than the Company) owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in the chain.

q.           “Restricted Stock” means an award of shares of Stock that are subject to restrictions under Section 7 below.

r.           “Retirement” means Normal Retirement or Early Retirement.

s.           “Stock” means the Common Stock of the Company.

t.            “Stock Option” means any option to purchase shares of Stock granted pursuant to Section 5 below.

u.           “Subsidiary” means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if each of the corporations (other than the last corporation in the unbroken chain) owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in the chain.

SECTION 2. Administration.

The Plan shall be administered by the Board of Directors or by a Committee appointed by the Board of Directors of the Company consisting of at least two Directors, all of whom shall be Outside Directors and Non-Employee Directors, who shall serve at the pleasure of the Board.

The Committee shall have the power and authority to grant to eligible employees or Consultants, pursuant to the terms of the Plan: (i) Incentive Stock Options, (ii) Non-Qualified Stock Options, and (iii) Restricted Stock.

In particular, the Committee shall have the authority:

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(i)         to select the officers and other key employees of the Company and its Subsidiaries and other eligible persons to whom Stock Options or Restricted Stock may from time to time be granted hereunder;

(ii)        to determine whether and to what extent Incentive Stock Options, Non-Qualified Stock Options or Restricted Stock or a combination of each, are to be granted hereunder;

(iii)       to determine the number of shares to be covered by each such award granted hereunder;

(iv)      to determine the terms and conditions, not inconsistent with the terms of the Plan, of any award granted hereunder (including, but not limited to, any restriction on any Stock Option or other award and/or the shares of Stock relating thereto), which authority shall be exclusively vested in the Committee (and not the Board); provided, however, that in the event of a merger or asset sale, the applicable provisions of Sections 5(c) of the Plan shall govern the acceleration of the vesting of any Stock Option;

(v)       to determine whether, to what extent and under what circumstances Stock and other amounts payable with respect to an award under this Plan shall be deferred either automatically or at the election of the participant.

The Committee shall have the authority to adopt, alter and repeal such administrative rules, guidelines and practices governing the Plan as it shall, from time to time, deem advisable; to interpret the terms and provisions of the Plan and any award issued under the Plan (and any agreements relating thereto); and to otherwise supervise the administration of the Plan. The Committee may delegate to the President and/or Chief Executive Officer of the Company the authority to exercise the powers specified in (i), (ii), (iii), (iv) and (v) above with respect to persons who are not either the chief executive officer of the Company or the four highest paid officers of the Company other than the chief executive officer.

All decisions made by the Committee pursuant to the provisions of the Plan shall be final and binding on all persons, including the Company and Plan participants.

SECTION 3. Stock Subject to Plan.

The total number of shares of Stock reserved and available for distribution under the Plan shall be 5,000,000. Such shares may consist, in whole or in part, of authorized and unissued shares. If any shares that have been optioned cease to be subject to Stock Options, or if any shares that have been optioned are forfeited, such shares shall again be available for distribution in connection with future awards under the Plan.

In the event of any merger, reorganization, consolidation, recapitalization, stock dividend, other change in corporate structure affecting the Stock, or spin-off or other distribution of assets to shareholders, such substitution or adjustment shall be made in the aggregate number of shares reserved for issuance under the Plan, and in the number and option price of shares subject to outstanding options granted under the Plan as may be determined to be appropriate by the Committee, in its sole discretion, provided that the number of shares subject to any award shall always be a whole number.

SECTION 4. Eligibility.

Officers, other key employees of the Company or any Parent Corporation or Subsidiary, members of the Board of Directors, and Consultants who are responsible for or contribute to the management, growth and profitability of the business of the Company and its Subsidiaries are eligible to be granted Stock Options under the Plan. The optionees and participants under the Plan shall be selected from time to time by the Committee, in its sole discretion, from among those eligible, and the Committee shall determine, in its sole discretion, the number of shares covered by each award.

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Notwithstanding the foregoing, no person shall receive grants of Stock Options under this Plan which exceed 500,000 shares during any fiscal year of the Company.

SECTION 5. Stock Options.

Any Stock Option granted under the Plan shall be in such form as the Committee may from time to time approve.

The Stock Options granted under the Plan may be of two types: (i) Incentive Stock Options and (ii) Non-Qualified Stock Options. No Incentive Stock Options shall be granted under the Plan after March 7, 2010.

The Committee shall have the authority to grant any optionee Incentive Stock Options, Non-Qualified Stock Options, or both types of options. To the extent that any option does not qualify as an Incentive Stock Option, it shall constitute a separate Non-Qualified Stock Option.

Anything in the Plan to the contrary notwithstanding, no term of this Plan relating to Incentive Stock Options shall be interpreted, amended or altered, nor shall any discretion or authority granted under the Plan be so exercised, so as to disqualify either the Plan or any Incentive Stock Option under Section 422 of the Code. The preceding sentence shall not preclude any modification or amendment to an outstanding Incentive Stock Option, whether or not such modification or amendment results in disqualification of such Stock Option as an Incentive Stock Option, provided the optionee consents in writing to the modification or amendment.

Options granted under the Plan shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Committee shall deem desirable.

(a)              Option Price. The option price per share of Stock purchasable under a Stock Option shall be no less than 100% of Fair Market Value on the date the option is granted. If an employee owns or is deemed to own (by reason of the attribution rules applicable under Section 424(d) of the Code) more than 10% of the combined voting power of all classes of stock of the Company or any Parent Corporation or Subsidiary and an Incentive Stock Option is granted to such employee, the option price shall be no less than 110% of Fair Market Value of the Stock on the date the option is granted. The Committee may not reprice options without shareholder approval.

(b)              Option Term. The term of each Stock Option shall be fixed by the Committee, but no Stock Option shall be exercisable more than eight years after the date the option is granted. If an employee owns or is deemed to own (by reason of the attribution rules of Section 424(d) of the Code) more than 10% of the combined voting power of all classes of stock of the Company or any Parent Corporation or Subsidiary and an Incentive Stock Option is granted to such employee, the term of such option shall be no more than five years from the date of grant.

(c)              Exercisability. Stock Options shall be exercisable at such time or times as determined by the Committee at or after grant, subject to the restrictions stated in Section 5(b) above. If the Committee provides, in its discretion, that any option is exercisable only in installments, the Committee may waive such installment exercise provisions at any time. Notwithstanding anything contained in the Plan to the contrary, the Committee may, in its discretion, extend or vary the term of any Stock Option or any installment thereof, whether or not the optionee is then employed by the Company, if such action is deemed to be in the best interests of the Company; provided, however, that in the event of a merger or sale of assets, the provisions of this Section 5(c) shall govern vesting acceleration. Notwithstanding the foregoing, unless the Stock Option provides otherwise, any Stock Option granted under this Plan shall be exercisable in full, without regard to any installment exercise provisions, for a period specified by the Committee, but not to exceed sixty (60) days, prior to the occurrence of any of the following events: (i) dissolution or liquidation of the Company other than in conjunction with a bankruptcy of the Company or any similar occurrence, (ii) any merger, consolidation, acquisition, separation, reorganization, or similar occurrence, where the Company will not be the surviving entity or (iii) the transfer of substantially all of the assets of the Company or 50% or more of the outstanding Stock of the Company.

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The grant of an option pursuant to the Plan shall not limit in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure or to merge, exchange or consolidate or to dissolve, liquidate, sell or transfer all or any part of its business or assets.

(d)              Method of Exercise. Stock Options may be exercised in whole or in part at any time during the option period by giving written notice of exercise to the Company specifying the number of shares to be purchased. Such notice shall be accompanied by payment in fullof the purchase price, either by check, or by any other form of legal consideration deemed sufficient by the Committee and consistent with the Plan’s purpose and applicable law (excluding promissory notes or any other form of a loan) or a properly executed exercise notice together with irrevocable instructions to a broker acceptable to the Company to promptly deliver to the Company the amount of sale or loan proceeds to pay the exercise price. As determined by the Committee at the time of grant or exercise, in its sole discretion, payment in full or in part may also be made in the form of Stock already owned by the optionee (which in the case of Stock acquired upon exercise of an option have been owned for more than six months on the date of surrender) or, in the case of the exercise of a Non-Qualified Stock Option (based, in each case, on Fair Market Value of the Stock on the date the option is exercised, as determined by the Committee), provided, however, that, in the case of an Incentive Stock Option, the right to make a payment in the form of already owned shares may be authorized only at the time the option is granted, and provided further that in the event payment is made in the form of shares of restricted stock under another plan of the Company, the optionee will receive a portion of the option shares in the form of, and in an amount equal to, the restricted stock tendered as payment by the optionee. If the terms of an option so permit, an optionee may elect to pay all or part of the option exercise price by having the Company withhold from the shares of Stock that would otherwise be issued upon exercise that number of shares of Stock having a Fair Market Value equal to the aggregate option exercise price for the shares with respect to which such election is made. No shares of Stock shall be issued until full payment therefor has been made. An optionee shall generally have the rights to dividends and other rights of a shareholder with respect to shares subject to the option when the optionee has given written notice of exercise, has paid in full for such shares, and, if requested, has given the representation described in paragraph (a) of Section 9.

(e)              Non-transferability of Options. No Incentive Stock Option shall be transferable by the optionee otherwise than by will or by the laws of descent and distribution, and all such Incentive Stock Options shall be exercisable, during the optionee’s lifetime, only by the optionee. Non-Qualified Stock Options may be transferred by gift, without consideration, by the optionee under a written instrument acceptable to the Committee, to a member of the optionee’s family, as defined in Section 267 of the Code, or to a trust or similar entity whose sole beneficiaries are the optionee and/or members of the optionee’s family; provided, however, that such transfer and the exercise thereof shall not violate any federal or state securities laws. Upon the transfer, the donee shall have all rights of the optionee and shall be subject to all the terms and conditions imposed on such Options.

(f)               Termination by Death. If an optionee’s employment by the Company and any Subsidiary or Parent Corporation terminates by reason of death, any Stock Option may thereafter be exercised, to the extent then exercisable, by the legal representative of the estate or by the legatee of the optionee under the will of the optionee, but may not be exercised after twelve months from the date of such death or the expiration of the stated term of the option, whichever period is shorter. In the event of termination of employment by reason of death, if, pursuant to its terms, any Incentive Stock Option is exercised after the expiration of the exercise periods that apply for purposes of Section 422 of the Code, the option will thereafter be treated as a Non-Qualified Stock Option.

(g)              Termination by Reason of Disability. If an optionee’s employment by the Company and any Subsidiary or Parent Corporation terminates by reason of Disability, any Stock Option held by such optionee may thereafter be exercised, to the extent it was exercisable at the time of termination due to Disability, but may not be exercised after twelve months from the date of such termination of employment or the expiration of the stated term of the option, whichever period is the shorter. In the event of termination of employment by reason of Disability, if, pursuant to its terms, any Incentive Stock Option is exercised after the expiration of the exercise periods that apply for purposes of Section 422 of the Code, the option will thereafter be treated as a Non-Qualified Stock Option.

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(h)              Termination by Reason of Retirement. If an optionee’s employment by the Company and any Subsidiary or Parent Corporation terminates by reason of Retirement, any Stock Option held by such optionee may thereafter be exercised, to the extent it was exercisable at the time of termination due to Retirement, but may not be exercised after thirty-six months from the date of such termination of employment or the expiration of the stated term of the option, whichever period is the shorter. In the event of termination of employment by reason of Retirement, if, pursuant to its terms, any Incentive Stock Option is exercised after the expiration of the exercise periods that apply for purposes of Section 422 of the Code, the option will thereafter be treated as a Non-Qualified Stock Option.

(i)               Other Termination. If an optionee’s Continuous Status as an Employee or Consultant terminates (other than upon the optionee’s death, Disability or Retirement), any Stock Option held by such optionee may thereafter be exercised to the extent it was exercisable at the time of such termination, but may not be exercised after 90 days after such termination, or the expiration of the stated term of the option, whichever period is the shorter. In the event of termination of employment by reason other than death, Disability or Retirement and if pursuant to its terms any Incentive Stock Option is exercised after the expiration of the exercise periods that apply for purposes of Section 422 of the Code, the option will thereafter be treated as a Non-Qualified Stock Option. In the event an Optionee’s employment with the Company is terminated for Cause, all unexercised Options granted to such Optionee shall immediately terminate.

(j)               Annual Limit on Incentive Stock Options. The aggregate Fair Market Value (determined as of the time the Stock Option is granted) of the Common Stock with respect to which an Incentive Stock Option under this Plan or any other plan of the Company and any Subsidiary or Parent Corporation is exercisable for the first time by an optionee during any calendar year shall not exceed $100,000.

(k)              Grants of Stock Options to Non-Employee Directors. Each Non-Employee Director who, after March 8, 2000 is (i) elected, re-elected or serving an unexpired term as a Director of the Company at any annual meeting of holders of the common Stock of the Company; or (ii) elected as a Director of the Company at any special meeting of holders of common Stock of the Company, shall, as of the date of such election, re-election or annual or special meeting, automatically be granted a Stock Option to purchase 3,000 shares of Stock at an option price per share equal to 100% of Fair Market Value of the Company’s Stock on such date. In the case of a special meeting, the action of the holders of shares in electing a Non-Employee Director shall constitute the granting of the Stock Opti on to such Director and, in the case of an annual meeting, the action of the holders of shares in electing or re-electing a Non-Employee Director shall constitute the granting of the Stock Option to such Director and to any other Non-Employee Director who shall be designated as serving an unexpired term as a Director of the Company in the notice or proxy materials for the meeting; and the date when the holders of shares shall take such action shall be the date of grant of the Stock Option. All such Options shall be designated as Non-Qualified Stock Options and shall be subject to the same terms and provisions as are then in effect with respect to the grant of Non-Qualified Stock Options to officers and key employees of the Company, except that (1) the term of each such Option shall be equal to eight years, which term, notwithstanding the provisions in Section 5(i), shall not expire upon the termination of service as a Director; and (2) the Option shall become exercisable beginning six months after the date the Option is granted. Upon termination of such Director’s service as a Director of the Company, the unvested portion of an Option held by such Director shall not thereafter be exercisable. Subject to the foregoing, all provisions of this Plan not inconsistent with the foregoing shall apply to Options granted pursuant to this Section 5(k), except that any Options granted to a Non-Employee Director shall be administered in accordance with the terms of this Plan solely by the Board of Directors and not by the Committee. Options issued under this Section 5(k) shall be in lieu of and in substitution for any new awards of Options in accordance with the St. Jude Medical, Inc. 1997 Stock Option Plan from and after March 8, 2000. Nothing herein shall limit the right of the Board of Directors to issue Stock Options to any Non-Employee Director under the terms of this Plan in addition to those provided for under this Section 5(k), provided that no Non-Employee Director shall be granted Stock Options under this Plan, including the Options awarded under this Section 5(k), in excess of 5,000 shares in any calendar year.

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SECTION 6. Transfer, Leave of Absence, etc.

For purposes of the Plan, the following events shall not be deemed a termination of employment:

(a)           a transfer of an employee from the Company to a Parent Corporation or Subsidiary, or from a Parent Corporation or Subsidiary to the Company, or from one Subsidiary to another;

(b)           a leave of absence, approved in writing by the Committee, for military service or sickness, or for any other purpose approved by the Company if the period of such leave does not exceed ninety (90) days (or such longer period as the Committee may approve, in its sole discretion); and

(c)           a leave of absence in excess of ninety (90) days, approved in writing by the Committee, but only if the employee’s right to reemployment is guaranteed either by a statute or by contract, and provided that, in the case of any leave of absence, the employee returns to work within 30 days after the end of such leave.

SECTION 7. Restricted Stock.

(a)          Administration. Up to 50,000 shares of Restricted Stock may be issued either alone or in addition to other awards granted under the Plan. The Committee shall determine the officers and key employees of the Company and Subsidiaries to whom, and the time or times at which, grants of Restricted Stock will be made, the number of shares to be awarded, the time or times within which such awards may be subject to forfeiture, and all other conditions of the awards. The Committee may also condition the grant of Restricted Stock upon the attainment of specified performance goals. The provisions of Restricted Stock awards need not be the same with respect to each recipient.

(b)         Awards and Certificates. The prospective recipient of an award of shares of Restricted Stock shall not have any rights with respect to such award, unless and until such recipient has executed an agreement evidencing the award and has delivered a fully executed copy thereof to the Company, and has otherwise complied with the then applicable terms and conditions.

(i)   Each participant shall be issued a stock certificate in respect of shares of Restricted Stock awarded under the Plan. Such certificate shall be registered in the name of the participant, and shall bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such award, substantially in the following form:

“The transferability of the certificate and the shares of stock represented hereby are subject to the terms and conditions (including forfeiture) of the St. Jude Medical, Inc. 2000 Stock Plan and an Agreement entered into between the registered owner and the Company.”

(ii)  The Committee shall require that the stock certificates evidencing such shares be held in custody by the Company until the restrictions thereon shall have lapsed, and that, as a condition of any Restricted Stock award, the participant shall have delivered a stock power endorsed in blank, relating to the Stock covered by such award.

(c)          Restrictions and Conditions. The shares of Restricted Stock awarded pursuant to the Plan shall be subject to the following restrictions and conditions:

(i)   Subject to the provisions of this Plan and the award agreement, during a period set by the Committee commencing with the date of such award (the “Restriction Period”), the participant shall not be permitted to sell, transfer, pledge or assign shares of Restricted Stock awarded under the Plan. Within these limits, the Committee may provide for the lapse of such restrictions in installments where deemed appropriate.

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(ii)  Except as provided in paragraph (c) (i) of this Section 7, the participant shall have, with respect to the shares of Restricted Stock, all of the rights of a shareholder of the Company, including the right to vote the shares and the right to receive any cash dividends. The Committee, in its sole discretion, may permit or require the payment of cash dividends to be deferred and, if the Committee so determines, reinvested in additional shares of Restricted Stock to the extent shares are available under Section 3. Certificates for shares of unrestricted Stock shall be delivered to the grantee promptly after, and only after, the period of forfeiture shall have expired without forfeiture in respect of such shares of Restricted Stock.

(iii) Subject to the provisions of the award agreement and paragraph (c) (iv) of this Section 7, upon termination of employment for any reason during the Restriction Period, all shares still subject to restriction shall be forfeited by the participant.

(iv)  In the event of special hardship circumstances of a participant whose employment is terminated (other that for Cause), including death, Disability or Retirement, or in the event of an unforeseeable emergency of a participant still in service, the Committee may, in its sole discretion, when it finds that a waiver would be in the best interest of the Company, waive in whole or in part any or all remaining restrictions with respect to such participant’s shares of Restricted Stock.

(v)   Notwithstanding the foregoing, all restrictions with respect to any participant’s shares of Restricted Stock shall lapse, on the date determined by the Committee, prior to, but in no event more that sixty (60) days prior to, the occurrence of any of the following events: (i) dissolution or liquidation of the Company, other than in conjunction with a bankruptcy of the Company or any similar occurrence, (ii) any merger, consolidation, acquisition, separation, reorganization, or similar occurrence, where the Company will not be the surviving entity or (iii) the transfer of substantially all of the assets of the Company or 50% or more of the outstanding Stock of the Company.

SECTION 8. Amendments and Termination.

The Board may amend, alter, or discontinue the Plan, but no amendment, alteration, or discontinuation shall be made (i) which would impair the rights of an optionee or participant under a Stock Option theretofore granted, without the optionee’s or participant’s consent, or (ii) which without the approval of the shareholders of the Company would cause the Plan to no longer comply with Rule 16b-3 under the Securities Exchange Act of 1934, Section 422 of the Code or any other regulatory requirements.

The Committee may amend the terms of any award or option theretofore granted, prospectively or retroactively to the extent such amendment is consistent with the terms of this Plan, but no such amendment shall impair the rights of any holder without his or her consent except to the extent authorized under the Plan. However, the Committee may not reprice options, either by lowering the exercise price of outstanding options or canceling outstanding options and granting replacement options with lower exercise prices, without shareholder approval.

SECTION 9. Unfunded Status Of Plan.

The Plan is intended to constitute an “unfunded” plan for incentive and deferred compensation. With respect to any payments not yet made to a participant or optionee by the Company, nothing contained herein shall give any such participant or optionee any rights that are greater than those of a general creditor of the Company. In its sole discretion, the Committee may authorize the creation of trusts or other arrangements to meet the obligations created under the Plan to deliver Stock or payments in lieu of or with respect to awards hereunder, provided, however, that the existence of such trusts or other arrangements is consistent with the unfunded status of the Plan.

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SECTION 10. General Provisions.

(a)           The Committee may require each person purchasing shares pursuant to a Stock Option under the Plan to represent to and agree with the Company in writing that the optionee is acquiring the shares without a view to distribution thereof. The certificates for such shares may include any legend which the Committee deems appropriate to reflect any restrictions on transfer.

All certificates for shares of Stock delivered under the Plan shall be subject to such stock-transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations, and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Stock is then listed, and any applicable Federal or state securities laws, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions.

(b)           Nothing contained in this Plan shall prevent the Board of Directors from adopting other or additional compensation arrangements, subject to shareholder approval if such approval is required; and such arrangements may be either generally applicable or applicable only in specific cases. The adoption of the Plan shall not confer upon any employee of the Company or any Subsidiary any right to continued employment with the Company or a Subsidiary, as the case may be, nor shall it interfere in any way with the right of the Company, Parent Corporation or a Subsidiary to terminate the employment of any of its employees at any time.

(c)           Each participant shall, no later than the date as of which any part of the value of an award first becomes includible as compensation in the gross income of the participant for Federal income tax purposes, pay to the Company, or make arrangements satisfactory to the Committee regarding payment of, any Federal, state, or local taxes of any kind required by law to be withheld with respect to the award. The obligations of the Company under the Plan shall be conditional on such payment or arrangements and the Company, Parent Corporation and a Subsidiary shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to the participant. With respect to any award under the Plan, if the terms of such award so permit, a participant may elect by written notice to the Company to satisfy part or all of the withholding tax requirements associated with the award by (i) authorizing the Company to retain from the number of shares of Stock that would otherwise be deliverable to the participant, or (ii) delivering to the Company from shares of Stock already owned by the participant, that number of shares having an aggregate Fair Market Value equal to part or all of the tax payable by the participant under this Section 9(c). Any such election shall be in accordance with, and subject to, applicable tax and securities laws, regulations and rulings.

SECTION 11. Effective Date of Plan

The Plan shall be effective on March 8, 2000 (the date of approval by the Board of Directors), subject to the approval by shareholders of the Company. If the Plan is not so approved by the shareholders on or before one year after this Plan’s adoption by the Board of Directors, this Plan shall not come into effect. The offering of the shares hereunder shall be also subject to the effecting by the Company of any registration or qualification of the shares under any federal or state law or the obtaining of the consent or approval of any governmental regulatory body which the Company shall determine, in its sole discretion, is necessary or desirable as a condition to or in connection with, the offering or the issue or purchase of the shares covered thereby. The Company shall make every reasonable effort to effect such registration or qualification or to obtain such consent or approval.

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EX-10.5

Exhibit 10.5

ST.JUDE MEDICAL, INC.

2002 STOCK PLAN

(as amended)

SECTION 1. General Purpose of Plan; Definitions.

The name of this plan is the St. Jude Medical, Inc. 2002 Stock Plan (the “Plan”). The purpose of the Plan is to enable the Company and its Subsidiaries to retain and attract executives and other key employees, non-employee directors and consultants who contribute to the Company’s success by their ability, ingenuity and industry, and to enable such individuals to participate in the long-term success and growth of the Company by giving them a proprietary interest in the Company.

For purposes of the Plan, the following terms shall be defined as set forth below:

a. “Board” means the Board of Directors of the Company as it may be comprised from time to time.

b.            “Cause” means a felony conviction of a participant or the failure of a participant to contest prosecution for a felony, willful misconduct, dishonesty or intentional violation of a statute, rule or regulation, any of which, in the judgment of the Company, is harmful to the business or reputation of the Company.

c.            “Code” means the Internal Revenue Code of 1986, as amended from time to time, or any successor statute.

d.            “Committee” means a committee of Directors appointed by the Board to administer the Plan. The Committee shall be comprised of not less than such number of Directors as shall be required to permit Stock Options granted under the Plan to qualify under Section 162(m) and Rule 16b-3, and each member of the Committee shall be a Non-Employee Director and an Outside Director, who shall serve at the pleasure of the Board. If at any time no Committee shall be in office, then the functions of the Committee specified in the Plan shall be exercised by the Board, unless the Plan specifically states otherwise.

e.            “Company” means St. Jude Medical, Inc., a corporation organized under the laws of the State of Minnesota (or any successor corporation).

f.             “Consultant” means any person, including an advisor, engaged by the Company, the Parent Corporation or a Subsidiary of the Company to render services and who is compensated for such services and who is not an employee of the Company, the Parent Corporation or any Subsidiary of the Company. A Non-Employee Director may serve as a Consultant.

g.            “Continuous Status as an Employee or Consultant” shall mean the absence of any interruption or termination of service as an Employee or Consultant. Continuous Status as an Employee or Consultant shall not be considered interrupted in the case that an Employee becomes a Consultant or a Consultant becomes an Employee, in either case without other interruption or termination of service, or in the case of sick leave, military leave, or any other leave of absence approved by the Administrator, provided that such leave of absence is for a period of 90 days or less, unless reemployment after such leave of absence is guaranteed by contract or statute.

h.	“Director” shall mean a member of the Board.
i.	“Disability” means permanent and total disability as determined by the Committee.

j.             “Early Retirement” means retirement, with consent of the Committee at the time of retirement, from active employment with the Company and any Subsidiary or Parent Corporation of the Company.

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k.            “Fair Market Value” of Stock on any given date shall be determined by the Committee as follows: (i) if the Stock is listed for trading, on the New York Stock Exchange or one of more other national securities exchanges, the last reported sales price on the New York Stock Exchange or such principal exchange on the date in question, or if such Stock shall not have been traded on such principal exchange on such date, the last reported sales price on the New York Stock Exchange or such principal exchange on the first day prior thereto on which such Stock was so traded; or (ii) if (i) is not applicable, by any means deemed fair and reasonable by the Committee, which determination shall be final and binding on all parties.

l.             “Incentive Stock Option” means any Stock Option intended to be and designated as an “Incentive Stock Option” within the meaning of Section 422 of the Code.

m. “Non-Employee Director” means a “Non-Employee Director” within the meaning of Rule 16b-3.

n.            “Non-Qualified Stock Option” means any Stock Option that is not an Incentive Stock Option, and is intended to be and is designated as a “Non-Qualified Stock Option” or an Incentive Stock Option that ceases to so qualify due to an amendment to such Stock Option.

o.            “Normal Retirement” means retirement from active employment with the Company and any Subsidiary or Parent Corporation of the Company on or after age 65.

p.            “Outside Director” means a Director who: (a) is not a current employee of the Company or any member of an affiliated group which includes the Company; (b) is not a former employee of the Company who receives compensation for prior services (other than benefits under a tax-qualified retirement plan) during the taxable year; (c) has not been an officer of the Company; (d) does not receive remuneration from the Company, either directly or indirectly, in any capacity other than as a Director, except as otherwise permitted under Code Section 162(m) and regulations thereunder. For this purpose, remuneration includes any payment in exchange for goods or services. This definition shall be further governed by the provisions of Code Section 162(m) and regulations promulgated thereunder.

q.            “Parent Corporation” means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company if each of the corporations (other than the Company) owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in the chain.

r. “Retirement” means Normal Retirement or Early Retirement.

s.             “Rule 16b-3” shall mean Rule 16b-3 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended from time to time, or any successor rule or regulation.

t. “Stock” means the Common Stock of the Company.

u.            “Stock Option” means any option to purchase shares of Stock granted pursuant to Section 5 below.

v.            “Subsidiary” means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if each of the corporations (other than the last corporation in the unbroken chain) owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in the chain.

SECTION 2. Administration.

a.Power and Authority of the Committee. The Plan shall be administered by the Committee. The Committee shall have the power and authority to grant to eligible persons, pursuant to the terms of the Plan, Incentive Stock Options and Non-Qualified Stock Options. In particular, the Committee shall have the authority:

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(i)           to select the officers and other key employees of the Company and its Subsidiaries and other eligible persons to whom Stock Options may from time to time be granted hereunder;

(ii)          to determine whether and to what extent Incentive Stock Options or Non-Qualified Stock Options, or a combination of each, are to be granted hereunder;

(iii) to determine the number of shares to be covered by each such award granted hereunder;

(iv)         to determine the terms and conditions, not inconsistent with the terms of the Plan, of any award granted hereunder (including, but not limited to, any restriction on any Stock Option and/or the shares of Stock relating thereto); provided, however, that in the event of a merger or asset sale, the applicable provisions of Sections 5(c) of the Plan shall govern the acceleration of the vesting of any Stock Option;

(v)          to determine whether, to what extent and under what circumstances Stock and other amounts payable with respect to an award under this Plan shall be deferred either automatically or at the election of the participant; and

(vi)         to designate special terms and conditions under which Stock Options may be granted to eligible participants who work or reside outside of the United States on behalf of the Company or any Subsidiary or Parent Corporation, which terms and conditions may vary by jurisdiction but may not change the maximum number of shares of Stock for which Stock Options may be granted pursuant to Section 3 or the eligibility rules in Section 4.

The Committee shall have the authority to adopt, alter and repeal such administrative rules, guidelines and practices governing the Plan as it shall, from time to time, deem advisable; to interpret the terms and provisions of the Plan and any award issued under the Plan (and any agreements relating thereto); and otherwise to supervise the administration of the Plan. All decisions made by the Committee pursuant to the provisions of the Plan shall be final and binding on all persons, including the Company and Plan participants.

The Company expects to have the Plan administered in accordance with requirements for the award of “qualified performance-based compensation” within the meaning of Section 162(m) of the Code.

b.Delegation. The Committee may delegate to the president and/or chief executive officer of the Company its powers and duties specified in clauses (i), (ii), (iii), (iv), (v) and (vi) of Section 2(a), subject to such terms, conditions and limitations as the Committee may establish in its sole discretion; provided, however, that the Committee shall not delegate its powers and duties under the Plan (i) with regard to officers or Directors of the Company or any Parent Corporation or Subsidiary who are subject to Section 16 of the Exchange Act or (ii) in such a manner as would cause the Plan not to comply with the requirements of Section 162(m) of the Code.

c.Power and Authority of the Board of Directors. Notwithstanding anything to the contrary contained herein, the Board may, at any time and from time to time, without any further action of the Committee, exercise the powers and duties of the Committee under the Plan.

SECTION 3. Stock Subject to Plan.

The total number of shares of Stock reserved and available for distribution under the Plan shall be 6,000,000. Such shares may consist, in whole or in part, of authorized and unissued shares. If any shares of Stock that have been optioned are not purchased or are forfeited, or if a Stock Option otherwise terminates without delivery of any shares of Stock, then such shares shall again be available for distribution in connection with future awards under the Plan. Notwithstanding the foregoing, the number of shares of Stock available for granting Incentive Stock Options under the Plan shall not exceed 6,000,000, subject to adjustment as provided in the Plan and subject to the provisions of Section 422 or 424 of the Code or any successor provision.

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In the event of any merger, reorganization, consolidation, recapitalization, stock dividend, stock split, reverse stock split, other change in corporate structure affecting the Stock, spin-off, split-up, or other distribution of assets to shareholders, or other similar corporate transaction or event affects the shares of Stock such that an adjustment is determined by the Committee to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then an appropriate adjustment automatically shall be made in the maximum numbers and kind of securities to be purchased under the Plan with a corresponding adjustment in the purchase price to be paid therefor; provided that the number of shares of Stock subject to any award always shall be a whole number.

SECTION 4. Eligibility.

Officers, other key employees of the Company or any Parent Corporation or Subsidiary, members of the Board, and Consultants who are responsible for or contribute to the management, growth and profitability of the business of the Company or any Parent Corporation or Subsidiary are eligible to be granted Stock Options under the Plan. The participants under the Plan shall be selected from time to time by the Committee, in its sole discretion, from among those eligible, and the Committee shall determine, in its sole discretion, the number of shares of Stock covered by each award.

Notwithstanding the foregoing, in accordance with Section 162(m) of the Code, no person shall receive grants of Stock Options under this Plan which exceed 500,000 shares during any fiscal year of the Company.

SECTION 5. Stock Options.

Any Stock Option granted under the Plan shall be in such form as the Committee may from time to time approve.

The Stock Options granted under the Plan may be of two types: (i) Incentive Stock Options and (ii) Non-Qualified Stock Options. The Committee shall have the authority to grant any participant Incentive Stock Options, Non-Qualified Stock Options, or both types of options. To the extent that any option does not qualify as an Incentive Stock Option, it shall constitute a separate Non-Qualified Stock Option.

Anything in the Plan to the contrary notwithstanding, no term of this Plan relating to Incentive Stock Options shall be interpreted, amended or altered, nor shall any discretion or authority granted under the Plan be so exercised, so as to disqualify either the Plan or any Incentive Stock Option under Section 422 of the Code. The preceding sentence shall not preclude any modification or amendment to an outstanding Incentive Stock Option, whether or not such modification or amendment results in disqualification of such Stock Option as an Incentive Stock Option, provided that the optionee consents in writing to the modification or amendment.

Options granted under the Plan shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Committee shall deem desirable.

a.Consideration for Awards. Awards of Stock Options under the Plan may be granted for no cash consideration or for such other consideration as may be determined by the Committee or required by applicable law.

b.Option Exercise Price. The price per share of Stock purchasable under a Stock Option shall be no less than 100% of Fair Market Value on the date the option is granted. If an employee owns or is deemed to own (by reason of the attribution rules applicable under Section 424(d) of the Code) more than 10% of the combined voting power of all classes of stock of the Company or any Parent Corporation or Subsidiary and an Incentive Stock Option is granted to such employee, the option exercise price shall be no less than 110% of Fair Market Value of the Stock on the date the option is granted. The Committee may not reprice options without shareholder approval.

c.Option Term. The term of each Stock Option shall be fixed by the Committee, but no Stock Option shall be exercisable more than eight years after the date the option is granted. If an employee owns or is deemed to own (by reason of the attribution rules of Section 424(d) of the Code) more than 10% of the combined voting power of all classes of stock of the Company or any Parent Corporation or Subsidiary and an Incentive Stock Option is granted to such employee, the term of such option shall be no more than five years from the date of grant.

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d.Time and Method of Exercise. The Committee shall determine the time or times at which a Stock Option may be exercised in whole or in part and the method or methods by which, and the form or forms (including cash, shares of Stock, other securities or property, or any combination thereof, but not including Stock Options, promissory notes, or any other form of a loan) in which, payment of the exercise price with respect thereto may be made or deemed to have been made.

e.When Options Are Transferable. No Incentive Stock Option shall be transferable by the optionee otherwise than by will or by the laws of descent and distribution, and all Incentive Stock Options shall be exercisable, during the optionee’s lifetime, only by the optionee. Non-Qualified Stock Options may be transferred by gift, without consideration, by the optionee under a written instrument acceptable to the Committee, to a member of the optionee’s family, as defined in Section 267 of the Code, or to a trust or similar entity whose sole beneficiaries are the optionee and/or members of the optionee’s family; provided, however, that such transfer and the exercise thereof shall not violate any federal or state securities laws. Upon the transfer, the donee shall have all rights of the optionee and shall be subject to all the terms and conditions imposed on such Stock Options.

f.Termination by Death. If an optionee’s employment by or service as a Director to the Company or any Parent Corporation or Subsidiary terminates by reason of death, any Stock Option held by such optionee at the time of death may thereafter be exercised, to the extent then exercisable, by the legal representative of the estate or by the legatee of the optionee under the will of the optionee, but may not be exercised after 12 months from the date of such death or the expiration of the stated term of the option, whichever period is shorter. In the event of termination of employment or service as a Director by reason of death, if, pursuant to its terms, any Incentive Stock Option is exercised after the expiration of the exercise periods that apply for purposes of Section 422 of the Code, the option will thereafter be treated as a Non-Qualified Stock Option.

g.Termination by Reason of Disability. If an optionee’s employment by or service as a Director to the Company or any Subsidiary or Parent Corporation terminates by reason of Disability, any Stock Option held by such optionee may thereafter be exercised, to the extent it was exercisable at the time of termination due to Disability, but may not be exercised after 12 months from the date of such termination of employment or service as a Director or the expiration of the stated term of the option, whichever period is shorter. In the event of termination of employment or service as a Director by reason of Disability, if, pursuant to its terms, any Incentive Stock Option is exercised after the expiration of the exercise periods that apply for purposes of Section 422 of the Code, the option will thereafter be treated as a Non-Qualified Stock Option.

h.Termination by Reason of Retirement. If an optionee’s employment by the Company or any Subsidiary or Parent Corporation terminates by reason of Retirement, any Stock Option held by such optionee may thereafter be exercised, to the extent it was exercisable at the time of termination due to Retirement, but may not be exercised after 36 months from the date of such termination of employment or the expiration of the stated term of the option, whichever period is shorter. In the event of termination of employment by reason of Retirement, if, pursuant to its terms, any Incentive Stock Option is exercised after the expiration of the exercise periods that apply for purposes of Section 422 of the Code, the option will thereafter be treated as a Non-Qualified Stock Option.

i.Other Termination. If an optionee’s Continuous Status as an Employee or Consultant terminates (other than upon the optionee’s death, Disability or Retirement), any Stock Option held by such optionee may thereafter be exercised to the extent it was exercisable at the time of such termination, but may not be exercised after (i) 90 days after such termination or (ii) the expiration of the stated term of the option, whichever period is shorter. Notwithstanding the foregoing, if a Non-Employee Director’s service to the Company terminates (other than upon such Non-Employee Director’s death or Disability), whether or not such service to the Company was provided as a Consultant or a Director, any Stock Option held by such Non-Employee Director may thereafter be exercised to the extent it was exercisable at the time of such termination. In the event of termination of an optionee’s employment or service as a Director by reason other than death, Disability or Retirement and if, pursuant to its terms, any Incentive Stock Option is exercised after the expiration of the exercise periods that apply for purposes of Section 422 of the Code, the option will thereafter be treated as a Non-Qualified Stock Option. In the event an optionee’s employment with or service as a Director to the Company is terminated for Cause, all unexercised Options granted to such optionee shall terminate immediately.

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j.Annual Limit on Incentive Stock Options. The aggregate Fair Market Value (determined as of the time the Stock Option is granted) of the Common Stock with respect to which an Incentive Stock Option under this Plan or any other plan of the Company and any Subsidiary or Parent Corporation is exercisable for the first time by an optionee during any calendar year shall not exceed $100,000.

k. Grants of Stock Options to Non-Employee Directors.

(i)           Each Non-Employee Director who, on or after May 1, 2002 is(A) elected, re-elected or serving an unexpired term as a Director of the Company at any annual meeting of holders of the Stock; or (B) elected as a Director of the Company at any special meeting of holders of Stock, shall, as of the date of such election, re-election or annual or special meeting, automatically be granted a Stock Option to purchase 4,000 shares of Stock at an exercise price per share equal to 100% of the Fair Market Value of the Stock on such date. In the case of a special meeting, the action of the holders of shares in electing a Non-Employee Director shall constitute the granting of the Stock Option to such Director and, in the case of an annual meeting, the action of the holders of shares in electing or re-electing a Non-Employee Director shall constitute the granting of the Stock Option to such Director and to any other Non-Employee Director who shall be designated as serving an unexpired term as a Director of the Company in the notice or proxy materials for the meeting; and the date when the holders of shares shall take such action shall be the date of grant of the Stock Option.

(ii)          Each Non-Employee Director who, on or after May 1, 2002, is appointed as a Director of the Company at any time other than at an annual or special meeting of holders of the Stock shall, as of the date of such appointment, automatically be granted a Stock Option to purchase a pro rata number of shares of Stock, which number shall be calculated by dividing 4,000 by the number of months that shall occur from the date of such Non-Employee Director’s appointment to the date of the next annual or special meeting of the holders of the Stock. For purposes of this clause (ii), the number of months counted towards such pro rata grant shall include the calendar month during which the Non-Employee Director is appointed as a Director, irrespective of the actual date of appointment, but shall not include the month during which the next annual or special meeting is held, irrespective of the actual date of such meeting.

(iii)        All Stock Options granted pursuant to this Section 5(k) shall be designated as Non-Qualified Stock Options and shall be subject to the same terms and provisions as are then in effect with respect to the grant of Non-Qualified Stock Options to officers and key employees of the Company, except that (A) the term of each such option shall be equal to eight years, which term, notwithstanding the provisions in Section 5(i), shall not expire upon the termination of service as a Director; and (B) the Stock Option shall become exercisable beginning six months after the date the option is granted. Upon termination of such Director’s service as a Director of the Company, the unvested portion of any and all Stock Options then held by such Director shall not thereafter be exercisable. Subject to the foregoing, all provisions of this Plan not inconsistent with the foregoing shall apply to Stock Options granted pursuant to this Section 5(k). Stock Options issued under this Section 5(k) shall be in lieu of and in substitution for any new awards of Stock Options that otherwise would be granted under the terms of the St. Jude Medical, Inc. 2000 Stock Option Plan or any prior stock option plan of the Company from and after May 1, 2002. Nothing herein shall limit the right of the Board to issue Stock Options to any Non-Employee Director under the terms of this Plan in addition to those provided for under this Section 5(k), provided that no Non-Employee Director shall be granted Stock Options under this Plan, including the Options awarded under this Section 5(k), in excess of 7,500 shares in any calendar year.

SECTION 6. Transfer, Leave of Absence, etc.

For purposes of this Plan, the following events shall not be deemed a termination of employment:

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a.            a transfer of an employee from the Company to a Parent Corporation or Subsidiary, or from a Parent Corporation or Subsidiary to the Company, or from one Subsidiary to another;

b.            a leave of absence, approved in writing by the Committee, for military service or sickness, or for any other purpose approved by the Committee if the period of such leave does not exceed 90 days (or such longer period as the Committee may approve, in its sole discretion); and

c.            a leave of absence in excess of 90 days, approved by the Committee, but only if the employee’s right to reemployment is guaranteed either by a statute or by contract, and provided that, in the case of any leave of absence, the employee returns to work within 30 days after the end of such leave.

SECTION 7. Amendments and Termination.

The Board may amend, alter or discontinue the Plan, but no amendment, alteration or discontinuation shall be made which would impair the rights of an optionee under a Stock Option theretofore granted, without the optionee’s consent, and no amendment or alteration shall be made which would

(i) cause the Plan to no longer comply with Rule 16b-3, Section 422 of the Code or any other regulatory requirements;

(ii) materially increase the benefits accruing to participants under this plan;

(iii) materially increase the aggregate number of securities that may be issued under this Plan except pursuant to the second paragraph of Section 3 which permits adjustments in the number of shares of stock in certain events such as a stock split or dividend in a manner that is “appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan...” or

(iv) materially modify the requirements as to eligibility for participation in this plan unless the amendment or alteration shall be subject to shareholder approval.

The Committee may amend the terms of any award or option theretofore granted, prospectively or retroactively and to the extent such amendment is consistent with the terms of this Plan, but no such amendment shall impair the rights of any holder without his or her consent

except to the extent authorized under the Plan. However, the Committee may not reprice options, either by lowering the exercise price of outstanding options or canceling outstanding options and granting replacement options with lower exercise prices, without shareholder approval.

SECTION 8. Unfunded Status Of Plan.

The Plan is intended to constitute an “unfunded” plan for incentive and deferred compensation. With respect to any payments not yet made to a participant by the Company, nothing contained herein shall give any such participant any rights that are greater than those of a general creditor of the Company. In its sole discretion, the Committee may authorize the creation of trusts or other arrangements to meet the obligations created under the Plan to deliver Stock or payments in lieu of or with respect to awards hereunder, provided, however, that the existence of such trusts or other arrangements is consistent with the unfunded status of the Plan.

SECTION 9. General Provisions.

a.            The Committee may require each person purchasing shares of Stock pursuant to a Stock Option under the Plan to represent to and agree with the Company in writing that the optionee is acquiring the shares without a view to distribution thereof. The certificates for such shares may include any legend which the Committee deems appropriate to reflect any restrictions on transfer.

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All certificates for shares of Stock delivered under the Plan shall be subject to such stock-transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Stock is then listed, and any applicable federal or state securities laws, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions.

b.            Nothing contained in this Plan shall prevent the Board of Directors from adopting other or additional compensation arrangements, subject to shareholder approval if such approval is required; and such arrangements may be either generally applicable or applicable only in specific cases. The adoption of the Plan shall not confer upon any employee of the Company or any Subsidiary any right to be retained as an employee or Consultant of the Company or a Subsidiary or Parent Corporation, as the case may be, or a Non-Employee Director to be retained as a Director, nor shall it interfere in any way with the right of the Company, Parent Corporation or a Subsidiary to dismiss a participant in the Plan from employment or service at any time, with or without cause.

c.            Each participant shall, no later than the date as of which any part of the value of an award first becomes includible as compensation in the gross income of the participant for any federal tax purposes, pay to the Company, or make arrangements satisfactory to the Committee regarding payment of, any federal, state or local taxes of any kind required by law to be withheld with respect to the award. The obligations of the Company under the Plan shall be conditional on such payment or arrangements and the Company, Parent Corporation and a Subsidiary shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to the participant. With respect to any award under the Plan, if the terms of such award so permit, a participant may elect by written notice to the Company to satisfy part or all of the minimum tax withholding requirements associated with the exercise of the award by (i) authorizing the Company to retain from the number of shares of Stock that would otherwise be deliverable to the participant, or (ii) delivering to the Company from shares of Stock already owned by the participant, that number of shares having an aggregate Fair Market Value equal to part or all of the tax payable by the participant under this Section 9(c). Any such election shall be in accordance with, and subject to, applicable tax and securities laws, regulations and rulings.

d.            The internal law, and not the law of conflicts, of the State of Minnesota, shall govern all questions concerning the validity, construction and effect of the Plan or any Stock Option, and any rules and regulations relating to the Plan or any Stock Option.

SECTION 10. Effective Date of Plan.

The Plan shall be effective on February 15, 2002 (the date of approval by the Board), subject to the approval by shareholders of the Company. If the Plan is not so approved by the shareholders on or before one year after this Plan’s adoption by the Board, this Plan shall not come into effect. The offering of the shares of Stock hereunder also shall be subject to the effecting by the Company of any registration or qualification of the shares under any federal or state law or the obtaining of the consent or approval of any governmental regulatory body which the Company shall determine, in its sole discretion, is necessary or desirable as a condition to or in connection with the offering or the issue or purchase of the shares covered thereby.

SECTION 11. Term of Plan.

Stock Options shall be granted under the Plan only during a 10-year period beginning on the effective date of the Plan, unless the Plan is terminated earlier pursuant to Section 7 of the Plan. However, unless otherwise expressly provided in the Plan or in an applicable option agreement, any Stock Option theretofore granted may extend beyond the end of such 10-year period, and the authority of the Committee provided for hereunder with respect to the Plan and any awards, and the authority of the Board to amend the Plan, shall extend beyond the termination of the Plan.

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EX-31.1

EXHIBIT 31.1

CERTIFICATION PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Daniel J. Starks, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of St. Jude Medical, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 7, 2006

/s/ DANIEL J. STARKS

Daniel J. Starks
Chairman, President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, John C. Heinmiller, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of St. Jude Medical, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 7, 2006

/s/ JOHN C. HEINMILLER

John C. Heinmiller
Executive Vice President and Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of St. Jude Medical, Inc. (the Company) on Form 10-Q for the period ended June 30, 2006 as filed with the Securities and Exchange Commission (the Report), I, Daniel J. Starks, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

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

/s/ DANIEL J. STARKS

Daniel J. Starks
Chairman, President and Chief Executive Officer
August ­­7, 2006

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of St. Jude Medical, Inc. (the Company) on Form 10-Q for the period ended June 30, 2006 as filed with the Securities and Exchange Commission (the Report), I, John C. Heinmiller, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

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

/s/ JOHN C. HEINMILLER

John C. Heinmiller
Executive Vice President and
Chief Financial Officer
August 7, 2006