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 SEPTEMBER 27, 2008 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	41-1276891
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

One Lillehei Plaza, St. Paul, Minnesota 55117

(Address of principal executive offices, 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, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer x	Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company o

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

Yes o No x

The number of shares of common stock, par value $.10 per share, outstanding on October 17, 2008 was 344,182,233.

TABLE OF CONTENTS

ITEM	DESCRIPTION	PAGE
PART I – FINANCIAL INFORMATION
1.	Financial Statements
	Condensed Consolidated Statements of Earnings	1
	Condensed Consolidated Balance Sheets	2
	Condensed Consolidated Statements of Cash Flows	3
	Notes to the Condensed Consolidated Financial Statements
	Note 1 – Basis of Presentation	4
	Note 2 – New Accounting Pronouncements	4
	Note 3 – Acquisitions	5
	Note 4 – Goodwill and Other Intangible Assets	6
	Note 5 – Inventories	6
	Note 6 – Restructuring Activities	6
	Note 7 – Debt	7
	Note 8 – Commitments and Contingencies	8
	Note 9 – Shareholders’ Equity	12
	Note 10 – Special Charges	12
	Note 11 – Net Earnings Per Share	13
	Note 12 – Comprehensive Income	13
	Note 13 – Other Income (Expense), Net	14
	Note 14 – Income Taxes	14
	Note 15 – Fair Value Measurements	14
	Note 16 – Segment and Geographic Information	14
2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
	Overview	16
	New Accounting Pronouncements	17
	Critical Accounting Policies and Estimates	17
	Acquisitions	17
	Segment Performance	17
	Results of Operations	20
	Liquidity	22
	Debt and Credit Facilities	23
	Share Repurchases	24
	Commitments and Contingencies	24
	Cautionary Statements	24
3.	Quantitative and Qualitative Disclosures About Market Risk	25
4.	Controls and Procedures	26
PART II – OTHER INFORMATION
1.	Legal Proceedings	26
1A.	Risk Factors	26
6.	Exhibits	26
	Signature	27
	Index to Exhibits	28

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						Nine Months Ended
	September 27, 2008			September 29, 2007			September 27, 2008			September 29, 2007
Net sales	$	1,084,136		$	926,840		$	3,230,634		$	2,761,154
Cost of sales		273,926			244,859			822,104			736,859
Gross profit		810,210			681,981			2,408,530			2,024,295
Selling, general and administrative expense		401,325			337,823			1,184,702			1,014,857
Research and development expense		131,054			117,027			393,144			352,443
Special charges		—			—			—			35,000
Operating profit		277,831			227,131			830,684			621,995
Other income (expense), net		(4,941	)		(7,625	)		(7,380	)		(23,243	)
Earnings before income taxes		272,890			219,506			823,304			598,752
Income tax expense		79,947			59,267			244,521			157,988
Net earnings	$	192,943		$	160,239		$	578,783		$	440,764
Net earnings per share:
Basic	$	0.56		$	0.47		$	1.69		$	1.29
Diluted	$	0.55		$	0.46		$	1.65		$	1.25
Weighted average shares outstanding:
Basic		342,698			340,360			342,352			342,042
Diluted		349,728			350,238			349,984			353,027

See notes to the condensed consolidated financial statements.

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ST. JUDE MEDICAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value and share amounts)

	September 27, 2008 (Unaudited)			December 29, 2007
ASSETS
Current Assets
Cash and cash equivalents	$	579,242		$	389,094
Accounts receivable, less allowance for doubtful accounts of $30,500 at September 27, 2008 and $26,652 at December 29, 2007		1,147,338			1,023,952
Inventories		501,470			457,734
Deferred income taxes, net		103,693			110,710
Other		189,267			146,693
Total current assets		2,521,010			2,128,183
Property, plant and equipment, at cost		1,590,820			1,399,404
Less: accumulated depreciation		(691,255	)		(622,609	)
Net property, plant and equipment		899,565			776,795
Other Assets
Goodwill		1,753,420			1,657,313
Other intangible assets, net		494,927			498,700
Other		283,409			268,413
Total other assets		2,531,756			2,424,426
TOTAL ASSETS	$	5,952,331		$	5,329,404
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Current portion of long-term debt	$	1,205,498		$	1,205,498
Accounts payable		245,840			188,210
Income taxes payable		—			16,458
Accrued expenses
Employee compensation and related benefits		264,014			261,833
Other		187,765			177,230
Total current liabilities		1,903,117			1,849,229
Long-term debt		196,611			182,493
Deferred income taxes, net		122,117			107,011
Other liabilities		265,698			262,661
Total liabilities		2,487,543			2,401,394
Commitments and Contingencies (Note 8)		—			—
Shareholders’ Equity
Preferred stock ($1.00 par value; 25,000,000 shares authorized; none outstanding)		—			—
Common stock ($0.10 par value; 500,000,000 shares authorized; 344,026,825 and 342,846,963 shares issued and outstanding at September 27, 2008 and December 29, 2007, respectively)		34,403			34,285
Additional paid-in capital		177,192			193,662
Retained earnings		3,172,086			2,600,905
Accumulated other comprehensive income
Cumulative translation adjustment		75,030			86,754
Unrealized gain on available-for-sale securities		6,077			12,404
Total shareholders’ equity		3,464,788			2,928,010
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	5,952,331		$	5,329,404

See notes to the condensed consolidated financial statements. 

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ST. JUDE MEDICAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

Nine Months Ended	September 27, 2008			September 29, 2007
OPERATING ACTIVITIES
Net earnings	$	578,783		$	440,764
Adjustments to reconcile net earnings to net cash from operating activities:
Depreciation		97,206			89,802
Amortization		55,528			56,410
Gain on sale of investment		—			(7,929	)
Stock-based compensation		37,929			40,042
Excess tax benefits from stock-based compensation		(43,495	)		(90,548	)
Deferred income taxes		27,206			52,032
Changes in operating assets and liabilities, net of business acquisitions:
Accounts receivable		(123,601	)		(66,333	)
Inventories		(44,883	)		(39,031	)
Other current assets		(14,077	)		(27,325	)
Accounts payable and accrued expenses		59,963			18,271
Income taxes payable		17,815			20,573
Net cash provided by operating activities		648,374			486,728
INVESTING ACTIVITIES
Purchases of property, plant and equipment		(219,884	)		(211,857	)
Business acquisition payments, net of cash acquired		(93,661	)		(11,738	)
Proceeds from the sale of investment		—			12,929
Other, net		(33,914	)		(18,205	)
Net cash used in investing activities		(347,459	)		(228,871	)
FINANCING ACTIVITIES
Proceeds from exercise of stock options and stock issued		146,760			172,557
Excess tax benefits from stock-based compensation		43,495			90,548
Common stock repurchased, including related costs		(300,000	)		(999,867	)
Issuance of convertible debentures		—			1,200,000
Purchase of call options		—			(101,040	)
Proceeds from the sale of warrants		—			35,040
Borrowings under debt facilities		—			8,045,869
Payments under debt facilities		—			(8,696,224	)
Net cash used in financing activities		(109,745	)		(253,117	)
Effect of currency exchange rate changes on cash and cash equivalents		(1,022	)		5,420
Net increase in cash and cash equivalents		190,148			10,160
Cash and cash equivalents at beginning of period		389,094			79,888
Cash and cash equivalents at end of period	$	579,242		$	90,048

See notes to the condensed consolidated financial statements.

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ST. JUDE MEDICAL, INC.

NOTES TO THE 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 the Company’s 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 29, 2007 (2007 Annual Report on Form 10-K).

NOTE 2 – NEW ACCOUNTING PRONOUNCEMENTS

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

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

In May 2008, the FASB issued FSP Accounting Principles Board (APB) Opinion No. 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) (FSP APB No. 14-1). The FSP requires the proceeds from the issuance of such convertible debt instruments to be allocated between a liability and an equity component in a manner that reflects the entity’s nonconvertible debt borrowing rate when interest expense is recognized in subsequent periods. The resulting debt discount is amortized over the period the convertible debt is expected to be outstanding as additional non-cash interest expense. FSP APB No. 14-1 is effective in fiscal years beginning after December 15, 2008 and requires retrospective application to all prior periods presented. The Company’s 2009 adoption will require historical financial statements for fiscal year 2005 through fiscal year 2008 to be adjusted to conform to the FSP’s new accounting treatment for both the 1.22% Convertible Senior Debentures due 2008 (1.22% Convertible Debentures) and 2.80% Convertible Senior Debentures due 2035 (2.80% Convertible Debentures), which were issued in April 2007 and December 2005, respectively (see Note 7). The retrospective application of this new accounting treatment will primarily result in a material non-cash increase to interest expense reported in the Company’s historical financial statements.

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NOTE 3 – ACQUISITIONS

On July 3, 2008, the Company completed the acquisition of EP MedSystems, Inc. (EP MedSystems) for $95.7 million (consisting of $59.0 million in net cash consideration and closing costs and 0.9 million shares of St. Jude Medical common stock). EP MedSystems had been publicly traded on the NASDAQ Capital Market under the ticker symbol EPMD. EP MedSystems develops, manufactures and markets medical devices for the electrophysiology market which are used for visualization, diagnosis and treatment of heart rhythm disorders. The results of operations of EP MedSystems have been included in the results of the Atrial Fibrillation operating segment beginning in the third quarter of 2008. The Company acquired EP MedSystems to strengthen its portfolio of products used to treat heart rhythm disorders.

The goodwill recorded as a result of the EP MedSystems acquisition is not deductible for income tax purposes and was allocated entirely to the Company’s Atrial Fibrillation operating segment. The goodwill recognized represents future product opportunities that did not have regulatory approval at the date of acquisition. In connection with the acquisition of EP MedSystems, the Company recorded $17.0 million of developed and core technology intangible assets that have estimated useful lives of 7 to 10 years and $3.3 million of customer relationship intangible assets that have estimated useful lives of 7 to 10 years. Pro forma information relating to this acquisition is not included because its impact on the Company’s results of operations is not considered to be material. The aggregate EP MedSystems purchase price was allocated on a preliminary basis to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The preliminary allocation of the purchase price is as follows:

(in thousands)	EP MedSystems
Current assets	$	8,506
Goodwill		69,719
Other intangible assets		20,250
Deferred income taxes, net		17,213
Other long-term assets		1,101
Total assets acquired	$	116,789
Current liabilities		21,084
Net assets acquired	$	95,705
Cash paid, net of cash acquired	$	58,994
Non-cash (SJM shares at fair value)		36,711
Net assets acquired	$	95,705

During the first nine months of 2008, the Company entered into other immaterial acquisitions. On August 7, 2008, the Company’s Cardiovascular segment acquired Datascope Corporation’s vascular closure business and collagen operations for $21.8 million in cash consideration and closing costs. The Company is holding an additional $3.0 million as security for an indemnification obligation of Datascope. This holdback amount, less any amounts offset against it, will be paid to Datascope 18 months following the closing date of the transaction. The Company also acquired businesses involved in the distribution of the Company’s products for aggregate cash consideration of $12.9 million during the first nine months of 2008. Pro forma information relating to these 2008 acquisitions is not included because the impact on the Company’s results of operations is not considered to be material.

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NOTE 4 – GOODWILL AND OTHER INTANGIBLE ASSETS

The changes in the carrying amount of goodwill for each of the Company’s reportable segments (see Note 16) for the nine months ended September 27, 2008 were as follows (in thousands):

	CRM/Neuro		CV/AF			Total
Balance at December 29, 2007	$	1,196,972	$	460,341		$	1,657,313
Foreign currency translation	$	4,628	$	(167	)		4,461
EP MedSystems		—		69,719			69,719
Other		3,887		18,040			21,927
Balance at September 27, 2008	$	1,205,487	$	547,933		$	1,753,420

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

	September 27, 2008				December 29, 2007
	Gross carrying amount		Accumulated amortization		Gross carrying amount		Accumulated amortization
Purchased technology and patents	$	501,753	$	131,416	$	473,430	$	102,119
Customer lists and relationships		161,987		58,712		153,388		51,055
Trademarks and tradenames		23,300		4,401		23,300		3,236
Licenses and other		3,688		1,904		2,870		1,003
Distribution agreements		1,505		873		3,879		754
	$	692,233	$	197,306	$	656,867	$	158,167

NOTE 5 – INVENTORIES

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

	September 27, 2008		December 29, 2007
Finished goods	$	366,446	$	338,195
Work in process		39,765		32,889
Raw materials		95,259		86,650
	$	501,470	$	457,734

NOTE 6 – RESTRUCTURING ACTIVITIES

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

6

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

	Employee termination costs			Other			Total
Balance at December 29, 2007	$	17,060		$	9,683		$	26,743
Cash payments		(9,355	)		(6,811	)		(16,166	)
Foreign currency translation		760			2			762
Balance at September 27, 2008	$	8,465		$	2,874		$	11,339

NOTE 7 – DEBT

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

	September 27, 2008		December 29, 2007
1.22% Convertible senior debentures	$	1,200,000	$	1,200,000
2.80% Convertible senior debentures		5,498		5,498
1.02% Yen-denominated notes		196,611		182,493
Total long-term debt		1,402,109		1,387,991
Less: current portion of long-term debt		1,205,498		1,205,498
Long-term debt	$	196,611	$	182,493

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

The 1.22% Convertible Debentures are unsecured and unsubordinated obligations and rank equal in right of payment with all of the Company’s existing and future unsecured and unsubordinated indebtedness and junior in right of payment to all of the Company’s existing and future secured debt as well as all liabilities of the Company’s subsidiaries. The 1.22% Convertible Debentures will be effectively subordinated to the claims of creditors, including trade creditors, of the Company’s subsidiaries. As of September 27, 2008, the fair value of the 1.22% Convertible Debentures approximated their carrying value.

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

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

2.80% Convertible Senior Debentures:   In December 2005, the Company issued $660.0 million aggregate principal amount of 30-year 2.80% Convertible Debentures. The Company has the right to redeem some or all of the 2.80% Convertible Debentures for cash at any time. Interest on the 2.80% Convertible Debentures is payable on June 15 and December 15 of each year. Contingent interest of 0.25% is payable in certain circumstances. Holders of the 2.80% Convertible Debentures can require the Company to repurchase for cash some or all of the 2.80% Convertible Debentures on December 15 in the years 2006, 2008, 2010, 2015, 2020, 2025 and 2030. In December 2006, holders required the Company to repurchase $654.5 million of the 2.80% Convertible Debentures for cash. As of September 27, 2008, $5.5 million aggregate principal amount of the 2.80% Convertible Debentures remained outstanding. The remaining holders may convert each of the $1,000 principal amounts of the 2.80% Convertible Debentures into 15.5009 shares of the Company’s common stock (an initial conversion price of approximately $64.51) under certain circumstances. As of September 27, 2008, the fair value of the 2.80% Convertible Debentures approximated their carrying value.

1.02% Yen-denominated Notes:   In May 2003, the Company issued 7-year, 1.02% unsecured notes totaling 20.9 billion Yen, or $196.6 million at September 27, 2008 and $182.5 million at December 29, 2007. Interest payments are required on a semi-annual basis and the entire principal balance is due in May 2010. The U.S. Dollar principal amount reflected on the balance sheet fluctuates based on the effects of foreign currency translation. As of September 27, 2008, the fair value of these notes approximated their carrying value.

Credit Facility:   In December 2006, the Company entered into a 5-year, $1.0 billion committed credit facility that it may draw on for general corporate purposes and to support its commercial paper program. Borrowings under this facility bear interest at the prime rate or United States Dollar London InterBank Offered Rate (LIBOR) plus 0.235%, at the election of the Company. In the event over half of the facility is drawn upon, an additional five basis points is added to the elected prime or LIBOR rate. Additionally, the interest rate is subject to adjustment in the event of a change in the Company’s credit ratings. 

Commercial Paper Borrowings: The Company’s commercial paper program provides for the issuance of short-term, unsecured commercial paper with maturities up to 270 days. The Company did not have any outstanding commercial paper borrowings during the nine months ended September 27, 2008. Any future commercial paper borrowings would bear interest at the applicable then-current market rates.

Subsequent Event:   In October 2008, the Company borrowed $500.0 million from its $1.0 billion long-term committed credit facility. The Company intends to utilize these proceeds as well as cash from operations to fund the repayment of its 1.22% Convertible Debentures and 2.80% Convertible Debentures during the fourth quarter of 2008.

NOTE 8 – COMMITMENTS AND CONTINGENCIES

Litigation

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

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 beginning in March 2000 by some patients who received a product with Silzone® coating and, as of October 17, 2008, such cases are pending in the United States, Canada, and France. Some of these claimants allege bodily injuries as a result of an explant or other complications, which they attribute to Silzone®-coated products. Others, who have not had their Silzone®-coated heart valve explanted, seek compensation for past and future costs of special monitoring they allege they need over and above the medical monitoring all other replacement heart valve patients receive. Some of the lawsuits seeking the cost of monitoring have been initiated by patients who are asymptomatic and who have no apparent clinical injury to date. The Company has vigorously defended against the claims that have been asserted and expects to continue to do so with respect to any remaining claims.

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

In October 2001, eight class-action complaints were consolidated into one class action case by the District Court. The Company requested the Eighth Circuit Court of Appeals (the Eighth Circuit) to review the District Court’s initial class certification orders and, in October 2005, the Eighth Circuit issued a decision reversing the District Court’s class certification rulings and directed the District Court to undertake further proceedings. In October 2006, the District Court granted plaintiffs’ renewed motion to certify a nationwide consumer protection class under Minnesota’s consumer protection statutes and Private Attorney General Act. The Company again requested the Eighth Circuit to review the District Court’s class certification orders and, in April 2008, the Eighth Circuit again issued a decision reversing the District Court’s October 2006 class certification rulings. The order by the Eighth Circuit returned the case to the District Court for continued proceedings. Plaintiffs have recently requested the District Court to certify a new class. The Company is vigorously defending against such certification.

There are 12 individual state court suits concerning Silzone®-coated products pending as of October 17, 2008, involving 12 patients. These cases are venued in Minnesota, Nevada and Texas. The complaints in these state court cases are requesting damages ranging from $10 thousand to $100 thousand and, in some cases, seek an unspecified amount. The most recent individual state court complaint was served upon the Company in February 2008. These state court cases are proceeding in accordance with the orders issued by the judges in those matters. As of October 17, 2008, there are no individual Silzone® cases pending in federal court.

In addition, a lawsuit seeking a class action for all persons residing in the European Economic Union member jurisdictions who have had a heart valve replacement and/or repair procedure using a product with Silzone® coating was filed in Minnesota state court and served upon the Company in February 2004 by two European citizens who now reside in Canada. The complaint seeks damages in an unspecified amount for the class, and in excess of $50 thousand for each plaintiff. The complaint also seeks injunctive relief in the form of medical monitoring. The Company opposed the plaintiffs’ pursuit of this case on jurisdictional, procedural and substantive grounds, and in April 2008, the Minnesota state court denied the plaintiffs’ request for class certification. The time for appeal has expired.

In Canada, there are also four class-action cases and 2 individual cases pending against the Company. In one such case in Ontario, the court certified that a class action involving Silzone® patients may proceed, and the trial of the initial phase of this matter is scheduled for March 2009. A second case seeking class action status in Ontario has been stayed pending resolution of the other Ontario action. A case filed as a class action in British Columbia remains pending. A court in Quebec has certified a class action, and that matter is proceeding in accordance with the court orders. Additionally, in December 2005, the Company was served with a lawsuit by the Quebec Provincial health insurer to recover the cost of insured services furnished or to be furnished to class members in the class action pending in Quebec. The complaints in these cases request damages ranging from 1.5 million to 2.0 billion Canadian Dollars (the equivalent to $1.4 million to $1.9 billion at September 27, 2008).

In France, one case involving one plaintiff was pending as of October 17, 2008. In November 2004, an Injunctive Summons to Appear was served, requesting damages in excess of 3 million Euros (the equivalent to $4.4 million at September 27, 2008).

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

The Company has recorded an accrual for probable legal costs that it will incur to defend the various cases involving Silzone®-coated products, and the Company has recorded a receivable from its product liability insurance carriers for amounts expected to be recovered. The Company has not accrued for any amounts associated with settlements or judgments because potential losses cannot be reasonably estimated. Based on the Company’s experience in these types of individual cases, the amount ultimately paid, if any, often does not bear any relationship to the amount claimed by the plaintiffs and is often significantly less than the amount claimed. Management expects that any costs (the material components of which are settlements, judgments, legal fees and other related defense costs) not covered by the Company’s product liability insurance policies or existing reserves will not have a material adverse effect on the Company’s consolidated financial position, although such costs may be material to the Company’s consolidated earnings and cash flows of a future period. As of September 27, 2008, the Company’s Silzone® litigation reserve was $23.4 million and its receivable from insurance carriers was $21.6 million.

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

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

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

Guidant’s original suit alleged infringement of four patents by the Company. Guidant later dismissed its claim on the first patent and the district court ruled that the second patent was invalid, and this ruling was later upheld by the Court of Appeals for the Federal Circuit (CAFC). The third patent was found to be invalid by the district court. The fourth patent (the ‘288 patent) was initially found to be invalid by the district court judge, but the CAFC reversed this decision in August 2004. The case was returned to the district court in November 2004. The district court issued rulings on claims construction and a response to motions for summary judgment in March 2006. Guidant’s special request to appeal certain aspects of these rulings was rejected by the CAFC. In March 2007, the district court judge responsible for the case granted summary judgment in favor of the Company, ruling that the only remaining patent claim (the ‘288 patent) asserted against the Company in the case was invalid. In April 2007, Guidant appealed the district court’s March 2007 and March 2006 rulings. In October 2008, the CAFC heard oral arguments on this appeal. A decision from the CAFC is expected in 2009.

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

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

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

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

Securities Class Action Litigation:  In April and May 2006, five shareholders, each purporting to act on behalf of a class of purchasers during the period January 25 through April 4, 2006 (the Class Period), separately sued the Company and certain of its officers in federal district court in Minnesota alleging that the Company made materially false and misleading statements during the Class Period relating to financial performance, projected earnings guidance and projected sales of ICDs. The complaints, all of which seek unspecified damages and other relief, as well as attorneys’ fees, have been consolidated. The Company filed a motion to dismiss, which was denied by the district court in March 2007. The discovery process concluded in September, and the Company has filed a motion for summary judgment scheduled to be argued on December 5, 2008. The Company intends to vigorously defend against the claims asserted in these actions. The Company’s directors and officers liability insurance provides $75 million of insurance coverage for the Company, the officers and the directors, after a $15 million self-insured retention level has been reached.

Derivative Action: In February 2007, a derivative action was filed in state court in Minnesota which purported to bring claims belonging to the Company against the Company’s Board of Directors and various officers and former officers for alleged malfeasance in the management of the Company. The claims were based on substantially the same allegations as those underlying the securities class action litigation described above. The defendants (consisting of the Company’s Board of Directors and various officers and former officers) filed a motion to dismiss, and in June 2007 the state court granted the motion, thus dismissing the derivative case for failure of the complainant to make a demand on the Board. In September 2007, the plaintiff sent a shareholder demand letter to the Board. The Board considered the letter at its October 25, 2007 Board meeting and requested that the complainant provide it with details to substantiate the allegations. To date, the complainant has not provided any material facts to support the allegations. In June 2008, the complainant filed a derivative action against the defendants again. The defendants have filed a motion to dismiss that complaint and intend to continue to vigorously defend against the claims asserted in this action.

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 ICDs and pacemakers. 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.

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Changes in the Company’s product warranty liability during the three and nine months ended September 27, 2008 and September 29, 2007 were as follows (in thousands):

	Three Months Ended						Nine Months Ended
	September 27, 2008			September 29, 2007			September 27, 2008			September 29, 2007
Balance at beginning of period	$	17,276		$	15,845		$	16,691		$	12,835
Warranty expense recognized		850			925			2,423			4,858
Warranty credits issued		(488	)		(214	)		(1,476	)		(1,137	)
Balance at end of period	$	17,638		$	16,556		$	17,638		$	16,556

Other Commitments

The Company has certain contingent commitments to acquire various businesses involved in the distribution of the Company’s products and to pay other contingent acquisition consideration payments. While it is not certain if and/or when these payments will be made, as of September 27, 2008, the Company estimates it could be required to pay approximately $125 million in future periods to satisfy such commitments. Refer to Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations – Off-Balance Sheet Arrangements and Contractual Obligations of the Company’s 2007 Annual Report on Form 10-K for additional information.

NOTE 9 – SHAREHOLDERS’ EQUITY

On February 22, 2008, the Company’s Board of Directors authorized a share repurchase program of up to $250.0 million of the Company’s outstanding common stock. On April 8, 2008, the Company’s Board of Directors authorized an additional $50.0 million of share repurchases as part of this share repurchase program. The Company ultimately completed the repurchases under the program on May 1, 2008. In total, the Company repurchased 6.7 million shares for $300.0 million.

In January 2007, the Company’s Board of Directors authorized a share repurchase program of up to $1.0 billion of the Company’s outstanding common stock. In the first quarter of 2007, the Company repurchased $700.0 million of its outstanding common stock. The Company ultimately completed the repurchases under the program on May 8, 2007. In total, the Company repurchased 23.6 million shares for $1.0 billion.

NOTE 10 – SPECIAL CHARGES

In June 2007, the Company settled the Guidant 2004 patent litigation matter and recorded a pre-tax charge of $35.0 million. This matter originated in February 2004, when 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 certain patents owned or licensed by Guidant.

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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				Nine Months Ended
	September 27, 2008		September 29, 2007		September 27, 2008		September 29, 2007
Numerator:
Net earnings	$	192,943	$	160,239	$	578,783	$	440,764
Denominator:
Basic weighted average shares outstanding		342,698		340,360		342,352		342,042
Effect of dilutive securities:
Stock options		6,976		9,798		7,561		10,893
Restricted shares		54		80		71		92
Diluted weighted average shares outstanding		349,728		350,238		349,984		353,027
Basic net earnings per share	$	0.56	$	0.47	$	1.69	$	1.29
Diluted net earnings per share	$	0.55	$	0.46	$	1.65	$	1.25

Approximately 8.9 million and 8.7 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 September 27, 2008 and September 29, 2007, respectively, because they were not dilutive. Additionally, approximately 11.9 million and 10.4 million shares of common stock subject to stock options and restricted stock were excluded from the diluted net earnings per share computation for the nine months ended September 27, 2008 and September 29, 2007, respectively, because they were not dilutive.

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

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

NOTE 12 – COMPREHENSIVE INCOME

The table below sets forth the amounts in other comprehensive income, net of the related income tax impact (in thousands):

	Three Months Ended						Nine Months Ended
	September 27, 2008			September 29, 2007			September 27, 2008			September 29, 2007
Net earnings	$	192,943		$	160,239		$	578,783		$	440,764
Other comprehensive income (loss):
Cumulative translation adjustment		(64,102	)		34,273			(11,724	)		61,872
Unrealized loss on available-for-sale securities		(2,022	)		(2,380	)		(6,327	)		(5,859	)
Reclassification of realized gain to net earnings		—			—			—			(4,916	)
Total comprehensive income	$	126,819		$	192,132		$	560,732		$	491,861

Upon the sale of an available-for-sale investment, the unrealized gain (loss) is reclassified out of other comprehensive income and reflected as a realized gain (loss) in net earnings. In the first quarter of 2007, the Company sold an available-for-sale investment, recognizing a realized after-tax gain of $4.9 million. The total pre-tax gain of $7.9 million was recognized as other income (see Note 13).

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NOTE 13 – OTHER INCOME (EXPENSE), NET

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

	Three Months Ended						Nine Months Ended
	September 27, 2008			September 29, 2007			September 27, 2008			September 29, 2007
Interest income	$	3,258		$	909		$	10,605		$	2,039
Interest expense		(5,120	)		(7,997	)		(15,238	)		(32,811	)
Other		(3,079	)		(537	)		(2,747	)		7,529
Total other income (expense), net	$	(4,941	)	$	(7,625	)	$	(7,380	)	$	(23,243	)

NOTE 14 – INCOME TAXES

As of September 27, 2008, the Company had approximately $95.1 million of unrecognized tax benefits, all of which would affect the Company’s effective tax rate if recognized. The Company had $22.4 million accrued for interest and penalties as of September 27, 2008. The Company recognizes interest and penalties related to income tax matters in income tax expense. The Company does not expect its unrecognized tax benefits to change significantly over the next 12 months.

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

NOTE 15 – FAIR VALUE MEASUREMENTS

The Company has marketable securities that it records at fair value based on quoted prices in an active market. The marketable securities consist of publicly-traded equity securities that are classified as available-for-sale securities and investments in mutual funds that are classified as trading securities. On the balance sheet, available-for-sale securities and trading securities are classified as other current assets and other assets, respectively. The fair value of the Company’s available-for-sale securities was $21.9 million and $32.4 million at September 27, 2008 and December 29, 2007, respectively.

The Company’s investments in mutual funds are specifically designated as available to the Company solely for the purpose of paying benefits under the Company’s non-qualified deferred compensation plan. The Company holds these investments in a rabbi trust which is not available for general corporate purposes and is subject to creditor claims in the event of insolvency. The fair value of these investments totaled $138.9 million at September 27, 2008 and $139.1 million at December 29, 2007.

NOTE 16 – SEGMENT AND GEOGRAPHIC INFORMATION

Segment Information

The Company develops, manufactures and distributes cardiovascular medical devices for the global cardiac rhythm management, cardiovascular and atrial fibrillation therapy areas and implantable neurostimulation devices for the management of chronic pain. The Company’s four operating segments are Cardiac Rhythm Management (CRM), Cardiovascular (CV), Atrial Fibrillation (AF) and Neuromodulation (Neuro). 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; CV – vascular closure devices and heart valve replacement and repair products; AF – electrophysiology introducers and catheters, advanced cardiac mapping and navigation systems and ablation systems; and Neuro – neurostimulation devices.

The Company has aggregated the four operating segments into two reportable segments based upon their similar operational and economic characteristics: CRM/Neuro and CV/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 reportable segment. 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. As a result, reportable segment operating profit is not representative of the operating profit of the products in these reportable segments. Additionally, certain assets are managed by the Company’s selling and corporate functions, principally including end-customer receivables, inventory, corporate cash and cash equivalents and deferred income taxes. For management reporting purposes, the Company does not compile capital expenditures by reportable segment and, therefore, this information has not been presented as it is impracticable to do so.

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

	CRM/Neuro		CV/AF		Other			Total
Three Months ended September 27, 2008:
Net sales	$	742,668	$	341,468	$	—		$	1,084,136
Operating profit		462,957		178,096		(363,222	)		277,831
Three Months ended September 29, 2007:
Net sales	$	638,514	$	288,326	$	—		$	926,840
Operating profit		390,264		141,247		(304,380	)		227,131
Nine Months ended September 27, 2008:
Net sales	$	2,198,384	$	1,032,250	$	—		$	3,230,634
Operating profit		1,362,630		546,393		(1,078,339	)		830,684
Nine Months ended September 29, 2007:
Net sales	$	1,882,356	$	878,798	$	—		$	2,761,154
Operating profit		1,148,114		423,637		(949,756	)		621,995

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

Total Assets	September 27, 2008		December 29, 2007
CRM/Neuro	$	2,035,450	$	1,977,174
CV/AF		968,700		769,194
Other		2,948,181		2,583,036
	$	5,952,331	$	5,329,404

Geographic Information

The following table presents net sales by geographic location of the customer (in thousands):

	Three Months Ended				Nine Months Ended
Net Sales	September 27, 2008		September 29, 2007		September 27, 2008		September 29, 2007
United States	$	587,784	$	526,171	$	1,707,794	$	1,565,427
International
Europe		277,017		215,026		863,895		673,481
Japan		90,923		82,070		276,211		224,236
Asia Pacific		60,631		52,358		176,824		141,257
Other (a)		67,781		51,215		205,910		156,753
		496,352		400,669		1,522,840		1,195,727
	$	1,084,136	$	926,840	$	3,230,634	$	2,761,154

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

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The following table presents long-lived assets by geographic location (in thousands):

Long-Lived Assets	September 27, 2008		December 29, 2007
United States	$	3,046,020	$	2,840,259
International
Europe		137,700		136,661
Japan		107,967		89,309
Asia Pacific		14,026		13,134
Other		125,608		121,858
		385,301		360,962
	$	3,431,321	$	3,201,221

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

Our business is focused on the development, manufacture and distribution of cardiovascular medical devices for the global cardiac rhythm management, cardiovascular and atrial fibrillation therapy areas and implantable neurostimulation devices for the management of chronic pain. We sell our products in more than 100 countries around the world. Our largest geographic markets are the United States, Europe, Japan and Asia Pacific. Our four operating segments are Cardiac Rhythm Management (CRM), Cardiovascular (CV), Atrial Fibrillation (AF) and Neuromodulation (Neuro). 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); CV – vascular closure devices and heart valve replacement and repair products; AF – electrophysiology introducers and catheters, advanced cardiac mapping, recording and navigation systems and ablation systems; and Neuro – neurostimulation devices. References to “St. Jude Medical,” “St. Jude,” “the Company,” “we,” “us” and “our” are to St. Jude Medical, Inc. and its subsidiaries.

We participate in several different medical device markets, each of which has its own expected growth rate. A significant portion of our net sales relate to CRM devices – ICDs and pacemakers. Management remains focused on increasing our worldwide CRM market share, as we are one of three principal manufacturers and suppliers in the global CRM market. In order to help accomplish this objective, we have continued to expand our selling organizations and introduce new CRM products.

Net sales in the third quarter and first nine months of 2008 were $1,084.1 million and $3,230.6 million, respectively, increases of 17% over both the third quarter and first nine months of 2007, led by growth in sales of our ICDs and pacemakers as well as products to treat atrial fibrillation. Our ICD and pacemaker net sales grew 20% and 10%, respectively, in the third quarter of 2008, and 21% and 11%, respectively, during the first nine months of 2008. Additionally, AF net sales increased nearly 35% and 33% during the three and nine months ended September 27, 2008 to $135.0 million and $389.2 million, respectively. Favorable foreign currency translation comparisons increased third quarter fiscal 2008 sales by $40.1 million and increased the first nine month fiscal 2008 sales by $149.8 million. Refer to the Segment Performance section below for a more detailed discussion of the results for the respective segments.

Net earnings and diluted net earnings per share for the third quarter of 2008 were $192.9 million and $0.55 per diluted share, increases of 20% and 21%, respectively, compared to the same prior year period. Net earnings and diluted net earnings per share for the first nine months of 2008 were $578.8 million and $1.65 per diluted share, increases of 31% and 32%, respectively, over the first nine months of 2007. These increases for both the third quarter and first nine months of 2008 compared to the same prior year periods were primarily driven by incremental profits resulting from higher sales, led by our CRM and AF operating segments. Additionally, the first nine months of 2007 were unfavorably impacted by an after-tax $21.9 million special charge, or $0.06 per diluted share, related to the settlement of the Guidant 2004 patent litigation. 

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We generated $648.4 million of operating cash flows for the first nine months of 2008, compared to $486.7 million of operating cash flows for the first nine months of 2007. We ended the third quarter with $579.2 million of cash and cash equivalents and $1,402.1 million of total debt. We have strong short-term credit ratings, with an A2 rating from Standard & Poor’s and a P2 rating from Moody’s. During the second quarter of 2008, Standard & Poor’s raised our long-term debt rating to A- from BBB+.

NEW ACCOUNTING PRONOUNCEMENTS

Information regarding new accounting pronouncements 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 Annual Report on Form 10-K for the fiscal year ended December 29, 2007 (2007 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 purchased in-process research and development, other intangible assets and goodwill; income taxes; legal reserves and insurance receivables; and stock-based compensation. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, and the results form the basis for making judgments about the reported values of assets, liabilities, revenues and expenses. Actual results may differ from these estimates. 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 2007 Annual Report on Form 10-K.

ACQUISITIONS

On July 3, 2008, we completed our acquisition of EP MedSystems, Inc. (EP MedSystems) for $95.7 million (consisting of $59.0 million in net cash consideration and closing costs and 0.9 million shares of St. Jude Medical common stock). EP MedSystems had been publicly traded on the NASDAQ Capital Market under the ticker symbol EPMD. EP MedSystems develops, manufactures, and markets medical devices for the electrophysiology market which are used for visualization, diagnosis and treatment of heart rhythm disorders. The results of operations of EP MedSystems have been included in the results of our Atrial Fibrillation operating segment beginning in the third quarter of 2008. The Company acquired EP MedSystems to strengthen its portfolio of products used to treat heart rhythm disorders.

On August 7, 2008, we acquired Datascope Corporation’s vascular closure business and collagen operations for $21.8 million in cash consideration and closing costs, and the results of operations have been included in the Cardiovascular operating segment. During the first nine months of 2008, we also acquired businesses involved in the distribution of our products for aggregate cash consideration of $12.9 million.

SEGMENT PERFORMANCE

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

We aggregate our four operating segments into two reportable segments based upon their similar operational and economic characteristics: CRM/Neuro and CV/AF. Net sales of our reportable segments include end-customer revenues from the sale of products they each develop and manufacture. The costs included in each of the reportable segments’ operating results include the direct costs of the products sold to end-customers and operating expenses managed by each reportable segment. 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. As a result, reportable segment operating profit is not representative of the operating profit of the products in these reportable segments.

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

	CRM/Neuro		CV/AF		Other			Total
Three Months ended September 27, 2008:
Net sales	$	742,668	$	341,468	$	—		$	1,084,136
Operating profit		462,957		178,096		(363,222	)		277,831
Three Months ended September 29, 2007:
Net sales	$	638,514	$	288,326	$	—		$	926,840
Operating profit		390,264		141,247		(304,380	)		227,131
Nine Months ended September 27, 2008:
Net sales	$	2,198,384	$	1,032,250	$	—		$	3,230,634
Operating profit		1,362,630		546,393		(1,078,339	)		830,684
Nine Months ended September 29, 2007:
Net sales	$	1,882,356	$	878,798	$	—		$	2,761,154
Operating profit		1,148,114		423,637		(949,756	)		621,995

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

Cardiac Rhythm Management

	Three Months Ended					Nine Months Ended
(in thousands)	September 27, 2008		September 29, 2007		% Change	September 27, 2008		September 29, 2007		% Change
ICD systems	$	381,062	$	317,769	19.9%	$	1,147,791	$	947,175	21.2%
Pacemaker systems		297,146		269,844	10.1%		873,991		784,410	11.4%
	$	678,208	$	587,613	15.4%	$	2,021,782	$	1,731,585	16.8%

Cardiac Rhythm Management net sales increased 15% in the third quarter of 2008 compared to the third quarter of 2007 and increased 17% in the first nine months of 2008 over the same period one year ago. CRM net sales increases for both the third quarter and first nine months of 2008 were driven by volume growth. Foreign currency translation also had a $24.3 million and $89.9 million favorable impact on CRM net sales during the third quarter and first nine months of 2008, respectively, compared to the same periods in 2007.

ICD net sales increased 20% and 21% in the third quarter and first nine months of 2008, respectively, compared to the same periods in 2007, due to strong volume growth. The volume growth in ICD net sales in the third quarter and first nine months of 2008 was broad-based across both U.S. and international markets and reflects our continued market penetration into new customer accounts and strong market demand for our cardiac resynchronization therapy ICD devices. In the United States, third quarter 2008 ICD net sales of $247.9 million increased 12% over last year’s third quarter. Internationally, third quarter 2008 ICD net sales of $133.2 million increased 39% compared to the third quarter of 2007. Foreign currency translation had a $10.5 million favorable impact on international ICD net sales during the third quarter of 2008 compared to the same period in 2007. In the United States, the first nine months of 2008 ICD net sales of $736.4 million increased 12% over the same period last year. Internationally, the first nine months of 2008 ICD net sales of $411.4 million increased 42% compared to the first nine months of 2007. Foreign currency translation had a $41.4 million favorable impact on international ICD net sales during the first nine months of 2008 compared to the same period in 2007.

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Pacemaker net sales increased 10% and 11% in the third quarter and first nine months of 2008, respectively, compared to the same periods in 2007, driven by strong volume growth. In the United States, third quarter 2008 pacemaker net sales of $133.9 million increased 2% compared to the same period last year. Internationally, third quarter 2008 pacemaker net sales of $163.2 million increased nearly 18% compared to the third quarter of 2007. Foreign currency translation had a $13.8 million favorable impact on international pacemaker net sales in the third quarter of 2008 compared to the same period last year. In the United States, the first nine months of 2008 pacemaker net sales of $389.4 million increased 2% compared to the same period last year. Internationally, the first nine months of 2008 pacemaker net sales of $484.6 million increased 20% compared to the first nine months of 2007. Foreign currency translation had a $48.5 million favorable impact on international pacemaker net sales during the first nine months of 2008 compared to the same period last year.

Cardiovascular

	Three Months Ended					Nine Months Ended
(in thousands)	September 27, 2008		September 29, 2007		% Change	September 27, 2008		September 29, 2007		% Change
Vascular closure devices	$	89,103	$	84,579	5.3%	$	276,146	$	263,457	4.8%
Heart valve products		78,095		68,374	14.2%		242,938		215,816	12.6%
Other cardiovascular products		39,306		35,048	12.1%		123,928		106,044	16.9%
	$	206,504	$	188,001	9.8%	$	643,012	$	585,317	9.9%

Cardiovascular net sales increased 10% during both the third quarter and first nine months of 2008 compared to the same periods in 2007. CV net sales were favorably impacted by positive foreign currency translation impacts of $9.9 million and $37.5 million during the third quarter and first nine months of 2008, respectively, compared to the same periods last year.

Net sales of vascular closure devices increased 5% during both the third quarter and first nine months of 2008 compared to the same periods last year, driven by favorable foreign currency translation and increased sales volumes. Our Angio-Seal™ device continues to be the market share leader in the vascular closure device market. Heart valve net sales increased 14% and 13% during the third quarter and first nine months of 2008, respectively, compared to the same periods last year primarily due to increased sales volumes. Net sales of other cardiovascular products increased $4.3 million and $17.9 million during the third quarter and first nine months of 2008, respectively, compared to the same periods last year due to favorable foreign currency translation and increased sales volumes.

Atrial Fibrillation

	Three Months Ended					Nine Months Ended
(in thousands)	September 27, 2008		September 29, 2007		% Change	September 27, 2008		September 29, 2007		% Change
Atrial fibrillation products	$	134,964	$	100,325	34.5%	$	389,238	$	293,481	32.6%

Atrial Fibrillation net sales increased 35% and 33% during the third quarter and first nine months of 2008, respectively, compared to the same periods last year. The increases in AF net sales were driven by volume growth from continued market acceptance of device-based ablation procedures to treat the symptoms of atrial fibrillation. Our access, diagnosis, visualization and ablation products assist physicians in diagnosing and treating atrial fibrillation and other irregular heart rhythms. Foreign currency translation had a favorable impact on AF net sales of $5.1 million and $19.7 million during the third quarter and first nine months of 2008, respectively, compared to the same periods in 2007.

Neuromodulation

	Three Months Ended					Nine Months Ended
(in thousands)	September 27, 2008		September 29, 2007		% Change	September 27, 2008		September 29, 2007		% Change
Neurostimulation devices	$	64,460	$	50,901	26.6%	$	176,602	$	150,771	17.1%

Neuromodulation net sales increased 27% and 17% during the third quarter and first nine months of 2008, respectively, compared to the same prior year periods. The increases in Neuro net sales were driven by continued growth in the neuromodulation market.

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RESULTS OF OPERATIONS

Net Sales

	Three Months Ended					Nine Months Ended
(in thousands)	September 27, 2008		September 29, 2007		% Change	September 27, 2008		September 29, 2007		% Change
Net sales	$	1,084,136	$	926,840	17.0%	$	3,230,634	$	2,761,154	17.0%

Overall, net sales increased 17% during both the third quarter and first nine months of 2008 compared to the same prior year periods. Net sales growth was favorably impacted by strong volume growth, driven primarily by our CRM and AF product sales. Additionally, foreign currency translation had a favorable impact on the third quarter and first nine months of 2008 of $40.1 million and $149.8 million, respectively, due primarily to the strengthening of both the Euro and the Japanese Yen against the U.S. Dollar. These amounts are not indicative of the net earnings impact of foreign currency translation for the third quarter and first nine months of 2008 due to partially offsetting unfavorable foreign currency translation impacts on cost of sales and operating expenses.

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

	Three Months Ended				Nine Months Ended
Net Sales	September 27, 2008		September 29, 2007		September 27, 2008		September 29, 2007
United States	$	587,784	$	526,171	$	1,707,794	$	1,565,427
International
Europe		277,017		215,026		863,895		673,481
Japan		90,923		82,070		276,211		224,236
Asia Pacific		60,631		52,358		176,824		141,257
Other (a)		67,781		51,215		205,910		156,753
		496,352		400,669		1,522,840		1,195,727
	$	1,084,136	$	926,840	$	3,230,634	$	2,761,154

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

Gross Profit

	Three Months Ended				Nine Months Ended
(in thousands)	September 27, 2008		September 29, 2007		September 27, 2008		September 29, 2007
Gross profit	$	810,210	$	681,981	$	2,408,530	$	2,024,295
Percentage of net sales		74.7%		73.6 %		74.6 %		73.3 %

Gross profit for the third quarter of 2008 totaled $810.2 million, or 74.7% of net sales, compared to $682.0 million, or 73.6% of net sales, for the third quarter of 2007. Gross profit for the first nine months of 2008 totaled $2,408.5 million, or 74.6% of net sales, compared to $2,024.3 million, or 73.3% of net sales, for the first nine months of 2007. The increase in our gross profit percentage for both the third quarter and first nine months of 2008 is due primarily to favorable foreign currency translation and favorable product mix.

Selling, General and Administrative (SG&A) Expense

	Three Months Ended				Nine Months Ended
(in thousands)	September 27, 2008		September 29, 2007		September 27, 2008		September 29, 2007
Selling, general and administrative	$	401,325	$	337,823	$	1,184,702	$	1,014,857
Percentage of net sales		37.0 %		36.4 %		36.7%		36.8 %

SG&A expense for the third quarter of 2008 totaled $401.3 million, or 37.0% of net sales, compared to $337.8 million, or 36.4% of net sales, for the third quarter of 2007. SG&A expense for the first nine months of 2008 totaled $1,184.7 million, or 36.7% of net sales, compared to $1,014.9 million, or 36.8% of net sales, for the first nine months of 2007. Our SG&A expense as a percent of net sales can fluctuate on a comparative quarter basis. For the first nine months of 2008, SG&A as a percent of net sales has remained consistent with the first nine months of 2007.

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Research and Development (R&D) Expense

	Three Months Ended				Nine Months Ended
(in thousands)	September 27, 2008		September 29, 2007		September 27, 2008		September 29, 2007
Research and development expense	$	131,054	$	117,027	$	393,144	$	352,443
Percentage of net sales		12.1%		12.6%		12.2%		12.8%

R&D expense in the third quarter of 2008 totaled $131.1 million, or 12.1% of net sales, compared to $117.0 million, or 12.6% of net sales, for the third quarter of 2007. R&D expense in the first nine months of 2008 totaled $393.1 million, or 12.2% of net sales, compared to $352.4 million, or 12.8% of net sales, for the first nine months of 2007. While 2008 R&D expense as a percent of net sales has decreased compared to 2007, total R&D expense in absolute terms increased approximately 12% for both the third quarter and first nine months of 2008 compared to the same periods in 2007. These increases reflect our continuing commitment to fund future long-term growth opportunities. We continue to balance delivering short-term results with our investments in long-term growth drivers.

Special Charges

In June 2007, we settled the Guidant 2004 patent litigation and recorded a related pre-tax special charge of $35.0 million. This matter originated in February 2004, when Guidant sued us in federal district court in Delaware alleging that our Epic® HF ICD, Atlas® + HF ICD and Frontier™ devices infringe certain patents owned or licensed by Guidant.

Other Income (Expense), net

	Three Months Ended						Nine Months Ended
(in thousands)	September 27, 2008			September 29, 2007			September 27, 2008			September 29, 2007
Interest income	$	3,258		$	909		$	10,605		$	2,039
Interest expense		(5,120	)		(7,997	)		(15,238	)		(32,811	)
Other		(3,079	)		(537	)		(2,747	)		7,529
Total other income (expense), net	$	(4,941	)	$	(7,625	)	$	(7,380	)	$	(23,243	)

The favorable change in other income (expense) during the third quarter and first nine months of 2008 compared with the same periods in 2007 was the result of lower interest expense driven by lower average outstanding debt balances during the third quarter of 2008 as well as lower interest rates during the first nine months of 2008 related to our 1.22% Convertible Senior Debentures due 2008 (1.22% Convertible Debentures) issued in April 2007. The increase in interest income during the third quarter and first nine months of 2008 was due to higher average invested cash balances compared to the same periods in 2007. During the first quarter of 2007, we also realized a $7.9 million gain associated with the sale of a common stock investment, which was recorded in the other income category.

Income Taxes

	Three Months Ended		Nine Months Ended
(as a percent of pre-tax income)	September 27, 2008	September 29, 2007	September 27, 2008	September 29, 2007
Effective tax rate	29.3%	27.0%	29.7%	26.4%

Our effective income tax rate was 29.3% and 27.0% for the third quarter of 2008 and 2007, respectively, and 29.7% and 26.4% for the first nine months of 2008 and 2007, respectively. The after-tax $21.9 million special charge related to the settlement of the Guidant 2004 patent litigation favorably impacted the effective tax rate for the nine months ended September 29, 2007 by 1.0%. Our 2008 effective tax rates for the three and nine months ended September 27, 2008 were unfavorably impacted by the absence of tax benefits related to the Federal Research and Development tax credit (R&D tax credit), which had not yet been extended for 2008 as of September 27, 2008. As legislation to retroactively reinstate the R&D tax credit for the full year of 2008 and also for 2009 was enacted and signed into law on October 3, 2008, the full year 2008 benefit of the R&D tax credit will be recorded in the fourth quarter of 2008.

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LIQUIDITY

We believe that our existing cash balances, available credit facility borrowings 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. In October 2008, we borrowed $500.0 million from our $1.0 billion long-term committed credit facility. We intend to utilize these proceeds as well as existing cash balances and cash from operations to fund the repayment of our convertible debentures during the fourth quarter of 2008. Should additional 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. Recent disruptions in the global financial markets may adversely impact the availability and cost of capital. At September 27, 2008, our short-term credit ratings were A2 from Standard & Poor’s and P2 from Moody’s. Our Standard & Poor’s long-term debt rating at September 27, 2008 was A-. The ratings are not a recommendation to buy, sell or hold our securities, may be changed, superseded or withdrawn at any time and should be evaluated independently of any other rating.

At September 27, 2008, a portion of our cash and cash equivalents was held by our non-U.S. subsidiaries. These funds are only available for use by our U.S. operations if they are repatriated into the United States. The funds repatriated would be subject to additional U.S. taxes upon repatriation which could range from 0% to 33% of the amount repatriated.

We use two primary measures that focus on accounts receivable and inventory – days sales outstanding (DSO) and days inventory on hand (DIOH). We use DSO as a measure that places emphasis on how quickly we collect our accounts receivable balances from customers. We use DIOH, which can also be expressed as a measure of the estimated number of days of cost of sales on hand, as a measure that places emphasis on how efficiently we are managing our inventory levels. These measures may not be computed the same as similarly titled measures used by other companies.

Our DSO (ending net accounts receivable divided by average daily sales for the quarter) increased from 92 days at December 29, 2007 to 96 days at September 27, 2008. Our DIOH (ending net inventory divided by average daily cost of sales for the most recent six months) increased from 152 days at December 29, 2007 to 163 days at September 27, 2008. Special charges recorded in 2007 cost of sales reduced our December 29, 2007 DIOH by 11 days.

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

	Nine Months Ended
	September 27, 2008			September 29, 2007
Net cash provided by (used in):
Operating activities	$	648,374		$	486,728
Investing activities		(347,459	)		(228,871	)
Financing activities		(109,745	)		(253,117	)
Effect of currency exchange rate changes on cash and cash equivalants		(1,022	)		5,420
Net increase in cash and cash equivalants	$	190,148		$	10,160

Operating Cash Flows

Cash provided by operating activities was $648.4 million during the first nine months of 2008 compared to $486.7 million during the first nine months of 2007. Operating cash flows can fluctuate significantly from period to period due to payment timing differences of working capital accounts such as accounts receivable and accounts payable. Operating cash flows improved during the first nine months of 2008 compared to the same prior year period due to increased net earnings driven by net sales growth in our CRM and AF operating segments and improved working capital during the comparative periods.

Investing Cash Flows

Cash used in investing activities was $347.5 million during the first nine months of 2008 compared to $228.9 million during the same period last year. Our purchases of property, plant and equipment, which totaled $219.9 million and $211.9 million in the first nine months of 2008 and 2007, respectively, reflect our continued investment in our CRM and AF operating segments to support the product growth platforms currently in place. During the third quarter of 2008, we acquired EP MedSystems for $59.0 million of net cash consideration and St. Jude Medical common stock with a fair value of $36.7 million. Additionally, we acquired Datascope Corporation’s vascular closure business and collagen operations for $21.8 million of net cash consideration. We also acquired various other businesses involved in the distribution of our products for aggregate cash consideration of $12.9 million and $11.7 million in the first nine months of 2008 and 2007, respectively. During the first nine months of 2007, we received proceeds of $12.9 million due to liquidating our minority interest in Conor Medical, Inc., as a result of its acquisition by Johnson and Johnson, Inc.

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Financing Cash Flows

Cash used in financing activities was $109.7 million during the first nine months of 2008 compared to $253.1 million of cash used in financing activities in the first nine months of 2007. Our financing cash flows can fluctuate significantly depending upon our liquidity needs and the amount of stock option exercises. During the second quarter of 2008, we used our outstanding cash balances to repurchase $300.0 million of our common stock. Comparatively, during the first nine months of 2007, we repurchased approximately $1.0 billion of our common stock, which was financed through a portion of the proceeds from the issuance of $1.2 billion of 1.22% Convertible Debentures, proceeds from the issuance of commercial paper and borrowings under an interim liquidity facility. Approximately $700 million of proceeds from the issuance of our 1.22% Convertible Debentures were used to repay commercial paper borrowings and borrowings under an interim liquidity facility. Proceeds from stock options exercised and stock issued, inclusive of the related excess tax benefits, provided $190.3 million and $263.1 million of cash inflows during the first nine months of 2008 and 2007, respectively.

DEBT AND CREDIT FACILITIES

Our commercial paper program provides for the issuance of short-term, unsecured commercial paper with maturities up to 270 days. We had no outstanding commercial paper borrowings during the nine months ended September 27, 2008. Any future commercial paper borrowings would bear interest at the applicable then-current market rates. We have a long-term $1.0 billion committed credit facility used to support our commercial paper program and for general corporate purposes. Borrowings under this facility bear interest at the prime rate or the United States Dollar London InterBank Offered Rate (LIBOR) plus 0.235%, at our election. In the event over half of the facility is drawn upon, an additional five basis points is added to the elected prime or LIBOR rate. Additionally, the interest rate is subject to adjustment in the event of a change in our credit ratings. In October 2008, we borrowed $500.0 million from our $1.0 billion long-term committed credit facility. We intend to utilize these proceeds as well as existing cash balances and cash from operations to fund the repayment of our convertible debentures during the fourth quarter of 2008. 

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

In April 2007, we issued $1.2 billion aggregate principal amount of 1.22% Convertible Debentures that mature on December 15, 2008. Interest payments related to the 1.22% Convertible Debentures are required on a semi-annual basis. We may be required to repurchase some or all of the 1.22% Convertible Debentures for cash upon the occurrence of certain corporate transactions. The 1.22% Convertible Debentures are convertible under certain circumstances for cash and shares of our common stock, if any, at an initial conversion rate of 19.2101 shares of our common stock per $1,000 principal amount of the 1.22% Convertible Debentures (equivalent to an initial conversion price of approximately $52.06 per share). Upon conversion, we are required to satisfy up to 100% of the principal amount of the 1.22% Convertible Debentures solely in cash, with any amounts above the principal amount to be satisfied in shares of our common stock, cash or a combination of common stock and cash, at our election. See Note 7 to the condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for further details on the 1.22% Convertible Debentures.

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

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

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In December 2005, we issued $660.0 million aggregate principal amount of 2.80% Convertible Senior Debentures due 2035 (2.80% Convertible Debentures). At both September 27, 2008 and December 29, 2007, we had $5.5 million of the 2.80% Convertible Debentures outstanding. Interest on the 2.80% Convertible Debentures is payable on a semi-annual basis. Contingent interest of 0.25% is payable in certain circumstances. Holders of the 2.80% Convertible Debentures can require us to repurchase for cash some or all of the 2.80% Convertible Debentures on December 15 in the years 2006, 2008, 2010, 2015, 2020, 2025 and 2030 or upon the occurrence of certain events. In December 2006, holders required us to repurchase $654.5 million of the 2.80% Convertible Debentures for cash. We have the right to redeem some or all of the 2.80% Convertible Debentures for cash at any time.

In May 2003, we issued 7-year, 1.02% Yen-denominated notes in Japan (Yen Notes) totaling 20.9 billion Yen, or $196.6 million at September 27, 2008 and $182.5 million at December 29, 2007. Interest payments are required on a semi-annual basis and the entire principal balance is due in May 2010. The U.S. Dollar principal amount reflected on our balance sheet fluctuates because of the effects of foreign currency translation.

Our $1.0 billion committed credit facility and Yen Notes contain certain operating and financial covenants. Specifically, the credit facility requires that we have a leverage ratio (defined as the ratio of total debt to EBITDA (net earnings before interest, income taxes, depreciation and amortization)) not exceeding 3.0 to 1.0. The Yen Notes require that we have a ratio of total debt to total capitalization not exceeding 55% and a ratio of consolidated EBIT (net earnings before interest and income taxes) to consolidated interest expense of at least 3.0 to 1.0. Under the credit facility and the Yen Notes we also have certain limitations on additional liens or indebtedness and limitations on certain acquisitions, investments and dispositions of assets. We were in compliance with all of our debt covenants during the first nine months of 2008.

SHARE REPURCHASES

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

In January 2007, our Board of Directors authorized a share repurchase program of up to $1.0 billion of our outstanding common stock. In the first quarter of 2007, we repurchased $700.0 million of our outstanding common stock. We ultimately completed the repurchases under the program on May 8, 2007. In total, we repurchased 23.6 million shares for $1.0 billion.

COMMITMENTS AND CONTINGENCIES

We have certain contingent commitments to acquire various businesses involved in the distribution of our products and to pay other contingent acquisition consideration payments. While it is not certain if and/or when these payments will be made, as of September 27, 2008, we could be required to pay approximately $125 million in future periods to satisfy such commitments. A description of our contractual obligations and other commitments is contained in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations– Off-Balance Sheet Arrangements and Contractual Obligations, included in our 2007 Annual Report on Form 10-K. As of September 27, 2008, there have been no significant changes in our contractual obligations and other commitments as previously disclosed in our 2007 Annual Report on Form 10-K. We have no off-balance sheet financing arrangements other than that previously disclosed in our 2007 Annual Report on Form 10-K. Our significant legal proceedings are discussed in Note 8 to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

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 constitute “forward-looking statements” with respect to the financial condition, results of operations, plans, objectives, new products, future performance and business of St. Jude Medical, Inc. and its subsidiaries. Statements preceded by, followed by or that include words such as “may,” “will,” “expect,” “anticipate,” “continue,” “estimate,” “forecast”, “project,” “believe” or similar expressions are intended to identify some of the forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are included, along with this statement, for purposes of complying with the safe harbor provisions of that Act. These forward-looking statements involve risks and uncertainties. By identifying these statements for you in this manner, we are alerting you to the possibility that actual results may differ, possibly materially, from the results indicated by these forward-looking statements. We undertake no obligation to update any forward-looking statements. Actual results may differ materially from those contemplated by the forward-looking statements due to, among others, the risks and uncertainties discussed in the sections entitled Off-Balance Sheet Arrangements and Contractual Obligations, Market Risk and Competition and Other Considerations in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations of our 2007 Annual Report on Form 10-K, in Part I, Item 1A, Risk Factors of our 2007 Annual Report on Form 10-K and in Part II, Item IA Risk Factors in this Quarterly Report on Form 10-Q, 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.

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

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes since December 29, 2007 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 2007 Annual Report on Form 10-K.

25

Item 4. CONTROLS AND PROCEDURES

As of September 27, 2008, 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 September 27, 2008.

During the fiscal quarter ended September 27, 2008, 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 8 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 8, 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 risks identified in our 2007 Annual Report on Form 10-K have not changed in any material respect, except that an additional risk factor is added at the end of the list of risk factors under Part I, Item 1A to read in its entirety as follows:

Disruption in the global financial markets may adversely impact the availability and cost of credit and customer spending patterns.

Our ability to refinance our indebtedness and to obtain financing for acquisitions or other general corporate and commercial purposes will depend on our operating and financial performance and is also subject to prevailing economic conditions and to financial, business and other factors beyond our control. Recently, global credit markets and the financial services industry have been experiencing a period of unprecedented turmoil characterized by the bankruptcy, failure or sale of various financial institutions and an unprecedented level of intervention from the United States and other governments. These events have adversely affected the U.S. and world economy, and any new or continuing disruptions in the global financial markets may also adversely affect the U.S. and world economy, which could negatively impact customer spending patterns. There can be assurances as to how or when this period of disruption will be resolved.

Item 6. EXHIBITS

10.1	Amendment, dated as of October 23, 2008, to the St. Jude Medical, Inc. 1994 Stock Option Plan.
10.2	Amendment, dated as of October 23, 2008, to the St. Jude Medical, Inc. 1997 Stock Option Plan.
10.3	Amendment, dated as of October 23, 2008, to the St. Jude Medical, Inc. 2000 Stock Plan.
10.4	Amendment, dated as of October 23, 2008, to the St. Jude Medical, Inc. 2002 Stock Plan.
10.5	Amendment, dated as of October 23, 2008, to the St. Jude Medical, Inc. 2006 Stock Plan.
10.6	Amendment, dated as of October 23, 2008, to the St. Jude Medical, Inc. 2007 Stock Incentive Plan.
12	Computation of Ratio of Earnings to Fixed Charges.
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.

26

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.
October 30, 2008	/s/   JOHN C. HEINMILLER
DATE	JOHN C. HEINMILLER Executive Vice President and Chief Financial Officer (Duly Authorized Officer and Principal Financial and Accounting Officer)

27

INDEX TO EXHIBITS

Exhibit No.	Description
10.1	Amendment, dated as of October 23, 2008, to the St. Jude Medical, Inc. 1994 Stock Option Plan. #
10.2	Amendment, dated as of October 23, 2008, to the St. Jude Medical, Inc. 1997 Stock Option Plan. #
10.3	Amendment, dated as of October 23, 2008, to the St. Jude Medical, Inc. 2000 Stock Plan. #
10.4	Amendment, dated as of October 23, 2008, to the St. Jude Medical, Inc. 2002 Stock Plan. #
10.5	Amendment, dated as of October 23, 2008, to the St. Jude Medical, Inc. 2006 Stock Plan. #
10.6	Amendment, dated as of October 23, 2008, to the St. Jude Medical, Inc. 2007 Stock Incentive Plan. #
12	Computation of Ratio of Earnings to Fixed Charges. #
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.

28

EX-10.1

EXHIBIT 10.1

AMENDMENT

TO THE

ST. JUDE MEDICAL, INC.

1994 STOCK OPTION PLAN

WHEREAS, St. Jude Medical, Inc., a Minnesota corporation (the “Company”), has heretofore adopted and maintains the “St. Jude Medical, Inc. 1994 Stock Option Plan” (the “Plan”);

WHEREAS, the Board of Directors of the Company (the “Board”) has retained the power to amend the Plan; and

WHEREAS, the Board has authorized the amendment of the Plan to bring the Plan into compliance with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”).

NOW THEREFORE, pursuant to the power of amendment contained in Section 7 of the Plan, the Plan is hereby amended, effective as of October 23, 2008, as follows:

1. Section 1(i) of the Plan is hereby amended to read as follows:

i.          “Fair Market Value” means the value of the Stock on a given date as determined in accordance with Sections 422(c)(7) and 409A of the Code and any applicable Treasury Department regulations promulgated thereunder.

IN WITNESS WHEREOF, the Company has caused this instrument to be executed by its duly authorized agent on this 23rd day of October, 2008.

ST. JUDE MEDICAL, INC.
By	/s/ Pamela S. Krop

EX-10.2

EXHIBIT 10.2

AMENDMENT

TO THE

ST. JUDE MEDICAL, INC.

1997 STOCK OPTION PLAN

WHEREAS, St. Jude Medical, Inc., a Minnesota corporation (the “Company”), has heretofore adopted and maintains the “St. Jude Medical, Inc. 1997 Stock Option Plan” (the “Plan”);

WHEREAS, the Board of Directors of the Company (the “Board”) has retained the power to amend the Plan; and

WHEREAS, the Board has authorized the amendment of the Plan to bring the Plan into compliance with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”).

NOW THEREFORE, pursuant to the power of amendment contained in Section 7 of the Plan, the Plan is hereby amended, effective as of October 23, 2008, as follows:

1. Section 1(i) of the Plan is hereby amended by (i) replacing the phrase “one of more,” where it appears therein, with the phrase “one or more,” and (ii) by adding “and in accordance with Section 409A of the Code” at the end thereof.

2. Section 2 of the Plan is hereby amended by deleting clause (v) thereof, and inserting the following clause in lieu thereof:

“(v)     to determine, in accordance with Section 409A of the Code, 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.”

3. Section 4 of the Plan is hereby amended by deleting the reference to “Parent Corporation or” where it first appears therein.

4. Section 5(d) of the Plan is hereby amended by deleting the last sentence thereof and inserting the following sentence in lieu thereof:

“An optionee shall generally have the rights to dividends and other rights of a shareholder with respect to shares subject to the option only after the optionee has given written notice of exercise, has paid in full for such shares, has given, if requested, the representation described in paragraph (a) of Section 9, and the shares have been issued to the optionee.”

IN WITNESS WHEREOF, the Company has caused this instrument to be executed by its duly authorized agent on this 23rd day of October, 2008.

ST. JUDE MEDICAL, INC.
By	/s/ Pamela S. Krop

2

EX-10.3

EXHIBIT 10.3

AMENDMENT

TO THE

ST. JUDE MEDICAL, INC.

2000 STOCK PLAN

WHEREAS, St. Jude Medical, Inc., a Minnesota corporation (the “Company”), has heretofore adopted and maintains the “St. Jude Medical, Inc. 2000 Stock Plan” (the “Plan”);

WHEREAS, the Board of Directors of the Company (the “Board”) has retained the power to amend the Plan; and

WHEREAS, the Board has authorized the amendment of the Plan to bring the Plan into compliance with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”).

NOW THEREFORE, pursuant to the power of amendment contained in Section 8 of the Plan, the Plan is hereby amended, effective as of October 23, 2008, as follows:

1. Section 1(j) of the Plan is hereby amended by (i) replacing the phrase “one of more,” where it appears therein, with the phrase “one or more,” and (ii) by adding “and in accordance with Section 409A of the Code” at the end thereof.

2. Section 2 of the Plan is hereby amended by deleting clause (v) thereof, and inserting the following clause in lieu thereof:

“(v)     to determine, in accordance with Section 409A of the Code, 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.”

3. Section 4 of the Plan is hereby amended by deleting the reference to “Parent Corporation or” where it first appears therein.

4. Section 5(d) of the Plan is hereby amended by deleting the last sentence thereof and inserting the following sentence in lieu thereof:

“An optionee shall generally have the rights to dividends and other rights of a shareholder with respect to shares subject to the option only after the optionee has given written notice of exercise, has paid in full for such shares, has given, if requested, the representation described in paragraph (a) of Section 10, and the shares have been issued to the optionee.”

IN WITNESS WHEREOF, the Company has caused this instrument to be executed by its duly authorized agent on this 23rd day of October, 2008.

ST. JUDE MEDICAL, INC.
By	/s/ Pamela S. Krop

2

EX-10.4

EXHIBIT 10.4

AMENDMENT

TO THE

ST. JUDE MEDICAL, INC.

2002 STOCK PLAN

WHEREAS, St. Jude Medical, Inc., a Minnesota corporation (the “Company”), has heretofore adopted and maintains the “St. Jude Medical, Inc. 2002 Stock Plan” (the “Plan”);

WHEREAS, the Board of Directors of the Company (the “Board”) has retained the power to amend the Plan; and

WHEREAS, the Board has authorized the amendment of the Plan to bring the Plan into compliance with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”).

NOW THEREFORE, pursuant to the power of amendment contained in Section 7 of the Plan, the Plan is hereby amended, effective as of October 23, 2008, as follows:

1. Section 1(k) of the Plan is hereby amended by (i) replacing the phrase “one of more,” where it appears therein, with the phrase “one or more,” and (ii) by adding “and in accordance with Section 409A of the Code” at the end thereof.

2. Section 2(a)(v) of the Plan is hereby amended to read as follows:

“(v)     to determine, in accordance with Section 409A of the Code, 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”

3. Section 4 of the Plan is hereby amended by deleting the reference to “Parent Corporation or” where it first appears therein.

IN WITNESS WHEREOF, the Company has caused this instrument to be executed by its duly authorized agent on this 23rd day of October, 2008.

ST. JUDE MEDICAL, INC.
By	/s/ Pamela S. Krop

2

EX-10.5

EXHIBIT 10.5

AMENDMENT

TO THE

ST. JUDE MEDICAL, INC.

2006 STOCK PLAN

WHEREAS, St. Jude Medical, Inc., a Minnesota corporation (the “Company”), has heretofore adopted and maintains the “St. Jude Medical, Inc. 2006 Stock Plan” (the “Plan”);

WHEREAS, the Board of Directors of the Company (the “Board”) has retained the power to amend the Plan; and

WHEREAS, the Board has authorized the amendment of the Plan to bring the Plan into compliance with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”).

NOW THEREFORE, pursuant to the power of amendment contained in Section 9(a) of the Plan, the Plan is hereby amended, effective as of October 23, 2008, as follows:

1. Section 1(n) of the Plan is hereby amended by adding “and in accordance with Section 409A of the Code” at the end thereof.

2. Section 2(a) of the Plan is hereby amended by deleting the reference to “or Parent Corporation” in clause (i) thereof.

3. Section 4 of the Plan is hereby amended by deleting the reference to “Parent Corporation or” where it first appears therein.

4. Section 7(c) of the Plan is hereby amended by adding the following at the end of the last sentence thereof:

“; provided that the timing of any deferred payments shall be determined at the time of grant, except to the extent otherwise permitted under Section 409A of the Code.”

IN WITNESS WHEREOF, the Company has caused this instrument to be executed by its duly authorized agent on this 23rd day of October, 2008.

ST. JUDE MEDICAL, INC.
By	/s/ Pamela S. Krop

2

EX-10.6

EXHIBIT 10.6

AMENDMENT

TO THE

ST. JUDE MEDICAL, INC.

2007 STOCK INCENTIVE PLAN

WHEREAS, St. Jude Medical, Inc., a Minnesota corporation (the “Company”), has heretofore adopted and maintains the “St. Jude Medical, Inc. 2007 Stock Incentive Plan” (the “Plan”);

WHEREAS, the Board of Directors of the Company (the “Board”) has retained the power to amend the Plan; and

WHEREAS, the Board has authorized the amendment of the Plan to bring the Plan into compliance with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”).

NOW THEREFORE, pursuant to the power of amendment contained in Section 7(a) of the Plan, the Plan is hereby amended, effective as of October 23, 2008, as follows:

1. Section 2(l) of the Plan is hereby amended by adding “in accordance with Section 409A of the Code” at the end of the first sentence thereof.

2. Section 6(h) of the Plan is hereby amended by adding the following at the end of the last sentence of clause (iii) thereof:

“; provided that the timing of any deferred payments shall be determined at the time of grant, except to the extent otherwise permitted under Section 409A of the Code.”

IN WITNESS WHEREOF, the Company has caused this instrument to be executed by its duly authorized agent on this 23rd day of October, 2008.

ST. JUDE MEDICAL, INC.
By	/s/ Pamela S. Krop

2

EX-12

EXHIBIT 12

ST. JUDE MEDICAL, INC.

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

(in thousands)

	Nine Months Ended		FISCAL YEAR
	September 27, 2008		2007		2006		2005		2004		2003
EARNINGS
Earnings before income taxes	$	823,304	$	744,305	$	720,641	$	621,404	$	537,192	$	458,637
Plus fixed charges:
Interest expense (1)		15,238		38,229		33,883		10,028		4,810		3,746
Rent interest factor (2)		6,858		9,144		8,190		7,659		5,778		5,513
TOTAL FIXED CHARGES		22,096		47,373		42,073		17,687		10,588		9,259
EARNINGS BEFORE INCOME TAXES AND FIXED CHARGES	$	845,400	$	791,678	$	762,714	$	639,091	$	547,780	$	467,896
RATIO OF EARNINGS TO FIXED CHARGES		38.3		16.7		18.1		36.1		51.7		50.5

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

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

EX-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: October 30, 2008

/s/ DANIEL J. STARKS

Daniel J. Starks
Chairman, President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, John C. Heinmiller, certify that:

1. I have reviewed this 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: October 30, 2008

/s/ JOHN C. HEINMILLER

John C. Heinmiller
Executive Vice President and Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of St. Jude Medical, Inc. (the Company) on Form 10-Q for the period ended September 27, 2008 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
October 30, 2008

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 September 27, 2008 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

October 30, 2008