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 APRIL 4, 2009 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	(I.R.S. Employer
of incorporation or organization)	Identification No.)

One St. Jude Medical Drive, St. Paul, Minnesota 55117

(Address of principal executive offices, including zip code)

(651) 756-2000

(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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes o   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 May 2, 2009 was 346,354,898.

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 Condensed Consolidated Financial Statements
	Note 1 – Basis of Presentation	4
	Note 2 – New Accounting Pronouncements	4
	Note 3 – Retrospective Adoption of New Accounting Pronouncement	4
	Note 4 – Goodwill and Other Intangible Assets	5
	Note 5 – Inventories	5
	Note 6 – Debt	6
	Note 7 – Commitments and Contingencies	7
	Note 8 – Net Earnings Per Share	10
	Note 9 – Comprehensive Income	11
	Note 10 – Other Income (Expense), Net	11
	Note 11 – Income Taxes	12
	Note 12 – Fair Value Measurements	12
	Note 13 – Derivative Financial Instruments	13
	Note 14 – Segment and Geographic Information	13
2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
	Overview	15
	New Accounting Pronouncements	15
	Critical Accounting Policies and Estimates	16
	Segment Performance	16
	Results of Operations	18
	Liquidity	20
	Debt and Credit Facilities	21
	Commitments and Contingencies	22
	Cautionary Statements	22
3.	Quantitative and Qualitative Disclosures About Market Risk	23
4.	Controls and Procedures	23
	PART II – OTHER INFORMATION
1.	Legal Proceedings	23
1A.	Risk Factors	24
6.	Exhibits	31
	Signature	31
	Index to Exhibits	32

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	April 4, 2009			March 29, 2008 (As adjusted)
Net sales	$	1,133,793		$	1,010,738
Cost of sales		294,495			260,487
Gross profit		839,298			750,251
Selling, general and administrative expense		417,675			367,116
Research and development expense		139,351			123,635
Operating profit		282,272			259,500
Other income (expense), net		(7,312	)		(10,427	)
Earnings before income taxes		274,960			249,073
Income tax expense		73,689			72,504
Net earnings	$	201,271		$	176,569
Net earnings per share:
Basic	$	0.58		$	0.51
Diluted	$	0.58		$	0.50
Weighted average shares outstanding:
Basic		345,850			343,658
Diluted		349,807			351,955

See notes to the condensed consolidated financial statements.

1

ST. JUDE MEDICAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value and share amounts)

	April 4, 2009 (Unaudited)			January 3, 2009
ASSETS
Current Assets
Cash and cash equivalents	$	325,251		$	136,443
Accounts receivable, less allowance for doubtful accounts of $30,292 at April 4, 2009 and $28,971 at January 3, 2009		1,104,662			1,101,258
Inventories		558,369			546,499
Deferred income taxes, net		137,995			137,042
Other		166,413			158,821
Total current assets		2,292,690			2,080,063
Property, plant and equipment, at cost		1,741,931			1,675,979
Less: accumulated depreciation		(722,919	)		(695,803	)
Net property, plant and equipment		1,019,012			980,176
Other Assets
Goodwill		1,967,720			1,984,566
Other intangible assets, net		484,244			493,535
Other		182,286			184,164
Total other assets		2,634,250			2,662,265
TOTAL ASSETS	$	5,945,952		$	5,722,504
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Current portion of long-term debt	$	108,000		$	75,518
Accounts payable		209,913			238,310
Income taxes payable		49,234			17,608
Accrued expenses
Employee compensation and related benefits		223,537			297,287
Other		384,522			399,801
Total current liabilities		975,206			1,028,524
Long-term debt		1,196,992			1,126,084
Deferred income taxes, net		120,896			112,231
Other liabilities		219,699			219,759
Total liabilities		2,512,793			2,486,598
Commitments and Contingencies (Note 7)		—			—
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; 346,310,837 and 345,332,272 shares issued and outstanding at April 4, 2009 and January 3, 2009, respectively)		34,631			34,533
Additional paid-in capital		255,309			219,041
Retained earnings		3,178,901			2,977,630
Accumulated other comprehensive income (loss):
Cumulative translation adjustment		(39,164	)		(1,023	)
Unrealized gain on available-for-sale securities		3,482			6,136
Unrealized loss on derivative financial instruments		—			(411	)
Total shareholders’ equity		3,433,159			3,235,906
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	5,945,952		$	5,722,504

See notes to the condensed consolidated financial statements.

2

ST. JUDE MEDICAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

Three Months Ended	April 4, 2009			March 29, 2008 (As adjusted)
OPERATING ACTIVITIES
Net earnings	$	201,271		$	176,569
Adjustments to reconcile net earnings to net cash from operating activities:
Depreciation		36,419			30,355
Amortization		14,684			18,301
Amortization of discount on convertible debentures		—			13,028
Stock-based compensation		13,822			12,693
Excess tax benefits from stock-based compensation		(5,151	)		(7,232	)
Deferred income taxes		8,739			2,660
Changes in operating assets and liabilities, net of business acquisitions:
Accounts receivable		(39,684	)		(19,021	)
Inventories		(18,428	)		(14,875	)
Other current assets		(12,757	)		(3,799	)
Accounts payable and accrued expenses		(104,197	)		(50,546	)
Income taxes payable		38,988			36,679
Net cash provided by operating activities		133,706			194,812
INVESTING ACTIVITIES
Purchases of property, plant and equipment		(80,845	)		(63,983	)
Business acquisition payments, net of cash acquired		(6,008	)		(6,359	)
Other, net		(2,859	)		(4,011	)
Net cash used in investing activities		(89,712	)		(74,353	)
FINANCING ACTIVITIES
Proceeds from exercise of stock options and stock issued		16,008			30,718
Excess tax benefits from stock-based compensation		5,151			7,232
Borrowings under debt facilities		3,674,999			—
Payments under debt facilities		(3,544,400	)		—
Net cash provided by financing activities		151,758			37,950
Effect of currency exchange rate changes on cash and cash equivalents		(6,944	)		10,765
Net increase in cash and cash equivalents		188,808			169,174
Cash and cash equivalents at beginning of period		136,443			389,094
Cash and cash equivalents at end of period	$	325,251		$	558,268

See notes to the condensed consolidated financial statements.

3

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 January 3, 2009 (2008 Annual Report on Form 10-K).

All prior periods presented have been retrospectively adjusted for the impact of the adoption of Financial Accounting Standards Board (FASB) Staff Position (FSP) Accounting Principles Board (APB) Opinion No. 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) (FSP APB No. 14-1) (see Note 3).

NOTE 2 – NEW ACCOUNTING PRONOUNCEMENTS

In March 2008, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 161, Disclosures about Derivative Instruments and Hedging Activities (SFAS No. 161). SFAS No. 161 expands disclosures about derivative instruments and hedging activities to provide a better understanding of a company’s use of derivatives and their effect on the financial statements. The Company’s adoption of this standard at the beginning of fiscal year 2009 (see Note 13) did not have a material impact to the Company’s consolidated financial statements.

NOTE 3 – RETROSPECTIVE ADOPTION OF NEW ACCOUNTING PRONOUNCEMENT

In May 2008, the FASB issued FSP APB No. 14-1, which requires the proceeds from the issuance of certain convertible debt instruments to be allocated between a liability and an equity component in a manner that reflects the entity’s nonconvertible debt borrowing rate when interest expense is recognized in subsequent periods. The resulting debt discount is amortized over the period the convertible debt is expected to be outstanding as additional non-cash interest expense. The Company’s 2009 adoption of FSP APB No. 14-1 did not impact 2009 financial statements; however, it required retrospective application to all prior periods presented. As a result, the Company’s historical financial statements presented in this Quarterly Report on Form 10-Q have been adjusted to conform to the new accounting treatment.

The application of this new accounting treatment results in the following adjustments to the Company’s first quarter 2008 condensed consolidated statement of earnings (in thousands):

	March 29, 2008
Three Months Ended	As Originally Reported		As Adjusted			Effect of Change
Other income (expense), net	$	2,601	$	(10,427	)	$	(13,028	)
Earnings before income taxes		262,101		249,073			(13,028	)
Income tax expense		77,320		72,504			(4,816	)
Net earnings	$	184,781	$	176,569		$	(8,212	)
Net earnings per share:
Basic	$	0.54	$	0.51		$	(0.03	)
Diluted	$	0.53	$	0.50		$	(0.03	)
Weighted average shares outstanding:
Basic		343,658		343,658
Diluted		351,955		351,955

4

Additionally, the application of this new accounting treatment results in increases of $12,980, $13,164 and $10,801 to the Company’s second, third and fourth quarter 2008 interest expense, respectively, and decreases of $4,833, $4,917 and $4,098 to the Company’s second, third and fourth quarter 2008 income tax expense, respectively.

The application of this new accounting treatment results in the following adjustments to the Company’s first quarter 2008 condensed consolidated statement of cash flows (in thousands):

	March 29, 2008
Three Months Ended	As Originally Reported		As Adjusted		Effect of Change
OPERATING ACTIVITIES
Net earnings	$	184,781	$	176,569	$	(8,212	)
Adjustments to reconcile net earnings to net cash from operating activities:
Amortization of discount on convertible debentures		—		13,028		13,028
Deferred income taxes		7,476		2,660		(4,816	)
Net cash provided by operating activities	$	194,812	$	194,812	$	—

The application of this new accounting treatment does not change the Company’s total operating cash flow for any periods in 2008.

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 14) for the three months ended April 4, 2009 were as follows (in thousands):

	CRM/NMD			CV/AF			Total
Balance at January 3, 2009	$	1,211,538		$	773,028		$	1,984,566
Foreign currency translation and other		(16,420	)		(426	)		(16,846	)
Balance at April 4, 2009	$	1,195,118		$	772,602		$	1,967,720

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

	April 4, 2009				January 3, 2009
	Gross carrying amount		Accumulated amortization		Gross carrying amount		Accumulated amortization
Purchased technology and patents	$	499,939	$	140,158	$	494,796	$	124,749
Customer lists and relationships		170,234		67,031		166,637		63,385
Trademarks and tradenames		24,151		5,174		22,651		4,789
Licenses, distribution agreements and other		5,351		3,068		5,529		3,155
	$	699,675	$	215,431	$	689,613	$	196,078

NOTE 5 – INVENTORIES

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

	April 4, 2009		January 3, 2009
Finished goods	$	400,548	$	398,452
Work in process		56,078		39,143
Raw materials		101,743		108,904
	$	558,369	$	546,499

5

NOTE 6 – DEBT

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

	April 4, 2009		January 3, 2009
Credit facility borrowings	$	500,000	$	500,000
Commercial paper borrowings		—		19,400
Term loan due 2011		513,000		360,000
1.02% Yen-denominated notes due 2010		210,794		230,088
Yen-denominated term loan due 2011		80,824		88,222
Other		374		3,892
Total long-term debt		1,304,992		1,201,602
Less: current portion of long-term debt		108,000		75,518
Long-term debt	$	1,196,992	$	1,126,084

Credit facility borrowings: In December 2006, the Company entered into a 5-year, $1.0 billion committed credit facility (Credit Facility) that it may draw on for general corporate purposes and to support its commercial paper program. Borrowings under the Credit Facility bear interest at the United States Prime Rate (Prime Rate) or United States Dollar London InterBank Offered Rate (LIBOR) plus 0.235%, at the election of the Company. In the event that over half of the Credit Facility is drawn upon, an additional five basis points is added to the elected Prime Rate or LIBOR rate. The interest rates are subject to adjustment in the event of a change in the Company’s credit ratings. In October 2008, the Company borrowed $500.0 million under the Credit Facility to partially fund the retirement of the Company’s 1.22% Convertible Debentures in December 2008.

In November 2008, the Company entered into an interest rate swap contract to convert $400.0 million of variable-rate borrowings under the Credit Facility into fixed-rate borrowings. The Company designated this interest rate swap as a cash flow hedge under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended (SFAS No. 133). This contract terminated in February 2009 and payments made or received under this interest rate swap contract were recorded to interest expense. Inclusive of the interest rate swap, borrowings under the Credit Facility incurred interest at a weighted average interest rate of 1.4% during the first quarter of 2009.

Commercial paper borrowings: The Company’s commercial paper program provides for the issuance of short-term, unsecured commercial paper with maturities up to 270 days. The Company had no outstanding commercial paper borrowings at April 4, 2009. Any future commercial paper borrowings would bear interest at the applicable then-current market rates. The Company classifies all of its commercial paper borrowings as long-term debt, as the Company has the ability to repay any short-term maturity with available cash from its existing long-term, committed Credit Facility.

Term loan due 2011: In December 2008, the Company entered into a 3-year, unsecured term loan (2011 Term Loan). The Company initially borrowed $360.0 million in December 2008 and borrowed an additional $180.0 million in January 2009, resulting in total original borrowings of $540.0 million under the 2011 Term Loan. The Company is required to make quarterly principal payments in the amount of 5% of the total original borrowings. The first $27.0 million quarterly principal payment was made in March 2009. These borrowings bear interest at LIBOR plus 2.0%, although the Company may elect the Prime Rate plus 1.0%. The interest rates are subject to adjustment in the event of a change in the Company’s credit ratings. Borrowings under the 2011 Term Loan incurred interest at a weighted average interest rate of 2.5% during the first quarter of 2009.

1.02% Yen-denominated notes due 2010: In May 2003, the Company issued 7-year, 1.02% unsecured notes in Japan (Yen Notes) totaling 20.9 billion Yen (the equivalent of $210.8 million at April 4, 2009 and $230.1 million at January 3, 2009). Interest payments are required on a semi-annual basis and the entire principal balance is due in May 2010. The principal amount recorded on the balance sheet fluctuates based on the effects of foreign currency translation. As of April 4, 2009, the fair value of the Yen Notes approximate the carrying value.

Yen-denominated term loan due 2011: In December 2008, the Company entered into a 3-year, Yen-denominated unsecured term loan in Japan (Yen Term Loan) totaling 8.0 billion Japanese Yen (the equivalent of $80.8 million at April 4, 2009 and $88.2 million at January 3, 2009). The borrowings bear interest at the Yen LIBOR plus 2.0%. Interest payments are required on a semi-annual basis and the entire principal balance is due in December 2011. The principal amount recorded on the balance sheet fluctuates based on the effects of foreign currency translation.

6

NOTE 7 – 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 its product liability insurance carriers for amounts expected to be recovered.

Silzone® Litigation and Insurance Receivables: The Company has been sued in various jurisdictions beginning in March 2000 by some patients who received a product with Silzone® coating. As of April 24, 2009, such cases are pending in the United States and Canada. Some of these claimants allege bodily injuries as a result of an explant or other complications, which they attribute to Silzone®-coated products. Others, who have not had their Silzone®-coated heart valve explanted, seek compensation for past and future costs of special monitoring they allege they need over and above the medical monitoring all other replacement heart valve patients receive. Some of the lawsuits seeking the cost of monitoring have been initiated by patients who are asymptomatic and who have no apparent clinical injury to date. The Company has vigorously defended against the claims that have been asserted and expects to continue to do so with respect to any remaining claims.

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

In October 2001, various 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.

As of April 24, 2009, there are three individual Silzone® cases pending in federal court. The plaintiffs in these cases are requesting damages in excess of $75 thousand. The complaint in the case that was most recently transferred to the MDL court was served upon the Company in December 2008.

There are seven individual state court suits concerning Silzone®-coated products pending as of April 24, 2009, involving seven patients. These cases are venued in Minnesota and Texas. The complaints in these state court cases are requesting damages ranging from $10 thousand to $100 thousand and, in some cases, seek an unspecified amount. The most recent individual state court complaint was served upon the Company in February 2008. These state court cases are proceeding in accordance with the orders issued by the judges in those matters.

In Canada, there are also four class-action cases and one individual case pending against the Company. In one such case in Ontario, the court certified that a class action involving Silzone® patients may proceed, and the trial of the initial phase of this matter is expected to occur as early as September 2009. A second case seeking class action status in Ontario has been stayed pending resolution of the other Ontario class action. A case filed as a class action in British Columbia remains pending. A court in Quebec has certified a class action, and that matter is proceeding in accordance with that court’s orders. Additionally, the Company has been served with lawsuits by the British Columbia Provincial health insurer and the Quebec Provincial health insurer to recover the cost of insured services furnished or to be furnished to class members in the class actions pending in British Columbia and Quebec, respectively. The complaints in the Canadian cases request damages ranging from 1.5 million to 2.0 billion Canadian Dollars (the equivalent to $1.2 million to $1.6 billion at April 4, 2009).

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. Any costs (the material components of which are settlements, judgments, legal fees and other related defense costs) not covered by the Company’s product liability insurance policies or existing reserves could be material to the Company’s consolidated earnings, financial position and cash flows. As of April 4, 2009, the Company’s Silzone® litigation reserve was $22.3 million and its receivable from insurance carriers was $30.0 million.

7

The Company’s remaining product liability insurance for Silzone® claims consists of two $50.0 million layers, each of which is covered by one or more insurance companies. The current $50.0 million layer of insurance is covered by American Insurance Company (AIC). In December 2007, AIC initiated a lawsuit in Minnesota Federal District Court seeking a court order declaring that it is not required to provide coverage for a portion of the Silzone® litigation defense and indemnity expenses that the Company may incur in the future. The Company believes the claims of AIC are without merit and plans to vigorously defend against the claims AIC has asserted. The insurance broker that assisted the Company in procuring the insurance with AIC has been added as a party to the case. 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 December 2008, the CAFC upheld the March 2006 rulings of the district court but also reversed the district court’s March 2007 ruling that the ‘288 patent was invalid. As such, based on that ruling, although the invalidity of the ‘288 patent was overturned, the damages in the case going forward are limited to those relatively few instances prior to the expiration of the patent in 2003 when the cardioversion therapy method described in the only remaining claim of the ‘288 patent is actually practiced.

The parties filed requests with the CAFC requesting that the entire CAFC re-hear some of the issues addressed in the December 2008 decision, and the CAFC issued a ruling in March 2009 vacating its December 2008 decision, denying Guidant’s request for re-hearing and granting part of the Company’s request for re-hearing. Oral arguments are scheduled in May 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.

8

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

Boston U.S. Attorney Investigation: In October 2005, the U.S. Department of Justice, acting through the U.S. Attorney’s office in Boston, commenced an industry-wide investigation into whether the provision of payments and/or services by makers of ICDs and bradycardia pacemaker systems (pacemakers) to doctors or other persons constitutes improper inducements under the federal health care program anti-kickback law. As part of this investigation, the Company received a civil subpoena from the U.S. Attorney’s office in Boston requesting documents created since January 2000 regarding the Company’s practices related to ICDs, pacemakers, lead systems and related products marketed by the Company’s 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. In December 2008, the U.S. Attorney’s Office in Boston delivered a third subpoena issued by the Department of Health & Human Services Office of Inspector General requesting the production of documents relating to implantable cardiac rhythm device and pacemaker warranty claims.

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

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 filed a motion for summary judgment which was argued before the Court on January 23, 2009. No ruling on that motion has been issued as of April 24, 2009, but the Company expects the Court will issue a decision in 2009. 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. In June 2008, the complainant filed a derivative action against the defendants again. The court denied the defendants’ motion to dismiss concerning that complaint. To date, the complainant has not provided any material facts to support the allegations. The plaintiff has indicated that he plans to file an amended complaint, but has not done so as of April 24, 2009. The defendants intend to continue to vigorously defend against the claims raised in this action.

9

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 systems. The Company estimates the costs that may be incurred under its warranties and records a liability in the amount of such costs at the time the product is sold. Factors that affect the Company’s warranty liability include the number of units sold, historical and anticipated rates of warranty claims and cost per claim. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.

Changes in the Company’s product warranty liability during the three months ended April 4, 2009 and March 29, 2008 were as follows (in thousands):

Three Months Ended	April 4, 2009			March 29, 2008
Balance at beginning of the period	$	15,724		$	16,691
Warranty expense recognized		1,349			975
Warranty credits issued		(738	)		(428	)
Balance at end of the period	$	16,335		$	17,238

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 April 4, 2009, the Company estimates it could be required to pay approximately $315 million in future periods to satisfy such commitments. Refer to Part II, Item 7A, Management’s Discussion and Analysis of Financial Condition and Results of Operations – Off-Balance Sheet Arrangements and Contractual Obligations of the Company’s 2008 Annual Report on Form 10-K for additional information.

NOTE 8 – 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	April 4, 2009		March 29, 2008 (As adjusted)
Numerator:
Net earnings	$	201,271	$	176,569
Denominator:
Basic-weighted average shares outstanding		345,850		343,658
Effect of dilutive securities:
Stock options		3,898		8,201
Restricted stock		59		96
Diluted-weighted average shares outstanding		349,807		351,955
Basic net earnings per share	$	0.58	$	0.51
Diluted net earnings per share	$	0.58	$	0.50

10

The Company’s 2009 adoption of FSP APB No. 14-1 required retrospective application to all prior periods presented (see Note 3). As a result, both basic net earnings per share and diluted net earnings per share for the first quarter of 2008 have been adjusted by $0.03 to conform to the new accounting treatment.

Approximately 24.5 million and 13.5 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 April 4, 2009 and March 29, 2008, respectively, because they were not dilutive.

Diluted weighted average shares outstanding have not been adjusted for the warrants for 23.1 million shares the Company sold in April 2007 in connection with the issuance of its 1.22% Convertible Senior Debentures. Over a two-month period beginning in April 2009, the Company may be required to issue shares of its common stock 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. Accordingly, the potentially dilutive common shares to be issued under the warrants would only be included in diluted weighted average shares outstanding if the Company’s average stock price during the defined period 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 9 – COMPREHENSIVE INCOME

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

Three Months Ended	April 4, 2009			March 29, 2008 (As adjusted)
Net earnings	$	201,271		$	176,569
Other comprehensive income (loss):
Cumulative translation adjustment		(38,141	)		62,075
Unrealized loss on available-for-sale securities		(2,654	)		(7,601	)
Unrealized gain on derivative financial instruments		411			—
Reclassification of realized loss to net earnings		(411	)		—
Total comprehensive income	$	160,476		$	231,043

Reclassification adjustments are reflected to avoid double counting in other comprehensive income items that are also recorded in net earnings. In November 2008, the Company entered into an interest rate swap contract to convert $400.0 million of variable-rate borrowings under the Company’s long-term committed Credit Facility into fixed-rate borrowings (see Note 6). This contract terminated in February 2009, and the Company recognized a realized after-tax loss of $0.4 million. The total pre-tax loss of $0.7 million was recognized as interest expense.

NOTE 10 – OTHER INCOME (EXPENSE), NET

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

Three Months Ended	April 4, 2009			March 29, 2008 (As adjusted)
Interest income	$	559		$	4,256
Interest expense		(6,951	)		(18,025	)
Other		(920	)		3,342
Total other income (expense), net	$	(7,312	)	$	(10,427	)

The Company’s 2009 adoption of FSP APB No. 14-1 required retrospective application to all prior periods presented (see Note 3). As a result, interest expense for the first quarter of 2008 has been adjusted by $13.0 million to conform to the new accounting treatment.

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NOTE 11 – INCOME TAXES

As of April 4, 2009, the Company had approximately $83.8 million of unrecognized tax benefits, all of which would affect the Company’s effective tax rate if recognized. The Company had $23.3 million accrued for interest and penalties as of April 4, 2009. 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. Additionally, substantially all material foreign, state, and local income tax matters have been concluded for all tax years through 1999. The U.S. Internal Revenue Service (IRS) completed an audit of the Company’s 2002-2005 tax returns, and proposed adjustments in its audit report issued in November 2008. The Company intends to vigorously defend its positions and initiated defense of these adjustments at the IRS appellate level in January 2009. An unfavorable outcome could have a material negative impact on the Company’s effective income tax rate in future periods.

NOTE 12 – FAIR VALUE MEASUREMENTS

SFAS No. 157, Fair Value Measurements (SFAS No. 157) establishes a framework for measuring fair value, clarifies the definition of fair value and expands disclosures about fair-value measurements. SFAS No. 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability. Fair value is a market-based measurement that should be determined using assumptions that market participants would use in pricing an asset or liability. SFAS No. 157 establishes a valuation hierarchy for disclosure of fair value measurements. The categorization within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. The categories within the valuation hierarchy are described as follows:

• Level 1 – Financial instruments with quoted prices in active markets for identical assets or liabilities. The Company’s Leve1 1 financial instruments 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. 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.

• Level 2 – Financial instruments with quoted prices in active markets for similar assets or liabilities. Level 2 fair value measurements are determined using either prices for similar instruments or inputs that are either directly or indirectly observable, such as forward foreign currency rates. The Company’s Level 2 financial instruments include foreign currency exchange contracts.

• Level 3 – Inputs to the fair value measurement are unobservable inputs or valuation techniques. The Company does not have any financial assets or liabilities being measured at fair value that are classified as Level 3 financial instruments.

A summary of financial assets and liabilities measured at fair value on a recurring basis at April 4, 2009 is as follows (in thousands):

	April 4, 2009		Quoted Prices In Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Trading marketable securities	$	106,645	$	106,645	$	—	$	—
Available-for-sale marketable securities		17,498		17,498		—		—
Foreign currency exchange contracts		25		—		25		—
Total	$	124,168	$	124,143	$	25	$	—

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NOTE 13 – DERIVATIVE FINANCIAL INSTRUMENTS

The Company follows the provisions of SFAS No. 133 and SFAS No. 161 in accounting for and disclosing derivative instruments and hedging activities. SFAS No. 133 requires all derivative financial instruments to be recognized on the balance sheet at fair value. Changes in the fair value of derivatives are recognized in net earnings or other comprehensive income (OCI) depending on whether the derivative is designated as part of a qualifying SFAS No. 133 hedging transaction. SFAS No. 161 requires certain disclosures for derivative instruments and hedging activities to explain their use and impact on the financial statements.

In November 2008, the Company entered into an interest rate swap contract to convert $400.0 million of variable-rate borrowings under the Credit Facility into fixed-rate borrowings (see Note 6). The Company designated this interest rate swap as a cash flow hedge under SFAS No. 133. This contract terminated in February 2009. The ineffective portion of the amount of gains (losses) recognized in net earnings was immaterial. For the three months ended April 4, 2009, the Company recorded the $0.4 million after-tax loss on the settlement of the interest rate swap contract to interest expense.

The Company hedges a portion of its foreign currency exchange rate risk through the use of forward exchange contracts. The Company uses forward exchange contracts to manage foreign currency exposures related to intercompany receivables and payables arising from intercompany purchases of manufactured products. These forward contracts are not designated as qualifying hedging relationships under SFAS No. 133. For the three months ended April 4, 2009, the net amount of gains (losses) the Company recorded to other income (expense) for forward currency exchange contracts not designated as hedging instruments under SFAS No. 133 was a net gain of $1.9 million. This net gain was largely offset by a corresponding net loss on the foreign currency exposures being managed.

The Company had the following outstanding foreign currency forward contracts at April 4, 2009 (in thousands):

Foreign Currency	Currency Denomination
Euro (EUR)	EUR	30,261
Japanese Yen (JPY)	JPY	296,805
Australian Dollar (AUD)	AUD	14,478

The Company does not enter into contracts for trading or speculative purposes. The Company’s policy is to enter into hedging contracts with major financial institutions that have at least an “A” (or equivalent) credit rating.

NOTE 14 – 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 (NMD). 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, heart valve replacement and repair products and pressure measurement guidewires; AF – electrophysiology introducers and catheters, advanced cardiac mapping, navigation and recording systems, ablation systems and implantable cardiac monitors; and NMD – neurostimulation devices.

The Company has aggregated the four operating segments into two reportable segments based upon their similar operational and economic characteristics: CRM/NMD and CV/AF. Net sales of the Company’s reportable segments include end-customer 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/NMD		CV/AF		Other			Total
Three Months ended April 4, 2009:
Net sales	$	748,768	$	385,025	$	—		$	1,133,793
Operating profit		461,030		190,885		(369,643	)		282,272
Three Months ended March 29, 2008:
Net sales	$	683,312	$	327,426	$	—		$	1,010,738
Operating profit		420,274		173,918		(334,692	)		259,500

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

Total Assets	April 4, 2009		January 3, 2009
CRM/NMD	$	2,033,751	$	2,018,478
CV/AF		1,286,274		1,267,290
Other		2,625,927		2,436,736
	$	5,945,952	$	5,722,504

Geographic Information

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

	Three Months Ended
Net Sales	April 4, 2009		March 29, 2008
United States	$	631,173	$	537,462
International
Europe		275,400		270,145
Japan		111,370		85,804
Asia Pacific		52,906		53,040
Other (a)		62,944		64,287
		502,620		473,276
	$	1,133,793	$	1,010,738

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

The amounts for long-lived assets by significant geographic market include net property, plant and equipment by physical location of the asset. The prior period has been reclassified to conform to the current year presentation. The following table presents long-lived assets by geographic location (in thousands):

Long-Lived Assets	April 4, 2009		January 3, 2009
United States	$	818,962	$	775,205
International
Europe		82,533		84,266
Japan		14,471		16,001
Asia Pacific		16,505		17,087
Other		86,541		87,617
		200,050		204,971
	$	1,019,012	$	980,176

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

OVERVIEW

Our business is focused on the development, 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 (NMD). 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, heart valve replacement and repair products and pressure measurement guidewires; AF – electrophysiology introducers and catheters, advanced cardiac mapping, navigation and recording systems, ablation systems and implantable cardiac monitors; and NMD – neurostimulation devices. References to “St. Jude Medical,” “St. Jude,” “the Company,” “we,” “us” and “our” are to St. Jude Medical, Inc. and its subsidiaries.

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

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

Net sales in the first quarter of 2009 were $1,133.8 million, an increase of 12% over the first quarter of 2008, led by sales growth of our ICDs and pacemakers as well as products to treat atrial fibrillation. Our ICD and pacemaker net sales grew approximately 9% and 4%, respectively, while AF net sales increased 22%. Unfavorable foreign currency translation comparisons decreased first quarter 2009 net sales by $50.9 million. Refer to the Segment Performance section for a more detailed discussion of the results for the respective segments.

Our first quarter 2009 net earnings of $201.3 million and diluted net earnings per share of $0.58 increased 14% and 16%, respectively, compared to our first quarter 2008 net earnings of $176.6 million and diluted net earnings per share of $0.50. These increases were due to incremental profits resulting from higher sales, primarily driven by net sales growth in our CRM and AF operating segments. During the first quarter of 2009, we adopted a new accounting standard, which required us to retrospectively adjust our historical 2008 financial statements. The adoption of this new accounting standard resulted in a decrease of $8.2 million to first quarter 2008 net earnings and a $0.03 decrease to diluted earnings per share. Refer to Note 3 of the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for further discussion of the new accounting standard.

We generated $133.7 million of operating cash flows during the first three months of 2009, compared to $194.8 million of operating cash flows during the first three months of 2008. We ended the first quarter with $325.3 million of cash and cash equivalents and $1,305.0 million of total debt. We have strong short-term credit ratings, with an A2 rating from Standard & Poor’s and a P2 rating from Moody’s, and a long-term credit rating from Standard & Poor’s of A-.

NEW ACCOUNTING PRONOUNCEMENTS

Information regarding new accounting pronouncements is included in Note 2 and Note 3 to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

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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 January 3, 2009 (2008 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 2008 Annual Report on Form 10-K.

SEGMENT PERFORMANCE

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

We aggregate our four operating segments into two reportable segments based upon their similar operational and economic characteristics: CRM/NMD and CV/AF. Net sales of our reportable segments include end-customer 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.

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

	CRM/NMD		CV/AF		Other			Total
Three Months ended April 4, 2009:
Net sales	$	748,768	$	385,025	$	—		$	1,133,793
Operating profit		461,030		190,885		(369,643	)		282,272
Three Months ended March 29, 2008:
Net sales	$	683,312	$	327,426	$	—		$	1,010,738
Operating profit		420,274		173,918		(334,692	)		259,500

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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
(in thousands)	April 4, 2009		March 29, 2008		% Change
ICD systems	$	393,953	$	360,952		9.1	%
Pacemaker systems		282,368		270,837		4.3	%
	$	676,321	$	631,789		7.0	%

Cardiac Rhythm Management net sales increased by 7% in the first quarter of 2009 compared to the first quarter of 2008 due to volume growth. Foreign currency translation had a $30.9 million unfavorable impact on CRM net sales during the first quarter of 2009 compared to the same period in 2008.

ICD net sales increased 9% in the first quarter of 2009 compared to the first quarter of 2008, primarily due to volume growth. The improved volume growth in ICD net sales in the first quarter of 2009 was broad-based across both U.S. and international markets, reflecting our continued market penetration into new customer accounts and market demand for our cardiac resynchronization therapy ICD devices. In the United States, first quarter 2009 ICD net sales of $257.7 million increased 9% over last year’s first quarter. Internationally, first quarter 2009 ICD net sales of $136.3 million increased 9% compared to the first quarter of 2008. Foreign currency translation had a $17.7 million negative impact on international ICD net sales in the first quarter of 2009 compared to the first quarter of 2008.

Pacemaker net sales increased 4% in the first quarter of 2009 compared to the first quarter of 2008 driven by volume growth in both our U.S. and international markets. In the United States, first quarter 2009 pacemaker net sales of $129.0 million increased 6% compared to the same period last year. Internationally, first quarter 2009 pacemaker net sales of $153.4 million increased 3% compared to the first quarter of 2008. Foreign currency translation had a $13.2 million negative impact on international pacemaker net sales in the first quarter of 2009 compared to the same period last year.

Cardiovascular

	Three Months Ended
(in thousands)	April 4, 2009		March 29, 2008		% Change
Vascular closure devices	$	97,577	$	90,087		8.3	%
Heart valve products		80,624		77,638		3.8	%
Other cardiovascular products		61,586		40,808		50.9	%
	$	239,787	$	208,533		15.0	%

Cardiovascular net sales increased 15% in the first quarter of 2009 compared to the same period one year ago. CV net sales were unfavorably impacted by foreign currency translation impacts of approximately $11.9 million. Vascular closure device net sales increased 8% in the first quarter of 2009 compared to the first quarter of 2008 primarily driven by Angio-Seal™ volume growth and incremental sales resulting from our acquisition of Radi Medical Systems AB in December 2008. Our Angio-Seal™ device continues to be the market share leader in the vascular closure device market. Heart valve product net sales increased 4% during the first quarter of 2009 over the same period in 2008 due primarily to increased sales volumes. Net sales of other cardiovascular products increased $20.8 million during the first quarter of 2009 over the first quarter of 2008 primarily due to incremental sales of pressure measurement guidewires acquired from Radi Medical System AB and increased sales volumes of other cardiovascular products.

Atrial Fibrillation

	Three Months Ended
(in thousands)	April 4, 2009		March 29, 2008		% Change
Atrial fibrillation products	$	145,238	$	118,893		22.2	%

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Atrial Fibrillation net sales increased 22% during the first quarter of 2009 compared to the same period one year ago. 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, recording and ablation products assist physicians in diagnosing and treating atrial fibrillation and other irregular heart rhythms. Foreign currency translation had an unfavorable impact on AF net sales of approximately $6.1 million in the first quarter of 2009 compared to the first quarter of 2008.

Neuromodulation

	Three Months Ended
(in thousands)	April 4, 2009		March 29, 2008		% Change
Neuromodulation products	$	72,447	$	51,523		40.6	%

Neuromodulation net sales increased 41% during the first quarter of 2009 compared to the same prior year period. The increases in NMD net sales were driven by strong volume growth and continued growth in the neuromodulation market. Foreign currency translation had an unfavorable impact on NMD net sales of approximately $2.0 million in the first quarter of 2009 compared to the first quarter of 2008.

RESULTS OF OPERATIONS

Net sales

	Three Months Ended
(in thousands)	April 4, 2009		March 29, 2008		% Change
Net sales	$	1,133,793	$	1,010,738		12.2	%

Overall, net sales increased 12% in the first quarter of 2009 over the first quarter of 2008. First quarter 2009 net sales were favorably impacted by volume growth, driven by CRM and AF product sales. Foreign currency translation had an unfavorable impact on first quarter 2009 net sales of $50.9 million due primarily to the strengthening of the U.S. Dollar against both the Euro and Japanese Yen. This amount is not indicative of the net earnings impact of foreign currency translation for the first quarter of 2009 due to partially offsetting 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
Net Sales	April 4, 2009		March 29, 2008
United States	$	631,173	$	537,462
International
Europe		275,400		270,145
Japan		111,370		85,804
Asia Pacific		52,906		53,040
Other (a)		62,944		64,287
		502,620		473,276
	$	1,133,793	$	1,010,738

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

Gross profit

	Three Months Ended
(in thousands)	April 4, 2009			March 29, 2008
Gross profit	$	839,298		$	750,251
Percentage of net sales		74.0	%		74.2	%

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Gross profit for the first quarter of 2009 totaled $839.3 million, or 74.0% of net sales, compared to $750.3 million, or 74.2% of net sales, for the first quarter of 2008. The decrease in our gross profit percentage during the first quarter of 2009 compared to the same period in 2008 resulted from an unfavorable impact from foreign currency translation partially offset by productivity improvements.

Selling, general and administrative (SG&A) expense

	Three Months Ended
(in thousands)	April 4, 2009			March 29, 2008
Selling, general and administrative	$	417,675		$	367,116
Percentage of net sales		36.8	%		36.3	%

SG&A expense for the first quarter of 2009 totaled $417.7 million, or 36.8% of net sales, compared to $367.1 million, or 36.3% of net sales, for the first quarter of 2008. The increase in SG&A expense as a percent of net sales results from increased expenses from recent acquisitions and investments made in our selling organization and market development programs.

Research and development (R&D) expense

	Three Months Ended
(in thousands)	April 4, 2009			March 29, 2008
Research and development	$	139,351		$	123,635
Percentage of net sales		12.3	%		12.2	%

R&D expense in the first quarter of 2009 totaled $139.4 million, or 12.3% of net sales, compared to $123.6 million, or 12.2% of net sales, for the first quarter of 2008. While first quarter 2009 R&D expense as a percent of net sales remained comparable to first quarter 2008, total R&D expense increased 13% compared to the same prior year period, reflecting 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.

Other income (expense), net

	Three Months Ended
(in thousands)	April 4, 2009			March 29, 2008
Interest income	$	559		$	4,256
Interest expense		(6,951	)		(18,025	)
Other		(920	)		3,342
Total other income (expense), net	$	(7,312	)	$	(10,427	)

The Company’s 2009 adoption of FSP APB No. 14-1 required retrospective application to all prior periods presented (see Note 3 to the Condensed Consolidated Financial Statements). As a result, interest expense for the first quarter of 2008 has been adjusted by $13.0 million to conform to the new accounting treatment. The favorable change in other income (expense) during the first quarter of 2009 compared to the first quarter of 2008 is primarily related to lower interest rates on our outstanding debt during the respective periods.

Income taxes

	Three Months Ended
(as a percent of pre-tax income)	April 4, 2009			March 29, 2008
Effective tax rate		26.8	%		29.1	%

Our effective income tax rate was 26.8% and 29.1% for the first quarter of 2009 and 2008, respectively. The first quarter 2008 effective tax rate was unfavorably impacted by 2.3 percentage points because the Federal Research and Development tax credit (R&D tax credit), which expired at the end of 2007, was not enacted and signed into law during the first quarter of 2008. This legislation, which provides a tax benefit on certain incremental R&D expenditures, was not signed into law until October 2008, when it was made retroactively effective for all of 2008 and effective through 2009. Accordingly, no 2008 benefit from the R&D tax credit was recognized until October 2008.

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The impact of retrospectively applying the change in accounting for our convertible debentures (see Note 3 to the Condensed Consolidated Financial Statements) decreased the previously reported first quarter 2008 effective tax rate from 29.5% to 29.1%.

LIQUIDITY

We believe that our existing cash balances, available borrowing capacity under our commercial paper program and long-term committed credit facility and future cash generated from operations will be sufficient to meet our working capital, capital investment and debt service requirements over the next twelve months and in the foreseeable future thereafter. As of April 4, 2009, we had borrowed $500.0 million from our $1.0 billion long-term committed credit facility. Additionally, our 3-year, unsecured term loan totaled $513.0 million and our 3-year, unsecured Yen term loan totaled 8.0 billion Japanese Yen (the equivalent of $80.8 million at April 4, 2009). As of April 4, 2009, our short-term credit ratings were A2 from Standard & Poor’s and P2 from Moody’s, and our Standard & Poor’s long-term debt rating 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. Although we believe that our earnings, cash flows and balance sheet position will permit us to obtain additional debt financing or equity capital, should suitable investment opportunities arise, recent disruptions in the global financial markets may adversely impact the availability and cost of capital.

At April 4, 2009, a large portion of our cash and cash equivalents was held by our non-U.S. subsidiaries. These funds are only available for use by our U.S. operations if they are repatriated into the United States. The funds repatriated would be subject to additional U.S. taxes upon repatriation; however, it is not practical to estimate the amount of additional U.S. tax liabilities we would incur.

We 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, and 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) were 89 days at April 4, 2009 compared to 88 days at January 3, 2009. Our DIOH (ending net inventory divided by average daily cost of sales for the most recent six months) decreased slightly from 160 days at January 3, 2009 to 158 days at April 4, 2009.

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

	Three Months Ended
	April 4, 2009			March 29, 2008
Net cash provided by (used in):
Operating activities	$	133,706		$	194,812
Investing activities		(89,712	)		(74,353	)
Financing activities		151,758			37,950
Effect of currency exchange rate changes on cash and cash equivalants		(6,944	)		10,765
Net increase in cash and cash equivalants	$	188,808		$	169,174

Operating Cash Flows

Cash provided by operating activities was $133.7 million during the first three months of 2009 compared to $194.8 million during the first three months of 2008. Operating cash flows can fluctuate significantly from period to period due to payment timing differences of working capital accounts such as accounts receivable, accounts payable, accrued liabilities and income taxes payable.

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Investing Cash Flows

Cash used in investing activities was $89.7 million during the first three months of 2009 compared to $74.4 million during the same period last year. Our purchases of property, plant and equipment, which totaled $80.8 million and $64.0 million in the first three months of 2009 and 2008, respectively, primarily reflect our continued investment in our product growth platforms currently in place.

Financing Cash Flows

Cash provided by financing activities was $151.8 million during the first three months of 2009 compared to $38.0 million of cash provided by financing activities in the first three months of 2008. Our financing cash flows can fluctuate significantly depending upon our liquidity needs and the amount of stock option exercises. During the first three months of 2009, we made borrowings under a 3-year unsecured term loan and also repaid all outstanding commercial paper borrowings. Total net proceeds provided by borrowings made in the first quarter of 2009 were $130.6 million.

DEBT AND CREDIT FACILITIES

We have a long-term $1.0 billion committed credit facility (Credit Facility) used to support our commercial paper program and for general corporate purposes. Borrowings under this facility bear interest at the United States Prime Rate (Prime Rate) or the United States Dollar London InterBank Offered Rate (LIBOR) plus 0.235%, at our election. In the event over half of the Credit Facility is drawn upon, an additional five basis points is added to the elected Prime or LIBOR rate. The interest rates are subject to adjustment in the event of a change in our credit ratings. Outstanding borrowings under the Credit Facility at April 4, 2009 and January 3, 2009 were $500.0 million.

Our commercial paper program provides for the issuance of short-term, unsecured commercial paper with maturities up to 270 days. During the first quarter of 2009, we repaid a net $19.4 million of our commercial paper borrowings resulting in no amounts outstanding at April 4, 2009. Any future commercial paper borrowings would bear interest at the applicable then-current market rates.

In December 2008, we entered into a 3-year, unsecured term loan (2011 Term Loan), which can be used for general corporate purposes or to refinance certain other outstanding borrowings of the Company. The 2011 Term Loan bears interest at LIBOR plus 2.0%, although we may also elect the Prime Rate plus 1.0%, which is subject to adjustment in the event of a change in our credit ratings. We are required to make quarterly principal payments in the amount of 5% of the total borrowings. The first $27.0 million quarterly principal payment was made in March 2009. As of April 4, 2009, we had total borrowings of $513.0 million under the 2011 Term Loan.

In December 2008, we entered into a 3-year, Yen-denominated unsecured term loan in Japan (Yen Term Loan) totaling 8.0 billion Japanese Yen (the equivalent of $80.8 million at April 4, 2009 and $88.2 million at January 3, 2009). The borrowings bear interest at the Yen LIBOR plus 2.0%. Interest payments are required on a semi-annual basis and the entire principal balance is due in December 2011. The principal amount recorded on the balance sheet fluctuates based on the effects of foreign currency translation.

In May 2003, we issued 7-year, 1.02% Yen-denominated notes in Japan (Yen Notes) totaling 20.9 billion Yen (the equivalent of $210.8 million at April 4, 2009 and $230.1 million at January 3, 2009). Interest payments are required on a semi-annual basis and the entire principal balance is due in May 2010. The principal amount recorded on our balance sheet fluctuates based on the effects of foreign currency translation.

Our Credit Facility, 2011 Term Loan and Yen Notes contain certain operating and financial covenants. Specifically, the Credit Facility and 2011 Term Loan require that we have a leverage ratio (defined as the ratio of total debt to EBITDA (net earnings before interest, income taxes, depreciation and amortization)) not exceeding 3.0 to 1.0. The Yen Notes require that we have a ratio of total debt to total capitalization not exceeding 55% and a ratio of consolidated EBIT (net earnings before interest and income taxes) to consolidated interest expense of at least 3.0 to 1.0. Under the Credit Facility, 2011 Term Loan and Yen Notes we also have certain limitations on how we conduct our business, including limitations on additional liens or indebtedness and limitations on certain acquisitions, mergers, investments and dispositions of assets. We were in compliance with all of our debt covenants as of April 4, 2009.

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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 April 4, 2009, we could be required to pay approximately $315 million in future periods to satisfy such commitments. A description of our contractual obligations and other commitments is contained in Part II, Item 7A, Management’s Discussion and Analysis of Financial Condition and Results of Operations – Off-Balance Sheet Arrangements and Contractual Obligations, included in our 2008 Annual Report on Form 10-K. As of April 4, 2009, there have been no significant changes in our contractual obligations and other commitments as previously disclosed in our 2008 Annual Report on Form 10-K. We have no off-balance sheet financing arrangements other than that previously disclosed in our 2008 Annual Report on Form 10-K. Our significant legal proceedings are discussed in Note 7 to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

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 2008 Annual Report on Form 10-K and in Part I, Item 1A, Risk Factors of our 2008 Annual Report on Form 10-K as well as the various factors described below. Since it is not possible to foresee all such factors, you should not consider these factors to be a complete list of all risks or uncertainties. We believe the most significant factors that could affect our future operations and results are set forth in the list below.

1.	Any legislative or administrative reform to the U.S. Medicare or Medicaid systems or international reimbursement systems that significantly reduces reimbursement for procedures using our medical devices or denies coverage for such procedures, as well as adverse decisions relating to our products by administrators of such systems on coverage or reimbursement issues.
2.	Assertion, acquisition or grant of key patents by or to others that have the effect of excluding us from market segments or requiring us to pay royalties.
3.	Economic factors, including inflation, contraction in capital markets, changes in interest rates, and changes in foreign currency exchange rates.
4.	Product introductions by competitors that have advanced technology, better features or lower pricing.
5.	Price increases by suppliers of key components, some of which are sole-sourced.
6.	A reduction in the number of procedures using our devices caused by cost-containment pressures or the development of or preferences for alternative therapies.
7.	Safety, performance or efficacy concerns about our products, many of which are expected to be implanted for many years, leading to recalls and/or advisories with the attendant expenses and declining sales.
8.	Declining industry-wide sales caused by product recalls or advisories by our competitors that result in loss of physician and/or patient confidence in the safety, performance or efficacy of sophisticated medical devices in general and/or the types of medical devices recalled in particular.
9.	Changes in laws, regulations or administrative practices affecting government regulation of our products, such as FDA laws and regulations that increase the time and/or expense of obtaining approval for products or impose additional burdens on the manufacture and sale of medical devices.
10.	Regulatory actions arising from concern over Bovine Spongiform Encephalopathy, sometimes referred to as “mad cow disease,” that have the effect of limiting our ability to market products using bovine collagen, such as Angio-Seal™, or products using bovine pericardial material, such as our Bicor® and Epic™ tissue heart valves, or that impose added costs on the procurement of bovine collagen or bovine pericardial material.
11.	Difficulties obtaining, or the inability to obtain, appropriate levels of product liability insurance or the refusal of our insurance carriers to pay for losses we incur.

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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.	The disruptions in the financial markets and the economic downturn that adversely impact the availability and cost of credit and customer purchasing and payment patterns.
21.	Conditions imposed in resolving, or any inability to timely resolve, any regulatory issues raised by the FDA, including 483 observations or warning letters, as well as risks generally associated with our regulatory compliance and quality systems.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes since January 3, 2009 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 2008 Annual Report on Form 10-K.

Item 4. CONTROLS AND PROCEDURES

As of April 4, 2009, 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 April 4, 2009.

We are in the process of implementing a new enterprise resource planning (ERP) system which is being completed in phases. For the most recent implementation phase, which was completed during the first quarter of 2009, the Company’s Neuromodulation division implemented the new ERP system which resulted in some changes in internal controls. We are also in the process of implementing a new human capital management (HCM) system, which is also being completed in phases. During the first quarter of 2009, we implemented the HCM system in the United States. These systems, along with the internal controls over financial reporting included in the related implementations, are appropriately tested for effectiveness prior to implementation. There were no other changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the first quarter of 2009 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II	OTHER INFORMATION
Item 1.	LEGAL PROCEEDINGS

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

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Item 1A. RISK FACTORS

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

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

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

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

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

• take a significant amount of time,

• require the expenditure of substantial resources,

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

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

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

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

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

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

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

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

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

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

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

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We are currently the subject of various product liability claims, including several lawsuits which may be allowed to proceed as class actions in the United States and are being allowed to proceed as class actions in Canada. The outcome of litigation, particularly class action lawsuits, is difficult to assess or quantify. Plaintiffs in these types of lawsuits often seek recovery of very large or indeterminate amounts, and the magnitude of the potential loss relating to such lawsuits may remain unknown for substantial periods of time. For example, in January 2000, we initiated a voluntary field action to replace products incorporating Silzone® coating, which was used in certain of our mechanical heart valves and heart valve repair products. After our voluntary field action, we were sued in various jurisdictions and now have cases pending in the United States and Canada which have been brought by some patients alleging complications and past or future costs arising either from the surgical removal or, alternatively, from the continued implantation and maintenance of products incorporating Silzone® coating over and above the medical monitoring all replacement heart valve patients receive. Some of the cases involving Silzone®-coated products have been settled, others have been dismissed and still others are ongoing. The complaints in the ongoing individual cases in the United States request damages ranging from $10,000 to $120.5 million and in some cases, seek an unspecified amount, and the complaints in the Canadian class actions request damages ranging from the equivalent of $1.2 million to $1.6 billion at April 4, 2009. We believe that the final resolution of the Silzone®-coated product cases will take years and cannot reasonably estimate the time frame in which any potential settlements or judgments would be paid out or the amounts of any such settlements or judgments. In addition, the cost to defend any future litigation, whether Silzone®-related or not, may be significant. We believe that many settlements and judgments relating to the Silzone® litigation and our other litigation may be covered in whole or in part under our product liability insurance policies and existing reserves. Any costs not covered under our product liability insurance policies and existing reserves could have a material adverse effect on our financial condition and results of operations.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

• our ability to retain key employees; and

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

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

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

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

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

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

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

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

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

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

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

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

• economic and political instability in foreign countries.

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

In October 2005, the U.S. Department of Justice, acting through the U.S. Attorney’s office in Boston, commenced an industry-wide investigation into whether the provision of payments and/or services by makers of implantable cardiac rhythm devices to doctors or other persons constitutes improper inducements under the federal health care program anti-kickback law. As part of this investigation, we received a civil subpoena from the U.S. Attorney’s office in Boston requesting documents created since January 2000 regarding our practices related to pacemakers, ICDs, lead systems and related products marketed by our CRM segment. We understand that our principal competitors in the CRM therapy areas received similar civil subpoenas. We received an additional subpoena from the U.S. Attorney’s office in Boston in September 2006, requesting documents created since January 2002 related to certain employee expense reports and certain pacemaker and ICD purchasing arrangements. In December 2008, the U.S. Attorney’s Office in Boston delivered a third subpoena issued by the Department of Health & Human Services Office of Inspector General requesting the production of documents relating to implantable cardiac rhythm device and pacemaker warranty claims.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Our ability to refinance our indebtedness and to obtain financing for acquisitions or other general corporate and commercial purposes will depend on our operating and financial performance and is also subject to prevailing economic conditions and to financial, business and other factors beyond our control. 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, a general tightening of credit, and an unprecedented level of market intervention from the United States and other governments. These events have adversely affected the U.S. and world economy, and may adversely affect the availability and cost of financing. Disruptions in the global financial markets and the related economic downturn could also negatively impact customer purchasing and payment patterns and also have a material adverse effect on our financial condition and results of operations. There can be no assurances as to the length or severity of this period of disruption and the related economic downturn.

Item 6. EXHIBITS

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.

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.
May 12, 2009	/s/ JOHN C. HEINMILLER
DATE	JOHN C. HEINMILLER
	Executive Vice President
	and Chief Financial Officer
	(Duly Authorized Officer and
	Principal Financial and
	Accounting Officer)

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INDEX TO EXHIBITS
Exhibit No.	Description
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.

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