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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-K ANNUAL REPORT
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
COMMISSION FILE NO. 0-8672
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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 LILLEHEI PLAZA
ST. PAUL, MINNESOTA 55117
(Address of principal executive office)
(651) 483-2000
(Registrant's telephone number, including area code)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
COMMON STOCK ($.10 PAR VALUE) PREFERRED STOCK PURCHASE RIGHTS
(Title of class) (Title of Class)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, or will not be contained, to
the best of the Registrant's knowledge, in definitive proxy information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ____
Indicate by check mark whether the Registrant: (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 _____
The aggregate market value of the voting stock held by non-affiliates
of the Registrant was approximately $2.0 billion at March 11, 1999, when the
closing sale price of such stock, as reported on the New York Stock Exchange,
was $24.06.
The number of shares outstanding of the Registrant's Common Stock, $.10
par value, as of March 11, 1999, was 84,246,363 shares.
Portions of the Annual Report to Shareholders for the year ended
December 31, 1998, are incorporated by reference in Parts I, II and IV. Portions
of the Proxy Statement dated March 26, 1999, are incorporated by reference in
Part III.
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The exhibit index is set forth on pages 13 and 14. This Form 10-K
consists of 69 pages, consecutively numbered 1 through 69.
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ST. JUDE MEDICAL, INC.
1998 10-K
PART I
ITEM 1. BUSINESS
GENERAL
St. Jude Medical, Inc. ("St. Jude" or the "Company") designs,
manufactures and markets medical devices and provides services for the
cardiovascular segment of the medical device industry. The Company's products
are distributed in more than 100 countries worldwide through a combination of
direct sales personnel, independent manufacturers' representatives and
distribution organizations. The main markets for the Company's products are the
United States and Western Europe.
Effective May 15, 1997, St. Jude acquired Ventritex, Inc.,
("Ventritex") a California-based manufacturer of implantable cardioverter
defibrillators (ICDs) and related products. ICDs are used to treat hearts that
beat inappropriately fast.
Effective November 29, 1996, St. Jude Medical's Pacesetter subsidiary
acquired substantially all of the assets of Telectronics Pacing Systems, Inc.
("Telectronics"), a pacemaker company, and Medtel, a distribution company in the
Asia-Pacific region. In addition to state-of-the-art pacing technologies,
Telectronics enhanced the Company's cardiac rhythm management division
operations by adding important intellectual property assets.
Effective September 23, 1996, the Company acquired Newcor Industrial
S.A. which owned most of the assets of Biocor(R) Industria E Pesquisas Ltd., a
Brazilian manufacturer of tissue heart valves.
Effective May 31, 1996, the Company acquired Daig Corporation ("Daig"),
a Minnesota based manufacturer of specialized cardiovascular catheters and
related products for the electrophysiology and interventional cardiology
markets.
St. Jude provides products and services for two industry segments:
cardiac rhythm management and heart valve disease management. Substantially all
of its operations and assets are attributable to cardiovascular medical devices.
The Cardiac Rhythm Management Division (CRMD) is responsible for the Company's
cardiac rhythm management products including bradycardia pulse generators
(pacemakers), leads (insulated wires) and programmers and tachycardia
implantable cardioverter defibrillators, leads and programmers. CRMD also
provides a broad array of catheter product offerings for interventional
cardiology, and electrophysiology catheters for diagnostic mapping of the heart,
ablation of malfunctioning heart tissue and temporary cardiac pacing catheters.
The Heart Valve Division is responsible for the Company's heart valve disease
management products including mechanical and tissue heart valves and
annuloplasty rings. In addition, the Company maintains geographically based
sales and marketing organizations which are responsible for marketing, sales and
distribution of the Company's and third party products in Europe, Africa, the
Middle East, Japan, Canada, Latin America and the Asia-Pacific region.
Typically, the Company's net sales are somewhat higher in the first and
second quarters and lower in the third and fourth quarters. This results from
patient tendency to defer, if possible, cardiac procedures during the summer
months and from the seasonality of the domestic and Western European markets
where
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summer vacation schedules normally result in fewer surgical procedures.
Manufacturers' representatives randomly place large orders which can distort the
net sales pattern noted above. In addition, new product introductions,
acquisitions, and regulatory approvals can modify the expected net sales
pattern.
In 1998, approximately 72% of net sales were derived from cardiac
rhythm management products, and approximately 28% from heart valve disease
management products. Approximately 59% of the Company's 1998 net sales were in
the U.S. market, which was consistent with 1997 results.
CARDIAC RHYTHM MANAGEMENT
The Cardiac Rhythm Management Division is headquartered in Sylmar,
California and has manufacturing facilities in California, Arizona, Minnesota,
South Carolina and Sweden. Pacesetter(R) pacemakers and related systems treat
patients with hearts that beat inappropriately slow, a condition known as
bradycardia. Ventritex(R) ICDs and related systems treat patients with hearts
that beat inappropriately fast, a condition known as tachycardia. Daig(R)
specialized disposable cardiovascular catheters and related devices are used in
the electrophysiology and interventional cardiology markets.
Typically implanted pectorally, just below the collarbone, pacemakers
monitor the heart's rate and, when necessary, deliver low-level electrical
impulses that stimulate an appropriate heartbeat. The pacemaker is connected to
the heart by one or two leads that carry the electrical impulses to the heart
and information from the heart back to the pacemaker. An external programmer
enables the physician to retrieve diagnostic information from the pacemaker and
reprogram the device in accordance with the patient's changing needs.
Single-chamber pacemakers stimulate only one chamber of the heart (atrium or
ventricle), while dual-chamber devices can sense and pace in both the upper and
lower chambers.
CRMD's current Pacesetter(R) pacing products include the January 1999
FDA approved Affinity(R) and the Trilogy(R) family of pacemakers, containing the
proven Omnisense(TM) activity-based sensor, and the Tempo(TM) pacemaker family,
which uses fifth-generation Minute Ventilation sensor technology. These
pacemaker families are highly automatic and contain many advanced features and
diagnostic capabilities to optimize cardiac therapy. All are small and
physiologic in shape to enhance patient comfort.
Outside the United States, CRMD also offers the world's smallest
single-chamber pacemaker, the Microny(TM) SR+, and the Regency(TM) pacemaker
families, which are in clinical trials in the United States. The Affinity(R) and
Regency(TM) families of pacemakers, as well as the Microny(TM) SR+, all offer
the unique feature of AutoCapture(TM) pacing system. The AutoCapture(TM) pacing
system is a proprietary technology that enables the pacemaker to monitor every
paced beat for heart capture, deliver a back-up pulse in the event of
noncapture, continuously measure threshold, and make adjustments in energy
output to match changing patient needs.
CRMD's current pacing leads include the active-fixation Tendril(R) DX
family and the passive-fixation Passive Plus(R) DX family which are available
worldwide, and the passive-fixation Membrane(TM) EX family which is currently
available outside the United States. All three lead families feature steroid
elution, which helps suppress the body's inflammatory response to a foreign
object, are designed to maximize energy efficiency and promote pacing system
longevity.
CRMD offers two pacemaker programmers, the APS(TM) III patient
management system, and the highly portable APS(TM)(mu) (micro), which allow the
physician to efficiently utilize the extensive diagnostic and therapeutic
capabilities of CRMD's pacemakers.
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CRMD's Ventritex(R) ICDs monitor the heartbeat and deliver higher
energy electrical impulses, or "shocks," to terminate ventricular tachycardia
(VT) and ventricular fibrillation (VF). In ventricular tachycardia, the lower
chambers of the heart contract at an abnormally rapid rate and typically deliver
less blood to the body's tissues and organs. VT can progress to VF, in which the
heart beats so rapidly and erratically that it can no longer pump blood. Like
pacemakers, defibrillators are typically implanted pectorally, connected to the
heart by leads, and programmed non-invasively. The current Ventritex offerings
include the Angstrom(TM) MD, Contour(R) MD and Profile(TM) MD ICDs.
These ICDs are used with the dual electrode Ventritex(R) SPL(R) and
single electrode Ventritex(R) TVL(R) transvenous leads, which have superior
handling characteristics and performance. Ventritex ICDs are currently
programmed with the recently introduced PR-3500 and PR-1500 programmers.
Specialized disposable cardiovascular devices, sold under the Daig
name, include percutaneous (through the skin) catheter introducers, diagnostic
guidewires, electrophysiology catheters and bipolar temporary pacing catheters
(used with external pacemakers). Percutaneous catheter introducers are used to
create passageways for cardiovascular catheters from outside the human body
through the skin into a vein, artery or other location inside the body. Daig's
percutaneous catheter introducer products consist primarily of peel-away
sheaths, sheaths with and without hemostasis valves, dilators, guidewires,
repositioning sleeves, obturators and needles. All of these products are offered
in a variety of sizes and packaging configurations. Diagnostic guidewires are
used in conjunction with percutaneous catheter introducers to aid in the
introduction of intravascular catheters. Daig's diagnostic guidewires are
available in multiple lengths and incorporate a surface finish for lasting
lubricity.
Electrophysiology catheters are placed into the human body
percutaneously to aid in the diagnosis and treatment of cardiac arrhythmias
(abnormal heart rhythms). Between two and five electrophysiology catheters are
generally used in each electrophysiology procedure. Daig's electrophysiology
catheters are available in multiple configurations. Bipolar temporary pacing
catheters are inserted percutaneously for temporary use (less than one hour to a
maximum of one week) with external pacemakers to provide patient stabilization
prior to implantation of a permanent pacemaker, following a heart attack, or
during surgical procedures. Daig produces and markets several designs of bipolar
temporary pacing catheters.
HEART VALVE DISEASE MANAGEMENT
The Heart Valve Division (HVD) is headquartered in St. Paul, Minnesota
and has manufacturing facilities in St. Paul, Puerto Rico, Canada and Brazil.
Heart valve replacement or repair may be necessary because the natural heart
valve has deteriorated due to congenital defects or disease. Heart valves
facilitate the one-way flow of blood in the heart and prevent significant
backflow of blood into the heart and between the heart's chambers.
HVD offers both mechanical and tissue replacement heart valves and
valve repair products. The St. Jude Medical(R) mechanical heart valve has been
implanted in over 900,000 patients to date. The Company markets the Toronto
SPV(R) stentless tissue valve, the world's leading stentless tissue valve and
the SJM(R) Biocor(TM) tissue valves. The Company received FDA approval for the
U.S. market release of the Toronto SPV(R) in November 1997 at which time the
product was launched and physician training commenced. The SJM Epic(TM) tissue
heart valve received European regulatory approval in late 1998 and is expected
to be launched in Europe in 1999.
Annuloplasty rings are prosthetic devices used to repair diseased or
damaged mitral heart valves. The Company has executed a license agreement with
Professor Jacques Seguin to manufacture and market an advanced semi-rigid
annuloplasty ring. The SJM(R) Seguin annuloplasty ring was cleared by the FDA
for
3
U.S. release during first quarter 1997. The SJM Tailor(TM) annuloplasty ring
received worldwide regulatory approvals in late 1998 and is expected to be
launched worldwide in early 1999.
HVD has also entered into other relationships to provide additional
products and services for heart valve disease management, including:
1) An agreement with LifeNet Transplant Services which enables HVD to
assist in the marketing of human donated allograft heart valves.
2) An alliance with Boehringer Mannheim Corporation which provides valve
patients the opportunity to use a home test kit for measuring
anticoagulation levels.
3) A worldwide license agreement with Spire Corporation to utilize their
proprietary anti-bacterial silver coating (Silzone(TM)) on the sewing
cuffs of heart valves and related products.
SUPPLIERS
The Company purchases raw materials and other items from numerous
suppliers for use in its products. The Company maintains sizable inventories of
up to three years of its projected requirements for certain materials, some of
which are available only from a single vendor. The Company has been advised from
time to time that certain of these vendors may terminate sales of products to
customers that manufacture implantable medical devices in an effort to reduce
their potential products liability exposure. Some of these vendors have modified
their positions and have indicated a willingness to either temporarily continue
to provide product until such time as an alternative vendor or product can be
qualified or to reconsider the supply relationship. While the Company believes
that alternative sources of raw materials are available and that there is
sufficient lead time in which to qualify such other sources, any supply
interruption could have a material adverse effect on the Company's ability to
manufacture its products.
COMPETITION
Within the medical device industry, competitors range from small
start-up companies to companies with significant resources. The Company's
customers consider many factors when choosing supplier partners including
product reliability, clinical outcomes, product availability, inventory
consignment, price and product services provided by the manufacturer. Market
share can shift as a result of technological innovation, product recalls and
product safety alerts. This emphasizes the need to provide the highest quality
products and services. St. Jude expects the competition to continue to increase
by using tactics such as consigned inventory, bundled product sales and reduced
pricing.
CRMD has traditionally been a technological leader in the bradycardia
pacemaker market. Two other companies and CRMD account for well over eighty
percent of the worldwide bradycardia pacemaker net sales. The Company has strong
market share positions in all major developed markets.
There are three principal manufacturers and suppliers of ICDs. This is
a rapidly growing and highly competitive market. Two of the competitors account
for more than 80% of the worldwide ICD sales. These two competitors are larger
than the Company and have invested substantial amounts in ICD research and
development. The market areas Daig focuses on are the cardiac catherization
laboratories and the electrophysiology laboratories throughout the world. These
are growing markets with numerous competitors.
The Company is the world's leading manufacturer and supplier of
mechanical heart valves. There are two other principal and several other smaller
mechanical heart valve manufacturers. The Company competes against two principal
and a large number of other smaller tissue heart valve manufacturers.
4
The cardiovascular segment of the medical device market is a dynamic
market currently undergoing significant change due to cost of care
considerations, regulatory reform, industry consolidation and customer
consolidation. The ability to provide cost effective clinical outcomes is
becoming increasingly more important for medical device manufacturers.
MARKETING
The Company's products are sold in over 100 countries throughout the
world. No distributor organization or single customer accounted for more than
10% of 1998 net sales.
In the United States, St. Jude sells directly to hospitals through a
combination of independent manufacturers' representatives and an employee based
sales organization for its pacemaker products and through employee based sales
organizations for its heart valve and catheter products. In Western Europe, the
Company has an employee based sales organization selling in 14 countries.
Throughout the rest of the world the Company uses a combination of independent
distributor and direct sales organizations.
Payment terms worldwide are consistent with local practice. Orders are
shipped as they are received and, therefore, no material back orders exist.
RESEARCH AND DEVELOPMENT
The Company is focused on the development of new products and
improvements to existing products. In addition, research and development expense
reflects the Company's efforts to obtain FDA approval of certain products and
processes and to maintain the highest quality standards of existing products.
The Company's research and development expenses, exclusive of purchased research
and development, were $99,756,000 (9.8% of net sales), $104,693,000 (10.5%) and
$107,644,000 (12.3%) in 1998, 1997 and 1996, respectively.
GOVERNMENT REGULATION
The medical devices manufactured and marketed by the Company are
subject to regulation by the FDA and, in some instances, by state and foreign
governmental authorities. Under the Federal Food, Drug and Cosmetic Act (the
"Act"), and regulations thereunder, manufacturers of medical devices must comply
with certain policies and procedures that regulate the composition, labeling,
testing, manufacturing, packaging and distribution of medical devices. Medical
devices are subject to different levels of government approval requirements, the
most comprehensive of which requires the completion of an FDA approved clinical
evaluation program and submission and approval of a pre-market approval ("PMA")
application before a device may be commercially marketed. The Company's
mechanical and tissue heart valves, implantable cardioverter defibrillators,
certain pacemakers and leads and certain electrophysiology catheter applications
are subject to this level of approval or as a supplement to a PMA approval.
Other pacemakers and leads, annuloplasty ring products and other
electrophysiology and interventional cardiology products are currently marketed
under the 510(k) pre-market notification procedure of the Act.
In addition, the FDA may require testing and surveillance programs to
monitor the effect of approved products which have been commercialized and it
has the power to prevent or limit further marketing of a product based on the
results of these post-marketing programs. The FDA also conducts inspections
prior to approval of a PMA to determine compliance with the quality system
regulations which covers manufacturing and design and may, at any time after
approval of a PMA or granting of a 510(K), conduct periodic inspections to
determine compliance with both good manufacturing practice regulations and/or
current medical device reporting regulations. If the FDA were to conclude that
St. Jude was not in
5
compliance with applicable laws or regulations, it could institute proceedings
to detain or seize products, issue a recall, impose operating restrictions,
assess civil penalties and recommend criminal prosecution to the Department of
Justice. Furthermore, the FDA could proceed to ban, or request recall, repair,
replacement or refund of the cost of, any device manufactured or distributed.
The FDA also regulates record keeping for medical devices and reviews
hospital and manufacturers' required reports of adverse experiences to identify
potential problems with FDA authorized devices. Aggressive regulatory action may
be taken due to adverse experience reports.
Diagnostic-related groups ("DRG") reimbursement schedules regulate the
amount the United States government, through the Health Care Financing
Administration ("HCFA"), will reimburse hospitals and doctors for the inpatient
care of persons covered by Medicare. In response to rising Medicare and Medicaid
costs, several legislative proposals have been advanced which would restrict
future funding increases for these programs. While the Company has been unaware
of significant domestic price resistance directly as a result of DRG
reimbursement policies, changes in current DRG reimbursement levels could have
an adverse effect on its domestic pricing flexibility.
St. Jude Medical's business outside the United States is subject to
medical device laws in individual foreign countries. These laws range from
extensive device approval requirements in some countries for all or some of the
Company's products to requests for data or certifications in other countries.
Generally, regulatory requirements are increasing in these countries. In the
European Economic Community ("EEC"), the regulatory systems have been harmonized
and approval to market in EEC countries (the CE Mark) can be obtained through
one agency. In addition, government funding of medical procedures is limited and
in certain instances being reduced.
The Office of the Inspector General (the "OIG") of the United States
Department of Health and Human Services ("HHS") is currently conducting an
investigation regarding possible hospital submissions of improper claims to
Medicare/Medicaid programs for reimbursement for procedures using cardiovascular
medical devices that were not approved for marketing by the FDA at the time of
use. Beginning in June 1994, approximately 130 hospitals received subpoenas from
HHS seeking information with respect to reimbursement for procedures using
cardiovascular medical devices (including certain products manufactured by the
Company) that were subject to investigational exemptions or that may not have
been approved for marketing by the FDA at the time of use. The subpoenas also
sought information regarding various types of remuneration, including payments,
gifts, stock and stock options, received by the hospital or its employees from
manufacturers of medical devices. Civil and criminal sanctions may be imposed
against any person participating in an improper claim for reimbursement under
Medicare/Medicaid. The OIG's investigation and any related change in
reimbursement practices may discourage hospitals from participating in clinical
trials or from including Medicare and Medicaid patients in clinical trials,
which could lead to increased costs in the development of new products. St. Jude
believes it is too early to predict the possible outcome of this matter or when
it will be resolved. There can be no assurance that the OIG's investigation or
any changes in third-party payors' reimbursement practices will not materially
adversely affect the medical device industry in general or the Company in
particular. In 1995, HCFA, part of HHS, issued a regulation clarifying that
certain medical devices subject to investigational requirements under the Act
may qualify for reimbursement. In April 1996, a Federal District Court in
California declared the HCFA's governmental guidelines, denying reimbursement
for investigational devices, to be invalid. After an appeal, the district court
has again found the regulation invalid and the government has appealed again.
There can be no assurance that the OIG's investigation or any resulting or
related changes in third-party payors' reimbursement practices will not
materially adversely affect the medical device industry in general
6
or St. Jude Medical in particular.
In 1994 the predecessor organization to Pacesetter entered a consent
decree which settled a lawsuit brought by the United States in U.S. District
Court for the District of New Jersey. The consent decree which remains in effect
indefinitely requires that Pacesetter comply with the FDA's good manufacturing
practice regulations and identifies several specific provisions of those
regulations. The consent decree provides for FDA inspections and that Pacesetter
is obligated to pay certain costs of the inspections.
In May 1995 Telectronics and its President entered into a consent
decree with the FDA. The consent decree provided that Telectronics would not
manufacture or ship products for distribution in the United States until
Telectronics established to the satisfaction of the FDA that its manufacturing
facility in Florida operates in conformity with the FDA's good manufacturing
practice regulations. Telectronics has satisfied its obligations in this regard
and was released from these restrictions of the consent decree in June 1996. The
consent decree which remains in effect indefinitely requires that Telectronics
comply with the FDA's good manufacturing practice regulations and identifies
several specific provisions of those regulations. The consent decree provides
for FDA inspections and that Telectronics is obligated to pay certain costs of
the inspections.
In 1994 a state prosecutor in Germany began an investigation of
allegations of corruption in connection with the sale of heart valves. As part
of that investigation, the prosecutor seized documents from St. Jude's offices
in Germany as well as documents from certain competitors' offices. The
investigation is continuing and has been broadened to include other medical
devices. Subsequently, the United States Securities and Exchange Commission
issued a formal order of private investigation covering sales practices in
Europe of St. Jude and other manufacturers.
PATENTS AND LICENSES
The Company's policy is to protect the intellectual property rights in
its work on medical devices. Where appropriate, St. Jude applies for United
States and foreign patents. In those instances where the Company has acquired
technology from third parties, it has sought to obtain rights of ownership to
the technology through the acquisition of underlying patents or licenses.
While the Company believes design, development, regulatory and
marketing aspects of the medical device business represent the principal
barriers to entry into such business, it also recognizes that its patents and
license rights may make it more difficult for its competitors to market products
similar to those produced by the Company. St. Jude can give no assurance that
any of its patent rights, whether issued, subject to license or in process, will
not be circumvented or invalidated. Further, there are numerous existing and
pending patents on medical products and biomaterials. There can be no assurance
that the Company's existing or planned products do not or will not infringe such
rights or that others will not claim such infringement. The Company's principal
patent covering its mechanical heart valve expired in the United States in July
1998. No assurance can be given that the Company will be able to prevent
competitors from challenging the Company's patents or entering markets currently
served by the Company.
INSURANCE
The medical device industry has historically been subject to
significant products liability claims. Such claims could be asserted against the
Company in the future for events not known to management at this time.
Management has adopted risk management practices, including products liability
insurance coverage, which management believes are prudent.
7
California earthquake insurance is currently difficult to procure,
extremely costly, and restrictive in terms of coverage. The Company's earthquake
and related business interruption insurance for its operations located in Sylmar
and Sunnyvale, California does provide for limited coverage above a significant
self-insured retention. There are several factors that preclude the Company from
determining the effect an earthquake may have on its business. These factors
include, but are not limited to, the severity and location of the earthquake,
the extent of any damage to the Company's manufacturing facilities, the impact
of such an earthquake on the Company's California workforce and the
infrastructure of the surrounding communities, and the extent, if any, of damage
to the Company's inventory and work in process. While the Company's exposure to
significant losses occasioned by a California earthquake would be partially
mitigated by its ability to manufacture certain of the Pacesetter products at
its Swedish manufacturing facility, any such losses could have a material
adverse effect on the Company, the duration of which cannot be reasonably
predicted. The Company has expanded the manufacturing capabilities at its
Swedish facility and has constructed a pacemaker component manufacturing
facility in Arizona. In addition, the Company has moved significant finished
goods inventory to locations outside California. These facilities and inventory
transfers would further mitigate the adverse impact of a California earthquake.
EMPLOYEES
As of December 31, 1998, the Company had 3,984 full-time employees. It
has never experienced a work stoppage as a result of labor disputes and none of
its employees are represented by a labor organization, with the exception of the
Company's Swedish employees and certain employees in France.
INDUSTRY SEGMENT AND INTERNATIONAL OPERATIONS
St. Jude Medical provides products and services for two industry
segments: cardiac rhythm management and heart valve disease management. The
Company's domestic and foreign net sales, operating profit and identifiable
assets are described in Note 9 to the Consolidated Financial Statements on pages
44 and 45 of the 1998 Annual Report to Shareholders and are incorporated herein
by reference.
The Company's foreign business is subject to such special risks as
exchange controls, currency devaluation, the imposition or increase of import or
export duties and surtaxes, and international credit or financial problems.
Since its international operations require the Company to hold assets in foreign
countries denominated in local currencies, many assets are dependent for their
U.S. dollar valuation on the values of a number of foreign currencies in
relation to the U.S. dollar. The Company may from time to time enter into
purchase and sales contracts in the forward markets for various foreign
currencies with the objective of protecting U.S. dollar values of assets and
commitments denominated in foreign currencies.
ITEM 2. PROPERTIES
St. Jude Medical's principal executive offices are owned and are
located in St. Paul, Minnesota. Manufacturing facilities are located in
California, Minnesota, Arizona, South Carolina, Canada, Brazil, Puerto Rico and
Sweden. Approximately 69%, or 352,000 square feet, of the total manufacturing
space is owned by the Company and the balance is leased.
The Company also maintains sales and administrative offices inside the
United States at 14 locations in 6 states and outside the United States at 40
locations in 22 countries. With the exception of one location, all of these
locations are leased.
8
In management's opinion, all building and machinery and equipment are
in good condition and suitable for their purposes and are maintained on a basis
consistent with sound operations.
ITEM 3. LEGAL PROCEEDINGS
GUIDANT LITIGATION
On November 26, 1996, Guidant Corporation ("Guidant"), a competitor of
Pacesetter and Ventritex, CPI (a wholly owned subsidiary of Guidant), Guidant
Sales Corporation (a wholly owned subsidiary of CPI) ("GSC"), and Eli Lilly and
Company (the former owner of CPI) ("Lilly") (collectively, the "Guidant
Parties"), filed a lawsuit against St. Jude Medical, Inc., Pacesetter Inc.
("Pacesetter"), Ventritex Inc. ("Ventritex") and certain members of the
Telectronics Group in State Superior Court in Marion County, Indiana (the
"Telectronics Action"). The lawsuit alleges, among other things, that, pursuant
to an agreement entered into in 1993, CPI and Lilly granted Ventritex certain
intellectual property licenses relating to cardiac stimulation devices, and that
such licenses would terminate upon the consummation of the merger of Ventritex
into Pacesetter (the "Merger"). The lawsuit further alleges that, pursuant to an
agreement entered into in 1994 (the "Telectronics Agreement"), CPI and Lilly
granted the Telectronics Group certain intellectual property licenses relating
to cardiac stimulation devices (the "CPI/Telectronics License"). The lawsuit
seeks declaratory and injunctive relief, among other things, to prevent and
invalidate the transfer of the Telectronics Agreement to Pacesetter in
connection with Pacesetter's acquisition of Telectronic's assets (the
"Telectronics Acquisition") and the application of license rights granted under
the Telectronics Agreement to the manufacture and sale by Pacesetter of
Ventritex's products following the consummation of the Merger.
On December 17, 1996, St. Jude Medical, Pacesetter, Ventritex and the
Telectronics Group removed the lawsuit to the United States District Court for
the Southern District of Indiana, and filed a motion to dismiss the complaint
or, in the alternative, to stay proceedings pending arbitration of the dispute
pursuant to the arbitration provisions of the Telectronics Agreement. On January
16, 1997, the Guidant Parties filed a motion to remand the lawsuit to Indiana
state court which was granted in May 1997. St. Jude Medical, Pacesetter and
Ventritex then filed a motion in Indiana state court to dismiss the complaint
or, in the alternative, to stay the proceedings pending arbitration. This motion
was denied by the Indiana state court on July 21, 1997.
CPI, GSC and Lilly (collectively the "Federal Court Guidant Parties")
also filed suit against St. Jude Medical, Pacesetter and Ventritex on November
26, 1996 in the United States District Court for the Southern District of
Indiana seeking (i) a declaratory judgment that Pacesetter's manufacture, use or
sale of cardiac stimulation devices of the type or similar to the type which
Ventritex manufactured and sold at the time the Federal Court Guidant Parties
filed their complaint would upon consummation of the Merger, be unlicensed and
constitute an infringement of patent rights owned by CPI and Lilly, (ii) to
enjoin the manufacture, use or sale by St. Jude Medical, Pacesetter or Ventritex
of cardiac stimulation devices of the type which Ventritex manufactured at the
time the Federal Court Guidant Parties filed their complaint and (iii) certain
damages and costs. On December 19, 1996, St. Jude Medical, Pacesetter and
Ventritex filed a motion to dismiss the complaint or, in the alternative, to
stay proceedings pending resolution of the Telectronics Action or arbitration.
The court denied this motion.
St. Jude Medical and Pacesetter believe that the foregoing state and
federal court complaints contain a number of significant factual inaccuracies
concerning the Telectronics Acquisition and the terms and effects of the various
intellectual property license agreements referred to in such complaints. For
these
9
reasons and others, St. Jude Medical and Pacesetter believe that the allegations
set forth in the complaints are without merit, and they have vigorously defended
their interests, and will continue to do so.
On December 24, 1996, the Telectronics Group and Pacesetter filed a
lawsuit and a motion against the Guidant Parties in the United States District
Court for the District of Minnesota seeking (i) a declaratory judgment that the
Guidant Parties' claims, as reflected in the Telectronics Action, are subject to
arbitration pursuant to the arbitration provisions of the Telectronics
Agreement, (ii) an order that the Defendants arbitrate their claims against the
Telectronics Group and Pacesetter in accordance with the arbitration provisions
of the Telectronics Agreement, (iii) to enjoin the Defendants preliminarily and
permanently from litigating their dispute with the Telectronics Group and
Pacesetter in any other forum and (iv) certain costs. On February 27, 1997, the
court entered an order denying the motion brought by the Telectronics Group and
Pacesetter and dismissing their complaint. On March 27, 1997, the Telectronics
Group and Pacesetter filed a Notice of Appeal from the court's February 27, 1997
order.
In response to the appeal by the Telectronics Group and Pacesetter, the
Court of Appeals issued a decision on May 4, 1998 reversing the district court
and vacating the district court's dismissal of the Minnesota federal district
court lawsuit which the Telectronics Group and Pacesetter brought against the
Guidant Parties. As part of this decision, the Court of Appeals remanded the
case to the district court in Minnesota and instructed the district court to
permit the arbitration requested by the Telectronics Group and Pacesetter to
proceed. The Court of Appeals also asked the district court in Minnesota to
reconsider the motion for an injunction previously brought by the Telectronics
Group and Pacesetter which sought to preliminarily and permanently enjoin the
Guidant Parties from litigating their dispute with the Telectronics Group and
Pacesetter in any forum outside the arbitration proceeding.
The Guidant Parties filed a request for re-hearing of the Eighth
Circuit Court of Appeals' May 4, 1998 decision and a suggestion that the matter
be considered by the court en banc. The Court of Appeals denied Guidant's
requests in this regard by order dated June 9, 1998.
As a result of Eighth Circuit Court of Appeals' decision in favor of
Pacesetter and the Telectronics Group, the United States District Court for the
Southern District of Indiana issued an order on June 8, 1998 staying the case
which the Federal Court Guidant Parties had brought against St. Jude Medical and
Pacesetter. In addition, the State Superior Court in Marion County, Indiana also
issued an order on June 18, 1998 staying the Telectronics Action. Finally, the
United States District Court for the District of Minnesota issued an order on
July 8, 1998 directing the arbitration requested by the Telectronics Group and
Pacesetter to proceed. That court's order also requires Guidant to provide the
Telectronics Group and Pacesetter with advance notice if it seeks to lift either
of the stays that have been granted in the above cases.
An arbitrator for the arbitration has been selected by the parties. The
arbitrator has issued some interim rulings and the parties are presently waiting
for the arbitrator's further instructions to proceed with the arbitration.
On December 23, 1998, the Guidant Parties gave the Telectronics Group
and Pacesetter notice of their intent to seek to lift the stay of proceedings
which had been issued in the federal court action in Indiana. On January 11,
1999, the Federal Court Guidant Parties served a copy of their motion to lift
stay upon the Telectronics Group and Pacesetter. All parties have provided
written briefs on this matter to the federal court in Indiana and are awaiting a
ruling from the court.
10
St. Jude Medical and Pacesetter will continue to vigorously defend
their interests against the claims asserted by Guidant and associated entities
in the arbitration.
IRS LITIGATION
The Internal Revenue Service ("IRS") completed an audit examination of
the Company's 1990-1991 corporate income tax returns and issued deficiency
notices in early 1997 for taxes of $16.4 million. In addition, the IRS completed
an audit examination of the Company's 1992-1994 income tax returns in early 1998
and has proposed an adjustment of $41.8 million in taxes. Both adjustments
relate primarily to the Company's Puerto Rican operations. The deficiency
amounts do not include interest, state taxes, or offsetting Puerto Rico tax
refunds, the net effect of which is not material. It is likely that a similar
additional adjustment will be proposed for 1995. The Company is vigorously
contesting this adjustment. The Company is refuting the IRS deficiency for
1990-1991 and asserting the Company is in fact owed a refund in a petition filed
in Tax Court on June 24, 1997. The Company expects that the ultimate resolution
will not have material adverse effect on its financial position or liquidity,
but could potentially be material to the net income of a particular future
period if resolved unfavorably.
OTHER LITIGATION AND PROCEEDINGS
On December 16, 1998, the Company began a lawsuit in federal court in
Los Angeles seeking a declaration that it was permitted to hire certain sales
representatives who previously had worked for Intermedics, which was acquired by
Guidant. The Company's CRMD unit has hired 14 such representatives as of March
16, 1999, six of whom had no written agreement with Intermedics or Guidant.
Guidant has filed a counterclaim in the lawsuit seeking damages from the Company
for the hiring of these representatives and for their activities as sales
representatives of CRMD. The Company intends to vigorously assert its position
in this litigation.
The Company is unaware of any other pending legal proceedings which it
regards as likely to have a material adverse effect on its business.
11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY
Name Age Position*
- -------------------------- --- ------------------------------------------------------------------
Ronald A. Matricaria 56 Chairman (1995) and Chief Executive Officer (1993)
Fred B. Parks 51 President and Chief Operating Officer (1998)
Daniel J. Starks 44 Chief Executive Officer, Cardiac Rhythm Management Division (1997)
and Daig (1996)
Terry L. Shepherd 46 President, Heart Valve Division (1994)
Patrick P. Fourteau 51 President, International (1998)
Michael J. Coyle 36 President Daig (1997)
John P. Berdusco 62 Vice President, Administration (1993)
Peter L. Gove 51 Vice President, Corporate Relations (1994)
John C. Heinmiller 44 Vice President, Finance and Chief Financial Officer (1998)
Kevin T. O'Malley, Esq. 47 Vice President and General Counsel (1994)
Robert Cohen 41 Vice President Business and Technology Development (1998)
- -----------------------
*Dates in brackets indicate period during which the named executive officers
began serving in such capacity.
Executive officers serve at the pleasure of the Board of Directors.
Mr. Matricaria's business experience is set forth in the Company's
definitive Proxy Statement dated March 25, 1999 under the Section "Election of
Directors." The information is incorporated herein by reference.
Dr. Parks' resigned from the Company effective March 31, 1999.
Mr. Stark's business experience is set forth in the Company's
definitive Proxy Statement dated March 25, 1999 under the section "Election of
Directors." The information is incorporated herein by reference.
Mr. Shepherd joined the Company in 1994 as President of the St. Jude
Medical Division. Prior to joining St. Jude, Mr. Shepherd was President and CEO
of Hybritech, Inc. where he had been employed for 3 years. Prior to that, Mr.
Shepherd held various management positions at Cardiac Pacemakers, Inc. (CPI) and
Eli Lilly & Company where he worked for 15 years. Hybritech and CPI were both
wholly owned subsidiaries of Eli Lilly & Company. Effective May 5, 1999, Mr.
Shepherd has been appointed as the President and Chief Executive Officer of St.
Jude Medical, Inc.
12
Mr. Fourteau joined the Company in 1995 as President of St. Jude
Medical Europe. He was appointed President of the Pacesetter Division in May
1996. Mr. Fourteau was appointed as President of the International Division in
1998. Prior to joining the Company, he was employed by Eli Lilly & Company for
19 years in various positions including his last position of vice president of
pharmaceutical operations for Lilly International.
Mr. Coyle joined St. Jude Medical in 1994 as Director, Business
Development and was appointed as the President and Chief Operating Officer of
Daig in 1997. Prior to joining St. Jude, he spent nine years with Eli Lilly &
Company in a variety of technical and business management roles in both its
Pharmaceutical and Medical Device Divisions.
Mr. Berdusco joined the Company in 1993 as Vice President,
Administration. Prior to joining the Company, he was Executive Director
Corporate Facilities Planning, Manufacturing Strategy Development and Sourcing
for Eli Lilly & Company. From 1962 to 1993, Mr. Berdusco held various management
positions with Eli Lilly & Company in both domestic and international
operations.
Mr. Gove joined the Company in 1994 as Vice President, Corporate
Relations. Prior to joining the Company, Mr. Gove was Vice President, Marketing
and Communications of Control Data Systems, Inc., a computer services company,
from 1991 to 1994. From 1981 to 1990, Mr. Gove held various executive positions
with Control Data Corporation. From 1970 to 1981, Mr. Gove held various
management positions with the State of Minnesota and the U.S. Government.
Mr. O'Malley joined the Company in 1994 as Vice President and General
Counsel. Prior to joining St. Jude, Mr. O'Malley was employed by Eli Lilly &
Company for 15 years in various positions including his last position of General
Counsel of the Medical Device and Diagnostics Division.
Mr. Heinmiller joined the Company in 1998 as Vice President of
Corporate Business Development. In September 1998 he was appointed Vice
President, Finance and Chief Financial Officer. Prior to joining the Company,
Mr. Heinmiller was president of F3 Corporation, a privately held asset
management company, and was vice president of finance and administration for
Daig Corporation. Mr. Heinmiller is also a former audit partner in the
Minneapolis office of Grant Thornton, a national public accounting firm, where
he managed the firm's relationship with a number of clients. Mr. Heinmiller is a
director of Lifecore Biomedical, Inc., Arctic Cat, Inc. and former director of
Daig Corporation.
Mr. Cohen joined the Company in 1998 as Vice President, Business and
Technology Development. Prior to joining the Company, he was employed by Sulzer
Medica. During his 16-year career in the medical device industry, Mr. Cohen has
been associated with Pfizer Inc. and GCI Medical, an investment firm focused on
the medical technology industry.
13
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS
The information set forth under the captions "Dividends" and "Stock
Exchange Listing" on pages 30 and 48 of the Company's 1998 Annual Report to
Shareholders is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information set forth under the caption "Five Year Summary of
Selected Financial Data" on page 47 of the Company's 1998 Annual Report to
Shareholders is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
The information set forth under the caption "Management's Discussion
and Analysis of Results of Operations and Financial Condition" on pages 25
through 32 of the Company's 1998 Annual Report to Shareholders is incorporated
herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information appearing under the caption "Market Risk Sensitive
Instruments" one page 29 of the Company's 1998 Annual Report to shareholders is
incorporated by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following Consolidated Financial Statements of the Company and
Report of Independent Auditors set forth on pages 33 through 46 of the Company's
1998 Annual Report to Shareholders are incorporated herein by reference:
Consolidated Statements of Income - Years ended December 31, 1998, 1997
and 1996
Consolidated Balance Sheets - December 31, 1998 and 1997
Consolidated Statements of Shareholders' Equity - Years ended December
31, 1998, 1997, and 1996
Consolidated Statements of Cash Flows - Years ended December 31, 1998,
1997 and 1996
Notes to Consolidated Financial Statements
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The information set forth under the caption "Election of Directors" in
the Company's definitive Proxy Statement dated March 26, 1999, is incorporated
herein by reference. Information on executive officers is set forth in Part I,
Item 4A hereto.
14
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the caption "Executive Compensation and
Other Information" and "Election of Directors" in the Company's definitive Proxy
Statement dated March 26, 1999, is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The information set forth under the caption "Security Ownership of
Certain Beneficial Owners and Management" and "Election of Directors" in the
Company's definitive Proxy Statement dated March 26, 1999, is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Election of Directors" in
the Company's definitive Proxy Statement dated March 26, 1999, is incorporated
herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
(a) LIST OF DOCUMENTS FILED AS PART OF THIS REPORT
(1) FINANCIAL STATEMENTS
The following Consolidated Financial Statements of the Company and
Report of Independent Auditors as set forth on pages 33 through 46
of the Company's 1998 Annual Report to Shareholders are
incorporated herein by reference:
Consolidated Statements of Income - Years ended December 31, 1998,
1997 and 1996
Consolidated Balance Sheets - December 31, 1998 and 1997
Consolidated Statements of Shareholders' Equity - Years ended
December 31, 1998, 1997, and 1996
Consolidated Statements of Cash Flows - Years ended December 31,
1998, 1997 and 1996
Notes to Consolidated Financial Statements
(2) FINANCIAL STATEMENT SCHEDULE
The following financial statement schedule is filed as part of
this Form 10-K Annual Report:
15
SCHEDULE PAGE
NUMBER DESCRIPTION NUMBER
- ---------------- ------------------------------------------------------------------- ------------
II Valuation and Qualifying Accounts 16
The report of the Company's Independent Auditors with respect to the
above-listed financial statements is set forth in the Company's 1998 Annual
Report to Shareholders and is incorporated herein by reference and with respect
to the financial statement schedule is incorporated by reference to Exhibit 23
attached hereto.
All other financial statements and schedules not listed have been
omitted because the required information is included in the consolidated
financial statements or the notes thereto, or is not applicable.
(3) EXHIBITS
PAGE
EXHIBIT EXHIBIT INDEX NUMBER
- ---------------- ------------------------------------------------------------------- ------------
3.1 Articles of Incorporation as amended on September 5, 1996, are ---
incorporated by reference to Exhibit 3.2 of the Company's Form
10-K filed on March 27, 1997.
3.2 Bylaws are incorporated by reference to Exhibit 3(ii) of the ---
Company's Form 10-Q filed on November 10, 1997.
4.1 Rights Agreement dated as of June 16, 1997, between the Company ---
and American Stock Transfer and Trust Company, as Rights Agent
including the Certificate of Designation, Preferences and Rights
of Series B Junior Preferred Stock is incorporated by reference
to Exhibit 4 of the Company's Form 10-Q dated August 12, 1997.
4.2 Indenture dated as of August 21, 1996, between the Company and ---
State Street Bank and Trust Company, as Trustee is incorporated
by reference to Ventritex's Form S-3/A (no. 333-07651) filed on
August 2, 1996.
10.1 Employment letter dated as of March 9, 1993, between the Company ---
and Ronald A. Matricaria is incorporated by reference to Exhibit
10.1 of the Company's Form 10-K Annual Report for the year ended
December 31, 1993.*
10.2 Employment letter dated as of November 8, 1996, between the 17
Company to Ronald A. Matricaria.*
16
PAGE
EXHIBIT EXHIBIT INDEX NUMBER
- ---------------- ------------------------------------------------------------------- ------------
10.3 Form of Indemnification Agreement that the Company has entered ---
into with officers and directors. Such agreement recites the
provisions of Minnesota Statutes Section 302A.521 and the
Company's Bylaw provisions (which are substantially identical to
the Statute) and is incorporated by reference to Exhibit 10(d) of
the Company's Form 10-K Annual Report for the year ended December
31, 1986.*
10.4 Form of Employment Agreement that the Company has entered into 21
with officers relating to severance matters in connection with a
change in control.*
10.5 Retirement Plan for members of the Board of Directors as amended ---
on March 15, 1995, is incorporated by reference to Exhibit 10.6
of the Company's Form 10-K Annual Report for the year ended
December 31, 1994.*
10.6 Management Savings Plan dated February 1, 1995, is incorporated ---
by reference to Exhibit 10.7 of the Company's Form 10-K Annual
Report for the year ended December 31, 1994.*
10.7 The St. Jude Medical, Inc. 1992 Employee Stock Purchase Savings ---
Plan is incorporated by reference to the Company's Form S-8
Registration Statement dated June 10, 1992, (Commission File No.
33-48502).
10.8 1989 Restricted Stock Plan is incorporated by reference to the ---
Company's Form S-8 Registration Statement dated June 6, 1989
(Commission File No. 33-29085).*
10.9 The St. Jude Medical, Inc. 1991 Stock Plan is incorporated by ---
reference to the Company's Form S-8 Registration Statement dated
June 28, 1991 (Commission File No. 33-41459).*
10.10 The St. Jude Medical, Inc. 1994 Stock Option Plan is incorporated ---
by reference to the Company's Form S-8 Registration Statement
dated July 1, 1994 (Commission File No. 33-54435).*
17
PAGE
EXHIBIT EXHIBIT INDEX NUMBER
- ---------------- ------------------------------------------------------------------- ------------
10.11 The St. Jude Medical Inc. 1997 Stock Option Plan is incorporated ---
by reference to the Company's Form S-8 Registration Statement
dated December 22, 1997 (Commission File No. 333-42945).*
10.12 The Management Incentive Compensation Plan is incorporated by ---
reference to Appendix A of the Company's definitive Proxy
Statement dated March 27, 1995.*
10.13 Employment letter dated as of February 23, 1999, between the 31
Company and Ronald A. Matricaria.*
10.14 Letter of understanding dated as of March 1, 1999, between the 34
Company and Fred B. Parks.*
10.15 Employment Agreement effective as of May 5, 1999 between the 38
Company and Terry L. Shepherd.*
13 Portions of the 1998 Annual Report to Shareholders are 43
incorporated by reference in this Form 10-K Annual Report.
21 Subsidiaries of the Company 67
23 Consent of Independent Auditors 68
27 Financial Data Schedule 69
- -----------------------------
* Management contract or compensatory plan or arrangement.
(b) REPORTS ON FORM 8-K DURING THE QUARTER ENDED DECEMBER 31, 1998 No reports
on Form 8-K were filed by the Company during the fourth quarter 1998.
(c) EXHIBITS: Reference is made to Item 14(a)(3).
(d) SCHEDULES: Reference is made to Item 14(a)(2).
18
For the purposes of complying with the amendments to the rules
governing Form S-8 under the Securities Act of 1933, the undersigned Company
hereby undertakes as follows, which undertaking shall be incorporated by
reference into the Company's Registration Statements of Form S-8 Nos. 33-9262
(filed October 3, 1986), 33-29085 (filed June 6, 1989), 33-41459 (filed June 28,
1991), 33-48502 (filed June 10, 1992), 33-54435 (filed July 1, 1994) and
333-42945 (filed December 22, 1997):
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Company pursuant to the foregoing
provisions, or otherwise, the Company has been advised that, in the
opinion of the Securities and Exchange Commission, such indemnification
is against public policy as expressed in the Securities Act of 1933 and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Company of expenses incurred or paid by a director, officer or
controlling person of the Company in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered,
the Company will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
19
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ST. JUDE MEDICAL, INC.
Date: March 26, 1999 By /s/ RONALD A. MATRICARIA
-------------------------
Ronald A. Matricaria
CHIEF EXECUTIVE OFFICER
(PRINCIPAL EXECUTIVE OFFICER)
By /s/ JOHN C. HEINMILLER
-----------------------
John C. Heinmiller
VICE PRESIDENT, FINANCE AND
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
/s/ RONALD A. MATRICARIA Director 3/26/99 /s/ WALTER L. SEMBROWICH Director 3/26/99
- --------------------------- --------------------------
Ronald A. Matricaria Walter L. Sembrowich
/s/ LOWELL C. ANDERSON Director 3/26/99 /s/ DANIEL J. STARKS Director 3/26/99
- --------------------------- --------------------------
Lowell C. Anderson Daniel J. Starks
/s/ PAUL J. CHIAPPARONE Director 3/26/99 Director 3/26/99
- --------------------------- --------------------------
Paul J. Chiapparone Roger G. Stoll
Director 3/26/99 /s/ DAVID A. THOMPSON Director 3/26/99
- --------------------------- --------------------------
Stuart M. Essig David A. Thompson
/s/ THOMAS H. GARRETT III Director 3/26/99 /s/ GAIL R. WILENSKY Director 3/26/99
- --------------------------- --------------------------
Thomas H. Garrett III Gail R. Wilensky
/s/ WALTER F. MONDALE Director 3/26/99
- ---------------------------
Walter F. Mondale
20
ST. JUDE MEDICAL, INC. AND SUBSIDIARIES
YEAR ENDED DECEMBER 31, 1998
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
COL. A COL. B COL. C COL. D COL. E
- --------------------------------------- ------------ ---------------------- ------------ -----------
DESCRIPTION BALANCE AT ADDITIONS CHARGED TO BALANCE AT
BEGINNING OF ---------------------- END OF
PERIOD EXPENSE OTHER DEDUCTIONS PERIOD
- --------------------------------------- ------------ --------- ---------- ------------ -----------
Year ended December 31, 1998
Allowance for doubtful
accounts(3) $ 12,712 $ 14 $ $ 374(1) $ 12,352
Products liability claims
reserve(4) 6,205 -- -- 1,814(2) 4,391
Year ended December 31, 1997
Allowance for doubtful
accounts(3) 8,160 678 4,037(5) 163(1) 12,712
Products liability claims
reserve(4) 8,304 -- -- 2,099(2) 6,205
Year ended December 31, 1996
Allowance for doubtful
accounts(3) 9,845 650 13(5) 2,348(1) 8,160
Products liability claims
reserve(4) 8,558 -- -- 254(2) 8,304
- -------------------------
(1) Uncollectible accounts written off, net of recoveries.
(2) Claims settled, including settlements paid.
(3) Deducted from accounts receivable on the balance sheet.
(4) Included in other accrued expenses on the balance sheet.
(5) Balance assumed through acquisitions.
21