|
|
|
|
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, changes
in tax laws and changes in foreign currency exchange rates.
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|
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,
publication of adverse study results, initiation of investigations of our
customers related to our devices or the development of or preferences for
alternative therapies.
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|
7.
|
Safety, performance or
efficacy concerns about our products, many of which are expected to be implanted
for many years, some of which may lead to recalls and/or advisories with the
attendant expenses and declining sales.
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8.
|
Declining industry-wide
sales caused by product quality issues or 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.
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|
9.
|
Changes in laws,
regulations or administrative practices affecting government regulation of
our products, such as FDA regulations, including those that decrease the
probability or increase the time and/or expense of obtaining approval for
products or impose additional burdens on the manufacture and sale of medical
devices.
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|
10.
|
Regulatory actions arising
from concern over Bovine Spongiform Encephalopathy, sometimes referred to as
mad cow disease, that have the effect of limiting our ability to market
products using bovine collagen, such as Angio-Seal, or products using bovine
pericardial material, such as our Biocor®, Epic and Trifecta tissue heart
valves, or that impose added costs on the procurement of bovine collagen or
bovine pericardial material.
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11.
|
The intent and ability of
our product liability insurers to meet their obligations to us, including
losses related to our Silzone® litigation, and our ability to fund future
product liability losses related to claims made subsequent to becoming
self-insured.
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|
12.
|
Severe weather or other
natural disasters that can adversely impact customers purchasing patterns
and/or patient implant procedures or 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.
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|
13.
|
Healthcare industry changes
leading to demands for price concessions and/or limitations on, or the
elimination of, our ability to sell in significant market segments.
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|
14.
|
Adverse developments in
investigations and governmental proceedings.
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15.
|
Adverse developments in
litigation, including product liability litigation, patent or other
intellectual property litigation, qui tam litigation or shareholder
litigation.
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16.
|
Inability to successfully integrate the businesses that we
have acquired in recent years and that we plan to acquire.
|
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17.
|
Failure to successfully
complete or unfavorable data from clinical trials for our products or new
indications for our products and/or failure to successfully develop markets
for such new indications.
|
|
18.
|
Changes in accounting rules
that adversely affect the characterization of our results of operations,
financial position or cash flows.
|
|
19.
|
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.
|
|
20.
|
Conditions imposed in
resolving, or any inability to timely resolve, any regulatory issues raised
by the FDA, including Form 483 observations or warning letters, as well as
risks generally associated with our regulatory compliance and quality
systems.
|
|
21.
|
Governmental legislation,
including the recently enacted Patient Protection and Affordable Care Act and
the Health Care and Educational Reconciliation Act, and/or regulation that
significantly impacts the healthcare system in the United States and that
results in lower reimbursement for procedures using our products, reduces
medical procedure volumes or otherwise adversely affects our business and
results of operations, including the recently enacted medical device excise
tax.
|
Table of Contents
|
|
I
tem 3.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
There have
been no material changes since January 1, 2011 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 2010 Annual Report on Form 10-K.
|
|
I
tem 4.
|
CONTROLS AND PROCEDURES
|
As of July 2,
2011, the Company carried out an evaluation, under the supervision and with the
participation of the Companys 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 Companys disclosure controls and procedures were effective
as of July 2, 2011.
There were no
changes in the Companys internal control over financial reporting (as defined
in Rule 13a-15(f) under the Exchange Act) during the second quarter of 2011
that have materially affected, or are reasonably likely to materially affect,
the Companys internal control over financial reporting.
P
ART II OTHER
INFORMATION
|
|
I
tem 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 6 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 6, 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.
The risks
factors identified in Part I, Item 1A of our Annual Report on Form 10-K for the
year ended January 1, 2011 and in Part II, Item 1A of our Quarterly Report on
Form 10-Q for the period ended April 2, 2011 have not changed in any material
respect other than the updated risk factors as follows:
We are not insured
against all potential losses. Natural disasters or other catastrophes could
adversely affect our business, financial condition and results of operations.
The occurrence
of one or more natural disasters, such as hurricanes, cyclones, typhoons,
tropical storms, floods, earthquakes and tsunamis, severe changes in climate
and geo-political events, such as acts of war, civil unrest or terrorist
attacks, in a country in which we operate or in which our suppliers are located
could adversely affect our operations and financial performance. 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.
29
Table of Contents
Further, when
natural disasters, such as the recent earthquake and tsunami in Japan (whose
market represents approximately 10% of our annual net revenues), result in
wide-spread destruction, the impact on our business may not be readily
apparent. This is especially true when trying to assess the impact of the
disaster on our customers, who themselves may not fully understand the impact
of the event on their business. The disaster in Japan may also result in a
downturn in the Japanese economy as a whole. As a result, we are currently unable
to assess the full impact of these events and there is no assurance that our
results of operations may not be materially affected as a result of the impact
of the disaster.
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 products are
continually the subject of clinical trials conducted by us, our competitors or
other third parties, the results of which may be unfavorable, or perceived as
unfavorable by the market, and could have a material adverse effect on our
business, financial condition and results of operations.
As a part of the
regulatory process of obtaining marketing clearance for new products and new
indications for existing products, we conduct and participate in numerous
clinical trials with a variety of study designs, patient populations and trial
endpoints. Unfavorable or inconsistent clinical data from existing or future
clinical trials conducted by us, by our competitors or by third parties, or the
markets or FDAs perception of this clinical data, may adversely impact our
ability to obtain product approvals, the size of the markets in which we
participate, our position in, and share of, the markets in which we participate
and our business, financial condition and results of operations.
The medical device
industry and its customers are the subject of numerous governmental
investigations into marketing and other business practices. Investigations
against us 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. Investigations of our customers
may adversely affect the size of our markets.
We are subject
to rigorous regulation by the FDA and numerous other federal, state and foreign
governmental authorities. These authorities have been increasing their scrutiny
of our industry. We have received subpoenas and other requests for information
from state and federal governmental agencies, including, among others, the U.S.
Department of Justice and the Office of Inspector General of the Department of
Health and Human Services. These investigations have related primarily to
financial arrangements with health care providers, regulatory compliance and
product promotional practices. In December 2008, the U.S. Attorneys Office in
Boston delivered a subpoena issued by the U.S. Department of Health and Human
Services, Office of the Inspector General (OIG) requesting the production of
documents relating to implantable cardiac rhythm device and pacemaker warranty
claims. The Company has cooperated with the investigation and has produced
documents as requested. In March 2010, we received a Civil Investigative
Demand (CID) from the Civil Division of the U.S. Department of Justice. The CID
requests documents and sets forth interrogatories related to communications by
and within our company on various indications for ICDs and a National Coverage
Decision issued by Centers for Medicare and Medicaid Services. Similar requests
were made of our major competitors.
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 or other
investigations initiated by the government at any time, could have a material
adverse effect on our financial condition and results of operations.
30
Table of Contents
Further,
governmental investigations involving our customers, such as the U.S.
Department of Justice investigation into ICD implants, may have a negative
impact on the size of the CRM market. Our U.S. ICD sales represented
approximately 22% percent of our worldwide consolidated net sales in 2010, and
any changes in this market could have a material adverse effect on our
financial condition or results of operations.
Current economic
conditions could adversely affect our results of operations.
The global financial crisis
that began
in late 2007
caused extreme disruption in the financial markets, including severely diminished liquidity and credit availability.
There can be no assurance that there will not be further deterioration in the global economy, and these and other factors beyond
our control may adversely affect our ability to borrow money in the credit markets and to obtain financing for acquisitions or
other general corporate and commercial purposes.
Although the disruption in the global financial markets
has moderated, not all global financial markets are functioning normally, and some remain reliant upon government intervention
and liquidity. The global recession and disruption of the financial markets has further led to concerns over the solvency of certain
European Union member states, including Greece, Ireland, Italy, Portugal and Spain. On August 5, 2011, Standard & Poor’s
downgraded the U.S. credit rating to AA+ from its top rank of AAA. The current U.S. debt ceiling and budget deficit concerns
have increased the possibility of other credit-rating agency downgrades which could have a material adverse effect on the
financial markets and economic conditions in the United States and throughout the world.
Upheaval in the financial markets can
affect our business through its effects on general levels of economic activity, employment and customer behavior. The recovery
from the recent recession in the U.S. has been below historic averages and the unemployment rate is expected to remain high for
some time. Inflation has fallen over the last several years, but is now rising, and Central Banks around the world have begun tightening
monetary conditions to attempt to control inflation. On August 2, 2011, President Obama signed the Budget Control Act of 2011 which
provides an initial increase to the U.S. debt limit, imposes significant cuts in federal spending over the next decade and involves
a second increase to the debt limit pending further deficit reduction by a bipartisan Congressional committee later this year.
This committee could propose cuts to, and restructuring of, entitlement programs such as Medicare and aid to states for Medicaid
programs. Our hospital customers rely heavily on Medicare and Medicaid programs to fund their operations. Any cuts to these programs
could negatively affect the business of our customers and our business.
As a result of recent or future poor economic conditions,
our customers may experience financial difficulties or be unable to borrow money to fund their operations which may adversely impact
their ability or decision to purchase our products or to pay for products they do purchase or have purchased on a timely basis,
if at all. While the economic environment has begun to show signs of improvement, the strength and timing of any economic recovery
remains uncertain, and we cannot predict to what extent the global economic slowdown may negatively impact our average selling
prices, net sales, profit margins, procedural volumes and reimbursement rates from third party payors. In addition, the current
economic conditions may adversely affect our suppliers, leading them to experience financial difficulties or to be unable to borrow
money to fund their operations, which could cause disruptions in our ability to produce our products.
|
|
I
tem 5.
|
OTHER INFORMATION
|
At the Annual Meeting of Shareholders
held on May 12, 2011, the Company’s shareholders voted, on an advisory basis, in favor of holding an annual advisory vote
on the compensation of our named executive officers (“Say-on-Pay Vote”). In light of this recommendation by our
shareholders, our Board of Directors has determined that the Company will hold an annual Say-on-Pay Vote.
|
|
I
tem 6.
|
EXHIBITS
|
|
|
12
|
Computation
of Ratio of Earnings to Fixed Charges.
|
|
|
10.1
|
Form of
Non-Qualified Stock Option Agreement (amended 2011) and related Notice of
Non-Qualified Stock Option Grant under the St. Jude Medical, Inc. 2002 Stock
Plan.
|
|
|
10.2
|
Form of
Non-Qualified Stock Option Agreement for Non-Employee Directors (amended
2011) and related Notice of Non-Qualified Stock Option Grant under the St.
Jude Medical, Inc. 2006 Stock Plan.
|
|
|
10.3
|
Form of
Non-Qualified Stock Option Agreement for Employees (amended 2011) and related
Notice of Non-Qualified Stock Option Grant under the St. Jude Medical, Inc.
2006 Stock Plan.
|
|
|
10.4
|
Form of
Non-Qualified Stock Option Agreement (amended 2011) and related Notice of
Non-Qualified Stock Option Grant under the St. Jude Medical, Inc. 2007 Stock
Incentive Plan.
|
|
|
10.5
|
Form of
Non-Qualified Stock Option Agreement for Non-Employee Directors (amended
2011) and related Notice of Non-Qualified Stock Option Grant under the St.
Jude Medical, Inc. 2007 Stock Incentive Plan.
|
|
|
10.6
|
Form of
Restricted Stock Award Agreement (amended 2011) and related Restricted Stock
Award Certificate under the St. Jude Medical, Inc. 2007 Stock Incentive Plan.
|
|
|
10.7
|
Form of
Restricted Stock Units Award Agreement (amended 2011) and related Restricted
Stock Units Award Certificate under the St. Jude Medical, Inc. 2007 Stock
Incentive Plan.
|
31
Table of Contents
|
|
10.8
|
St. Jude
Medical, Inc. 2007 Stock Incentive Plan, as amended and restated (2011), is
incorporated by reference to Exhibit 10.1 to St. Jude Medicals Current Report
of Form 8-K filed on May 13, 2011.
|
|
|
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.
|
|
|
101
|
Financial
statements from the quarterly report on Form 10-Q of St. Jude Medical, Inc.
for the quarter ended July 2, 2011, formatted in XBRL: (i) the Condensed
Consolidated Statements of Earnings, (ii) the Condensed Consolidated Balance
Sheets, (iii) the Condensed Consolidated Statements of Cash Flows and (iv)
the Notes to the Condensed Consolidated Financial Statements.
|
32
Table of Contents
S
IGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
|
|
|
|
|
ST. JUDE
MEDICAL, INC.
|
|
|
|
August 10,
2011
|
|
/s/ JOHN C.
HEINMILLER
|
DATE
|
|
JOHN C.
HEINMILLER
|
|
|
Executive
Vice President
|
|
|
and Chief
Financial Officer
|
|
|
(Duly
Authorized Officer and
|
|
|
Principal
Financial and
Accounting Officer)
|
33
Table of Contents
I
NDEX TO
EXHIBITS
|
|
|
Exhibit
No.
|
|
Description
|
|
|
|
12
|
|
Computation
of Ratio of Earnings to Fixed Charges. #
|
|
|
|
10.1
|
|
Form of
Non-Qualified Stock Option Agreement (amended 2011) and related Notice of
Non-Qualified Stock Option Grant under the St. Jude Medical, Inc. 2002 Stock
Plan. #
|
|
|
|
10.2
|
|
Form of
Non-Qualified Stock Option Agreement for Non-Employee Directors (amended
2011) and related Notice of Non-Qualified Stock Option Grant under the St.
Jude Medical, Inc. 2006 Stock Plan. #
|
|
|
|
10.3
|
|
Form of
Non-Qualified Stock Option Agreement for Employees (amended 2011) and related
Notice of Non-Qualified Stock Option Grant under the St. Jude Medical, Inc.
2006 Stock Plan. #
|
|
|
|
10.4
|
|
Form of
Non-Qualified Stock Option Agreement (amended 2011) and related Notice of
Non-Qualified Stock Option Grant under the St. Jude Medical, Inc. 2007 Stock
Incentive Plan. #
|
|
|
|
10.5
|
|
Form of
Non-Qualified Stock Option Agreement for Non-Employee Directors (amended
2011) and related Notice of Non-Qualified Stock Option Grant under the St.
Jude Medical, Inc. 2007 Stock Incentive Plan. #
|
|
|
|
10.6
|
|
Form of
Restricted Stock Award Agreement (amended 2011) and related Restricted Stock
Award Certificate under the St. Jude Medical, Inc. 2007 Stock Incentive Plan.
#
|
|
|
|
10.7
|
|
Form of
Restricted Stock Units Award Agreement (amended 2011) and related Restricted
Stock Units Award Certificate under the St. Jude Medical, Inc. 2007 Stock
Incentive Plan. #
|
|
|
|
10.8
|
|
St. Jude
Medical, Inc. 2007 Stock Incentive Plan, as amended and restated (2011), is
incorporated by reference to Exhibit 10.1 to St. Jude Medicals Current
Report of Form 8-K filed on May 13, 2011.
|
|
|
|
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. #
|
|
|
|
32.1
|
|
Certification
of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002. #
|
|
|
|
101
|
|
Financial
statements from the quarterly report on Form 10-Q of St. Jude Medical, Inc.
for the quarter ended July 2, 2011, formatted in XBRL: (i) the Condensed
Consolidated Statements of Earnings, (ii) the Condensed Consolidated Balance
Sheets, (iii) the Condensed Consolidated Statements of Cash Flows and (iv)
the Notes to the Condensed Consolidated Financial Statements. *
|
|
|
|
|
|
#
|
Filed as an
exhibit to this Quarterly Report on Form 10-Q.
|
*
|
Furnished
herewith.
|
34
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