OVERVIEW
Our business is focused on the development, manufacture and distribution of cardiovascular medical devices for the global cardiac rhythm management, cardiology, cardiac surgery and atrial fibrillation therapy areas and implantable neurostimulation medical 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). Our principal products in each operating segment are as follows: CRM - tachycardia implantable cardioverter defibrillator systems (ICDs) and bradycardia pacemaker systems (pacemakers); CV - vascular products, which include vascular closure products, pressure measurement guidewires, optical coherence tomography (OCT) imaging products, vascular plugs and other vascular accessories, and structural heart products, which include heart valve replacement and repair products and structural heart defect devices; AF - electrophysiology (EP) introducers and catheters, advanced cardiac mapping, navigation and recording systems and ablation systems; and NMD - neurostimulation products, which include spinal cord and deep brain stimulation devices. References to "St. Jude Medical," "St. Jude," "the Company," "we," "us" and "our" are to St. Jude Medical, Inc. and its subsidiaries. On August 30, 2012, we announced the realignment of our product divisions into two new operating units: the Cardiovascular and Ablation Technologies Division (combining CV and AF) and the Implantable Electronic Systems Division (combining CRM and NMD). In addition, we are centralizing certain support functions, including information technology, human resources, legal, business development and certain marketing functions. The organizational changes are part of a comprehensive plan to accelerate our growth, reduce costs, leverage economies of scale and increase investment in product development. While this divisional realignment was effective August 30, 2012, we will continue to report under our legacy operating segment structure for internal management financial forecasting and reporting purposes through the end of fiscal year 2012. We will report under the new organizational structure effective the beginning of fiscal year 2013. 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 competitive pressures in the industry, global economic conditions, cost containment pressure on healthcare systems and the implementation of U.S. healthcare reform legislation to continue to place downward pressure on prices for our products, impact reimbursement for our products and potentially reduce medical procedure volumes. In March 2010, significant U.S. healthcare reform legislation, the Patient Protection and Affordable Care Act (PPACA) along with the Health Care and Education Reconciliation Act of 2010, was enacted into law. As a U.S. headquartered company with significant sales in the United States, this health care reform law will materially impact us. Certain provisions of the health care reform are not effective for a number of years and there are many programs and requirements for which the details have not yet been fully established or consequences not fully understood, and it is unclear what the full impact will be from the legislation. The law does levy a 2.3% excise tax on all U.S. medical device sales beginning in 2013. Our U.S. net sales represented approximately 47% of our worldwide consolidated net sales in 2011 and we expect the new tax will materially and adversely affect our business, cash flows and results of operations. The law also focuses on a number of Medicare provisions aimed at improving quality and decreasing costs. It is uncertain at this point what impact these provisions will have on patient access to new technologies. The Medicare provisions also include value-based payment programs, increased funding of comparative effectiveness research, reduced hospital payments for avoidable readmissions and hospital acquired conditions, and pilot programs to evaluate alternative payment methodologies that promote care coordination (such as bundled physician and hospital payments). Additionally, the law includes a reduction in the annual rate of inflation for hospitals that began in 2011 and the establishment of an independent payment advisory board to recommend ways of reducing the rate of growth in Medicare spending beginning in 2014. We cannot predict what healthcare programs and regulations will be ultimately implemented at the federal or state level, or the effect of any future legislation or regulation. However, any changes that lower reimbursement for our products or reduce medical procedure volumes could adversely affect our business and results of operations. 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. The 2011 ICD market in the United States was negatively impacted by a decline in implant volumes and pricing resulting from the publication of an ICD utilization article in January 2011 in the Journal of the American Medical Association and subsequent hospital investigation by the U.S. Department of Justice. During the current year, the U.S. ICD market has continued to experience these negative impacts and we estimate the 2012 U.S. ICD market has contracted at a mid single-digit percentage rate from the 2011 comparable period. While the

long-term impact on the CRM market is uncertain, 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. We are also investing in our other three major operating segments - cardiovascular, atrial fibrillation and neuromodulation - to increase our market share in these markets. Net sales in the third quarter and first nine months of 2012 were $1,326 million and $4,131 million, respectively, decreases of 4% and 2% over the third quarter and first nine months of 2011, respectively. During the third quarter and first nine months of 2012 unfavorable foreign currency translation impacted our net sales by $60 million and $114 million, respectively, compared to the same prior year periods. Refer to the Segment Performance section for a more detailed discussion of the results for the respective segments.

Our third quarter 2012 net earnings of $176 million and diluted net earnings per share of $0.56 both decreased 22% and 19%, respectively, compared to our third quarter 2011 net earnings of $227 million and diluted net earnings per share of $0.69. Third quarter 2012 net earnings were negatively impacted by after-tax special charges of $80 million primarily related to our 2012 realignment plan announced in August 2012 to realign our product divisions and to centralize certain support functions, as well as ongoing restructuring charges related to the 2011 restructuring plan. Third quarter 2011 net earnings were negatively impacted by after-tax special charges of $21 million primarily related to our 2011 restructuring plan. Additionally, during the third quarter of 2011 we recognized an $8 million accounts receivable write-down associated with one customer in Europe. Net earnings and diluted net earnings per share for the first nine months of 2012 were $632 million and $2.00 per diluted share, a decrease of 10% and 6%, respectively, compared to the first nine months of 2011. During the first nine months of 2012 and 2011, net earnings were negatively impacted by after-tax charges of $161 million and $88 million, respectively, associated with the 2012 realignment and 2011 restructuring charges discussed previously, as well as 2011 post-acquisition expenses for the AGA Medical Holdings, Inc. (AGA Medical) acquisition that consummated in November 2010. Refer to the Results of Operations section for a more detailed discussion of these charges.

We generated $939 million of operating cash flows during the first nine months of 2012, compared to $941 million of operating cash flows during the first nine months of 2011. We ended the third quarter with $1,051 million of cash and cash equivalents and $2,523 million of total debt. We also repurchased 7.1 million shares of our common stock for $300 million at an average repurchase price of $42.14 per share and our Board of Directors authorized quarterly cash dividend payments of $0.23 per share paid on April 30, 2012, July 31, 2012 and October 31, 2012. Our 2012 dividends represent a 10% per share increase over the same periods in 2011. During the first nine months of 2011, we repurchased 11.7 million shares of our common stock for $500 million at an average repurchase price of $42.79 per share.

NEW ACCOUNTING PRONOUNCEMENTS
In July 2012, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2012-02, Intangibles - Goodwill and Other (Topic 350):
Testing Indefinite-lived Intangible Assets for Impairment, an update to ASU 2011-08, Intangibles - Goodwill and Other (Topic 350): Testing Goodwill for Impairment. ASU 2012-02 enables an entity to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30, Intangibles
- Goodwill and Other - General Intangibles Other than Goodwill. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. Previous guidance in Subtopic 350-30 required an entity to test an indefinite-lived intangible asset for impairment by comparing the fair value of the asset with its carrying amount, utilizing only a quantitative impairment test. ASU 2012-02 is effective for interim and annual reporting periods for fiscal years beginning after September 15, 2012, with early adoption permitted. We expect to early adopt this new accounting pronouncement during our fourth quarter of 2012 and do not expect a material impact on our financial condition or results of operations. Information regarding the new accounting pronouncement that impacted our 2012 financial statements and disclosures is included in Note 2 to the Condensed Consolidated Financial Statements.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES
We have adopted various accounting policies in preparing the consolidated financial statements in accordance with U.S. generally accepted accounting principles. Our significant accounting policies are disclosed in Note 1 to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011 (2011 Annual Report on Form 10-K). Preparation of our consolidated financial statements in conformity with U.S. generally accepted accounting principles 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; inventory reserves; valuation of in-process research and development (IPR&D), other intangible assets and goodwill; income taxes; litigation 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

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 - tachycardia implantable cardioverter defibrillator systems (ICDs) and bradycardia pacemaker systems (pacemakers); CV - vascular products, which include vascular closure products, pressure measurement guidewires, optical coherence tomography (OCT) imaging products, vascular plugs and other vascular accessories, and structural heart products, which include heart valve replacement and repair products and structural heart defect devices; AF - electrophysiology (EP) introducers and catheters, advanced cardiac mapping, navigation and recording systems and ablation systems; and NMD - neurostimulation products, which include spinal cord and deep brain stimulation devices. The Company currently aggregates the four operating segments into two reportable segments based upon their similar operational and economic characteristics:
CRM/NMD and CV/AF. As discussed in the overview section, we will report under our new organizational structure effective the beginning of fiscal year 2013. Net sales of the Company's reportable segments include end-customer revenues 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 customers and operating expenses managed by each of the reportable segments. Certain expenses managed by our selling and corporate functions, including all stock-based compensation expense, impairment charges, certain acquisition-related expenses, IPR&D charges, excise tax expense and special charges have not been recorded in the individual reportable segments. 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 millions):

                                        CRM/NMD     CV/AF       Other      Total
Three Months ended September 29, 2012:
Net sales                              $    792    $   534    $     -     $ 1,326
Operating profit                            526        298       (589 )       235
Three Months ended October 1, 2011:
Net sales                              $    853    $   530    $     -     $ 1,383
Operating profit                            523        281       (493 )       311

Nine Months ended September 29, 2012:
Net sales                              $  2,482    $ 1,649    $     -     $ 4,131
Operating profit                          1,650        915     (1,690 )       875
Nine Months ended October 1, 2011:
Net sales                              $  2,603    $ 1,602    $     -     $ 4,205
Operating profit                          1,624        834     (1,500 )       958

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

Cardiac Rhythm Management
                            Three Months Ended                                        Nine Months Ended
                    September 29,                               %                                                            %
(in millions)           2012            October 1, 2011       Change       September 29, 2012       October 1, 2011       Change
ICD systems       $           412     $             445        (7.4 )%   $         1,321          $           1,387         (4.8 )%
Pacemaker systems             279                   306        (8.8 )%               851                        918         (7.3 )%
                  $           691     $             751        (8.0 )%   $         2,172          $           2,305         (5.8 )%

Cardiac Rhythm Management's net sales decreased 8% and 6% during the third quarter and first nine months of 2012, respectively, compared to the same prior year periods. During the third quarter and first nine months of 2012, foreign currency translation had a $32 million and $63 million unfavorable impact, respectively, compared to the same periods last year.
ICD net sales decreased 7% and 5% during the third quarter and first nine months of 2012, respectively, compared to the same prior year periods primarily driven by unfavorable foreign currency and a decline in the U.S. market which continues to contract at a mid single-digit percentage rate from the 2011 comparable periods. The U.S. ICD market continues to be negatively impacted by a decline in implant volumes and pricing resulting from the publication of an ICD utilization article in January 2011 in the Journal of the American Medical Association, subsequent hospital investigation by the U.S. Department of Justice and a significant increase in hospital ownership of physician practices. Facing this market contraction, our U.S. 2012 third quarter and first nine month ICD net sales of $247 million and $780 million, respectively, both decreased 4% compared to the same prior year periods. Partially offsetting the U.S. ICD market contraction, we experienced a benefit from sales of our Unify Quadra® Cardiac Resynchronization Therapy Defibrillator (CRT-D) and Quartet® Left Ventricular Quadripolar Pacing Lead, which was approved by the U.S. Food and Drug Administration (FDA) in November 2011 and is the industry's first quadripolar pacing system. Sales of our Assura™ portfolio of ICDs and CRT-Ds as well as our Ellipse™ ICD, which were approved by the FDA in May 2012, also provided a benefit to our 2012 net sales. Internationally, third quarter and first nine month 2012 ICD net sales of $165 million and $541 million decreased 12% and 6%, respectively, compared to the same prior year periods. Foreign currency translation had a $17 million (9 percentage point) and $35 million (6 percentage point) unfavorable impact on international ICD net sales in the third quarter and first nine months of 2012 compared to the same prior year periods as a result of the strengthening U.S. Dollar against the Euro.
Pacemaker net sales decreased 9% and 7% during the third quarter and first nine months of 2012 compared to the same prior year periods. In the United States, our third quarter 2012 pacemaker net sales of $114 million and first nine month pacemaker net sales of $348 million both decreased 10% compared to the same prior year periods. Internationally, our 2012 net sales during the third quarter of $165 million and first nine months of $503 million decreased 8% and 6%, respectively, compared to the same prior year periods. Foreign currency translation had a $15 million (8 percentage point) and $28 million (5 percentage point) unfavorable impact during the third quarter and first nine months of 2012, respectively, compared to the same prior year periods.

Cardiovascular
                            Three Months Ended                                     Nine Months Ended
                    September 29,                               %         September 29,                               %
(in millions)           2012            October 1, 2011      Change           2012            October 1, 2011       Change
Vascular products $           169     $             177       (4.5 )%   $           530     $             550        (3.6 )%
Structural heart
products                      145                   151       (4.0 )%               460                   447         2.9  %
                  $           314     $             328       (4.3 )%   $           990     $             997        (0.7 )%

Cardiovascular net sales decreased 4% and 1% during the third quarter and first nine months of 2012, respectively, compared to the same periods one year ago. Foreign currency translation unfavorably impacted CV net sales by $16 million and $29 million during the third quarter and first nine months of 2012, respectively, compared to the same prior year periods. We experienced a negative impact on CV net sales during the third quarter of 2012 as a result of an overall slowdown in cardiovascular procedures, particularly in Europe with its economic disruptions negatively impacting procedural volumes.

Vascular products' net sales decreased 5% and 4% during the third quarter and first nine months of 2012, respectively, compared to the same periods in 2011 primarily due to the termination of a distribution contract in Japan, negatively impacting our third quarter and first nine months of 2012 vascular product net sales by 4% and 6%, respectively, compared to the same

periods in 2011. Foreign currency translation also unfavorably impacted net sales by $8 million and $13 million in our third quarter and first nine months of 2012, respectively, compared to the same periods in 2011. These decreases were partially offset by increases in sales of our OCT products, led by our Ilumien™ hardware platform, which combines both OCT and fractional flow reserve (FFR) capabilities into a single system, as well as sales volume increases in our FFR technology products as we continue to penetrate the market.

Structural heart products' net sales decreased 4% and increased 3% during the third quarter and first nine months of 2012, respectively. The decrease in 2012 third quarter net sales was impacted by a reduction in cardiovascular procedures in Europe, driven by the previously discussed economic challenges. The increase in net sales during the first nine months of 2012 was driven by an increase in our tissue heart valve sales volumes, led by our Trifecta product line of pericardial stented tissue valves. Overall tissue heart valve sales volumes increased 22% during the first nine months of 2012 compared to the same prior year period. Foreign currency translation unfavorably impacted structural heart products' net sales by $8 million and $16 million during the third quarter and first nine months of 2012, respectively, compared to the same periods in 2011. Atrial Fibrillation

                              Three Months Ended                                   Nine Months Ended
                                                                 %                                                    %
(in millions)      September 29, 2012     October 1, 2011     Change    September 29, 2012     October 1, 2011     Change
   Atrial
fibrillation
products           $            220     $             202       8.9 %   $            659     $             605       8.9 %

In our Atrial Fibrillation division, our access, diagnosis, visualization, recording and ablation products assist physicians in diagnosing and treating atrial fibrillation and other irregular heart rhythms. AF net sales increased 9% during both the third quarter and first nine months of 2012 compared to the same prior year periods due to the continued increase in EP catheter ablation procedures and the continued market penetration of our EnSite® Velocity System and related connectivity tools (EnSite Connect™, EnSite Courier™ and EnSite Derexi™ modules). Foreign currency translation had an unfavorable impact on AF net sales of $9 million and $16 million in the third quarter and first nine months of 2012, respectively, compared to the same periods in 2011.

Neuromodulation
                                      Three Months Ended                                    Nine Months Ended
                              September 29,                              %         September 29,                              %
(in millions)                     2012            October 1, 2011      Change          2012            October 1, 2011     Change
   Neuromodulation products $           101     $             102      (1.0 )%   $           310     $             298       4.0 %

Neuromodulation net sales decreased 1% during the third quarter of 2012 due to unfavorable foreign currency translation of $3 million (3 percentage points). Net sales during the first nine months of 2012 increased 4% compared to the same period in 2011 as a result of continued market acceptance of our products and sales growth in our neurostimulation devices that help manage chronic pain primarily associated with the Eon Mini™ platform and growing market acceptance of the Epiducer™ Lead Delivery system which gives physicians the ability to place multiple neurostimulation leads through a single entry point. Foreign currency translation had a $6 million (2 percentage point) unfavorable impact on NMD net sales during the first nine months of 2012 compared to the same prior year periods.

RESULTS OF OPERATIONS
Net sales
                            Three Months Ended                                       Nine Months Ended
                    September 29,                               %                                                         %
(in millions)           2012            October 1, 2011      Change       September 29, 2012       October 1, 2011      Change
   Net sales      $         1,326     $           1,383       (4.1 )%   $         4,131          $           4,205      (1.8 )%

Overall, net sales decreased 4% and 2% during the third quarter and first nine months of 2012 compared to the same prior year periods. Foreign currency translation had an unfavorable impact of $60 million and $114 million on the third quarter and first nine months of 2012 net sales, respectively, due primarily to the strengthening of the U.S. Dollar against the Euro. This amount is not indicative of the net earnings impact of foreign currency translation for the third quarter and first nine months of 2012

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 millions):

                                          Three Months Ended                           Nine Months Ended
                                 September 29,
Net Sales                             2012           October 1, 2011       September 29, 2012       October 1, 2011
United States                   $          640     $             658      $        1,969          $           2,012
International
Europe                                     311                   359               1,059                      1,139
Japan                                      172                   162                 500                        466
Asia Pacific                               118                   111                 339                        310
Other                                       85                    93                 264                        278
. . .