<PAGE>
 
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

                  QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

For Quarter Ended March 31, 1998                   Commission File Number 0-8672


                             ST. JUDE MEDICAL, INC.
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)


          MINNESOTA                                       41-1276891
----------------------------                ------------------------------------
  (State or other jurisdiction              (I.R.S. Employer Identification No.)
of incorporation or organization)

                  One Lillehei Plaza, St. Paul, Minnesota 55117
                  ---------------------------------------------
                    (Address of principal executive offices)


                                 (612) 483-2000
              ----------------------------------------------------
              (Registrant's telephone number, including area code)


                                 Not Applicable
               ---------------------------------------------------
              (Former name, former address and former fiscal year,
                          if changed since last report)

Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.

YES _X_     NO ___

The number of shares of common stock, par value $.10 per share, outstanding at
May 1, 1998 was 83,992,884.

This Form 10-Q consists of 14 pages consecutively numbered.

The Exhibit Index to this Form 10-Q is set forth on page 13.

                                    1 of 14
<PAGE>
 
PART I  FINANCIAL INFORMATION

                             ST. JUDE MEDICAL, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                (Dollars in thousands, except per share amounts)

NOTE 1 - BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information, and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three months ended March 31, 1998 are
not necessarily indicative of the results that may be expected for the full year
ended December 31, 1998. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997.


NOTE 2 - CONTINGENCIES

The Company is involved in various products liability lawsuits, claims and
proceedings of a nature considered normal to its business with the exception
noted below. Subject to self-insured retentions, the Company has products
liability insurance sufficient to cover such claims and suits. In connection
with two pacemaker lead models, the Company may be subject to future uninsured
claims. The Company's products liability insurance carrier has denied coverage
for these models and has filed suit against the Company seeking rescission of
the policy covering Pacesetter business retroactive to the date the Company
acquired Pacesetter in 1994. The Company is defending this suit and has brought
a claim against its insurance broker with respect to this matter. The Company
was a codefendant in a 1995 class action suit with respect to these leads. This
case was settled in November 1995. The Company's share of the settlement was
approximately $6,800. Additional claims could be filed by patients with these
leads who were not class members. Further, claims may be filed in the future
relative to events currently unknown to management. Management believes losses
that might be sustained from such actions would not have a material adverse
effect on the Company's liquidity or financial condition, but could potentially
be material to the net income of a particular future period if resolved
unfavorably.

                                    2 of 14
<PAGE>
 
PART I  FINANCIAL INFORMATION (continued)

NOTE 3 - COMPREHENSIVE INCOME

Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive
Income" requires the Company to include in Other Comprehensive Income unrealized
gains or losses on the Company's available-for-sale securities and foreign
currency translation adjustments, net of taxes. Other Comprehensive Income
(Loss) for the first quarter 1998 and 1997 was $16,004 and $(15,344),
respectively. Total Comprehensive Income combines reported net income and Other
Comprehensive Income. Total Comprehensive Income for the quarters ended March
31, 1998 and 1997 was $45,179 and $7,533 respectively.

NOTE 4 - SPECIAL CHARGE UPDATE

The Company recorded special charge accruals of $52,926 and $58,669 in 1996 and
1997, respectively. These special charges have decreased by $46,975 and $29,650,
respectively, for cash payments since the date recorded.

NOTE 5 - STOCK REPURCHASE

On March 20, 1998, the Company repurchased 8,000,000 shares of its common stock
at $38 per share and bank debt increased by $304,000. The Company established a
$500,000 revolving credit line due in 2003. As of March 31, 1998, the Company
had $70,000 available under this credit line.

NOTE 6 - EARNINGS PER SHARE

The table below sets forth the computation of basic and diluted earnings per
share. There were no adjustments to the numerator.

                                                        1998             1997
                                                     -----------     -----------
Numerator:
       Net income                                    $    29,175     $    22,877
Denominator:
       Basic-weighted shares outstanding              90,573,000      91,357,000
       Effect of dilutive securities:
            Employee stock options                       690,000       1,268,000
            Restricted shares                             52,000          74,000
                                                     -----------     -----------
       Diluted-weighted shares outstanding            91,315,000      92,699,000
                                                     ===========     ===========
Basic earnings per share                             $      0.32     $      0.25
                                                     ===========     ===========
Diluted earnings per share                           $      0.32     $      0.25
                                                     ===========     ===========

                                    3 of 14
<PAGE>
 
PART I   FINANCIAL INFORMATION (continued)

                             ST. JUDE MEDICAL, INC.
                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                (Amounts in thousands, except per share amounts)
                                   (Unaudited)

                                        THREE MONTHS
                                            ENDED
                                           MARCH 31
                                    ----------------------
                                       1998        1997
                                    ---------    ---------

Net Sales                           $ 257,488    $ 250,390
Cost of sales                          98,226       91,716
                                    ---------    ---------

Gross profit                          159,262      158,674

Selling, general & administrative      92,064       94,388
Research & Development                 22,213       30,290
                                    ---------    ---------

Operating profit                       44,985       33,996
Other income (expense), net              (101)         947
                                    ---------    ---------

Income before taxes                    44,884       34,943

Income tax provision                   15,709       12,066
                                    ---------    ---------

Net income                          $  29,175    $  22,877
                                    =========    =========

Earnings per common share:
     Basic                          $    0.32    $    0.25
                                    =========    =========
     Diluted                        $    0.32    $    0.25
                                    =========    =========

Average shares outstanding:
     Basic                             90,573       91,357
     Diluted                           91,315       92,699

See notes to condensed consolidated financial statements.

                                    4 of 14
<PAGE>
 
PART I     FINANCIAL INFORMATION (continued)

                             ST. JUDE MEDICAL, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                (Dollars in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                            MARCH 31      DECEMBER 31
                                                              1998           1997
                                                           (Unaudited)    (See Note)
                                                           -----------    -----------
<S>                                                        <C>            <C>        
ASSETS
Current assets:
    Cash and cash equivalents                              $    21,386    $    28,530
    Marketable securities                                      153,805        156,006
    Accounts receivable, less allowance
        (1998 $12,431; 1997 - $12,712)                         252,781        243,311
    Inventories
        Finished goods                                         121,452        137,651
        Work in process                                         29,111         39,079
        Raw materials                                           67,286         64,309
                                                           -----------    -----------
    Total inventories                                          217,849        241,039
    Other current assets                                        59,765         74,396
                                                           -----------    -----------
Total current assets                                           705,586        743,282
Property, plant and equipment                                  501,787        456,688
    Less accumulated depreciation                             (159,856)      (149,043)
                                                           -----------    -----------
Net property, plant and equipment                              341,931        307,645
Other assets                                                   400,584        407,689
                                                           -----------    -----------
TOTAL ASSETS                                               $ 1,448,101    $ 1,458,616
                                                           ===========    ===========
LIABILITIES & SHAREHOLDERS' EQUITY
Accounts payable and accrued expenses                      $   230,594    $   251,594
Long-term debt                                                 487,500        220,000
Contingencies
Shareholders' equity:
    Preferred stock, par value $1.00 per share -
        25,000,000 shares authorized; no shares issued
    Common stock, par value $.10 per share -
        25,000,000 shares authorized; issued and
        outstanding 1998 - 83,970,722 shares;
        1997 - 91,911,496 shares                                 8,397          9,191
    Additional paid-in capital                                     297        244,347
    Retained earnings                                          717,857        746,032
    Accumulated other comprehensive income:
        Cumulative translation adjustment                      (29,880)       (24,150)
        Unrealized gain on available-for-sale securities        33,336         11,602
                                                           -----------    -----------
Total shareholders' equity                                     730,007        987,022
                                                           -----------    -----------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY                   $ 1,448,101    $ 1,458,616
                                                           ===========    ===========
</TABLE>

NOTE: The balance sheet at December 31, 1997 has been derived from the audited
financial statements at that date. See notes to condensed consolidated financial
statements.

                                    5 of 14
<PAGE>
 
PART I     FINANCIAL INFORMATION (continued)

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

<TABLE>
<CAPTION>
                                                              THREE MONTHS ENDED
                                                                   MARCH 31

                                                              1998        1997
                                                           ---------    ---------
<S>                                                        <C>          <C>      
Operating Activities:
     Net income                                            $  29,175    $  22,877
     Depreciation and amortization                            16,459       17,021
     Working capital change                                  (36,492)    (101,979)
                                                           ---------    ---------

     Net cash provided by (used in) operating activities       9,142      (62,081)
                                                           ---------    ---------

Investment Activities:
     Purchases of property, plant and equipment              (19,978)     (10,924)
     Sales of available-for-sale securities, net              37,000       39,956
     Other investing activities                                2,267          341
                                                           ---------    ---------

     Net cash provided by investing activities                19,289       29,373
                                                           ---------    ---------

Financing Activities:
     Proceeds from exercise of stock options                   1,771        1,791
     Purchase and retirement of common stock                (304,169)        --
     Net borrowings under lines of credit                    267,500       13,000
                                                           ---------    ---------

     Net cash provided by (used in) financing activities     (34,898)      14,791
                                                           ---------    ---------

Effect of currency exchange rate changes on cash                (677)        (873)
                                                           ---------    ---------

Increase (decrease) in cash and cash equivalents              (7,144)     (18,790)
Cash and cash equivalents at beginning of year                28,530       49,388
                                                           ---------    ---------

Cash and cash equivalents at end of period                 $  21,386    $  30,598
                                                           =========    =========
</TABLE>

See notes to condensed consolidated financial statements.

                                    6 of 14
<PAGE>
 
                             St. Jude Medical, Inc.
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
                (Dollars in thousands, except per share amounts)

Results of Operations:

NET SALES. Net sales for the first quarter 1998 totaled $257,488, a 3% increase
over net sales recorded in the 1997 first quarter of $250,390. Excluding the
1997 non-pacing net sales of Medtel, which was sold in the third quarter of
1997, first quarter 1998 net sales were 7% higher than the prior year first
quarter. Unfavorable foreign currency translation effects due to the stronger
U.S. dollar reduced first quarter 1998 net sales by approximately $5,400, or 2%.

Heart valve disease management net sales, which exceeded $73,000, increased
almost 5% over 1997 comparable period net sales. The increase was mainly
attributable to the successful domestic introduction of the Toronto SPV(R)
stentless porceine valve, and the strong European SJM Biocor(TM) stented tissue
valve net sales that were partially offset by unfavorable foreign currency
effects.

Cardiac rhythm management net sales of more than $184,000, increased almost
$4,000, or more than 2% over the 1997 first quarter net sales. The increase
principally resulted from higher implantable cardioverter defibrillator and
electrophysiology (EP) catheter net sales that were partially offset by the
elimination of non-pacing Medtel net sales and the effect of the stronger U.S.
dollar.

GROSS PROFIT. The first quarter 1998 gross profit totaled $159,262, or 61.9% of
net sales as compared to $158,674, or 63.4% of net sales in last year's first
quarter. The decrease in gross profit margin was primarily due to bradycardia
price decreases that resulted from a shift in geographical sales mix and price
compression in certain markets and the translation effects of the stronger U.S.
dollar that were partially offset by lower heart valve manufacturing costs.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative (SG&A)
expenses decreased in the first quarter 1998 to $92,064 from $94,388 in the
comparable period of 1997. The 2.5% decrease resulted mainly from the
consolidation of Telectronics' support functions and the fourth quarter 1997
restructuring of the Cardiac Rhythm Management Division (CRMD).

RESEARCH AND DEVELOPMENT. Research and development (R&D) expenses totaled
$22,213 in the first quarter 1998, an $8,077 decrease from the first quarter
1997. The decrease resulted principally from the consolidation of Telectronics
related projects that were partially offset by increased spending for EP related
products.

                                    7 of 14
<PAGE>
 
PART I    MANAGEMENT DISCUSSION & ANALYSIS (continued)

OTHER INCOME (EXPENSE). Other expense totaled $101 in the first quarter 1998
compared to other income of $947 in the first quarter of 1997. Interest income
decreased in 1998 to approximately $1,300 from $2,000 in 1997 mainly because
certain investments were liquidated. Interest expense increased to almost $3,800
from $3,600 in 1997 primarily because the Company repurchased 8,000,000 shares
of its stock in the first quarter 1998 by increasing debt. Gain on the sale of
investments increased in 1998 to almost $1,900 from $1,000 in 1997. Foreign
exchange gains decreased to approximately $500 in 1998 from $1,300 in 1997.

INCOME TAX PROVISION. The Company's income tax rate was 35% in the first quarter
1998, compared to the 34.5% effective income tax rate in the first quarter 1997.
The higher effective tax rate was caused by changes to the Internal Revenue Code
(IRC) Section 936 regulations that were finalized in 1996. These regulations
reduced the tax benefits derived from the Company's Puerto Rican operations.

OUTLOOK. The Company expects that market demands, government regulation and
societal pressures will continue to change the healthcare industry worldwide
resulting in further business consolidations and alliances. To meet customer
needs, the Company intends to continue to broaden its product offerings through
internal development or external diversification opportunities. The Company will
participate with industry groups to promote the introduction and use of advanced
medical device technology within a cost conscious environment. Finally, customer
service in the form of cost-effective clinical outcomes will continue to be a
primary focus for the Company.

As provided for in the Private Securities Litigation Reform Act of 1995, the
Company cautions investors that a number of factors could cause actual future
results of operations to vary from those anticipated in any forward-looking
statements made in this document and elsewhere by or on behalf of the Company.
Net sales could be materially affected by legislative or administrative reforms
to the U.S. Medicare and Medicaid systems in a manner that would significantly
reduce reimbursement for procedures using the Company's medical devices, the
acquisition of key patents by competitors that would have the effect of
excluding the Company from new market segments, healthcare industry
consolidation resulting in customer demands for price concessions, products
introduced by competitors with advanced technology and better features and
benefits or lower prices, fewer procedures performed in a cost conscious
environment, and the lengthy approval time by the FDA to clear implantable
medical devices for commercial release. Cost of sales could be materially
affected by unfavorable developments in the area of products liability and price
increases from the Company's suppliers of critical components, a number of which
are sole sourced. Operations could be affected by the Company's ability to
execute its diversification strategy or to integrate acquired companies, a
serious earthquake affecting the Company's facilities in California, adverse
developments in the litigation arising from the acquisitions of Telectronics and
Ventritex, including litigation related to the Ventritex Cadence model V-110 ICD
device, unanticipated product failures and attempts by competitors to gain
market share through aggressive marketing programs.

                                    8 of 14
<PAGE>
 
PART I    MANAGEMENT DISCUSSION & ANALYSIS (continued)

The Company's 1998 effective income tax rate decreased from the full-year 1997
effective income tax rate due to the elimination of non-deductible Ventritex
related transaction costs that were partially offset by lower Puerto Rican tax
benefits as IRC Section 936 tax benefits were reduced by an additional 5% per
year through 1998. Legislation was also passed in 1996 to phase out the Section
936 tax benefit over a ten year period which will further negatively impact the
Company's effective tax rate. In addition, the IRS has proposed adjustments of
approximately $58,200 in additional taxes relating primarily to the Company's
Puerto Rican operations in 1990 through 1994. It is likely that similar
adjustments will be proposed for 1995. The Company is vigorously contesting the
proposed adjustments.

FINANCIAL CONDITION. The financial condition of the Company at March 31, 1998,
continues to be strong. Long-term debt increased to $487,500 from $220,000 at
the end of 1997. The increase was associated with the repurchase of 8,000,000
shares of common stock for $304,000. The increase was partially offset by a
$36,500 reduction to debt mainly as a result of cash provided by operations, the
sale of securities and a reduction in excess cash balances.

Total assets decreased $10,515 during the first quarter 1998. Cash and
marketable securities decreased by $9,345 as cash was deployed to reduce debt.
Accounts receivable increased $9,470 due to an increase in sales. Inventories
decreased by $23,190 mainly because bradycardia programmers were placed into
service and converted to a fixed asset. Other assets decreased by $21,736
primarily due to lower deferred taxes and amortization of goodwill.

Shareholders' equity was reduced by $257,015 during the quarter to $730,007. Net
income of $29,175, the exercise of stock options of $1,772 and an increase in
unrealized gain on investments of $21,734 were offset by the repurchase of stock
of $303,966 and a foreign currency translation adjustment loss of $5,730.

                                    9 of 14
<PAGE>
 
PART II   OTHER INFORMATION

Item 1.   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. The Indiana state court
action is currently in discovery and St. Jude Medical and Pacesetter are
vigorously defending against the claims which the Guidant Parties have asserted
in this action. The Indiana state court has set a January 11, 1999 trial date
for this case. St. Jude Medical and Pacesetter will continue to vigorously
defend their interests with respect to the claims asserted by the Guidant
Parties, in whatever forum such claims are addressed (see description of the
arbitration proceeding below).

                                    10 of 14
<PAGE>
 
PART II   OTHER INFORMATION (continued)

         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. The federal court action is currently in
discovery, and St. Jude Medical and Pacesetter are vigorously defending against
the claims which the Federal Court Guidant Parties asserted in this action. The
federal court has reserved time in November 1998 for the trial of this case. St.
Jude Medical and Pacesetter will continue to vigorously defend their interests
with respect to the claims asserted by the Federal Court Guidant Parties, in
whatever forum such claims are addressed (see description of the arbitration
proceeding below).

         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 reasons and others, St. Jude Medical and Pacesetter believe that the
allegations set forth in the complaints are without merit, and, as previously
indicated, they are vigorously defending their interests.

         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. The Eighth Circuit Court of Appeals heard oral argument in this appeal on
February 12, 1998.

                                    11 of 14
<PAGE>
 
PART II   OTHER INFORMATION (continued)

         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.

         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 trial is currently scheduled to begin in
September 1998. 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
         From 1987 to 1991, Siemens AG through its Pacesetter and other
affiliates ("Siemens") manufactured and sold approximately 32,000 model 1016T
and 1026T pacemaker leads of which approximately 25,000 were sold in the U.S. In
March 1993 Siemens was sued in federal district court in Cincinnati, Ohio ("the
Wilson case"). The suit alleged that the model 1016T leads were negligently
designed and manufactured. Class action status was granted by the court in
September 1993.

         When St. Jude acquired from Siemens substantially all of its worldwide
cardiac rhythm management business ("Pacesetter") on September 30, 1994, the
purchase agreement specifically provided that Siemens retain all liability for
the Wilson case, as well as all other litigation that was pending or threatened
before October 1, 1994. The purchase agreement also provided that St. Jude would
assume liability for other products liability claims which arose after September
30, 1994.

                                    12 of 14
<PAGE>
 
PART II   OTHER INFORMAITON (continued)

         Siemens and St. Jude were named defendants in a class action suit filed
in March 1995 in Houston, Texas for alleged defects in models 1016T and 1026T
pacemaker leads (the "Hann case"). The suit sought class action status for
patients who had inner insulation failures of these leads after March 22, 1993
and who were not members of the Wilson class. Siemens and St. Jude settled the
Wilson and Hann cases in November 1995. Management currently estimates the
Company's share of the settlement to be approximately $6.8 million. Apart from
this class action settlement, additional claims could be made or lawsuits
brought by patients with these leads whose leads fail at a later date or whose
leads fail for reasons outside the class definition.

         St. Jude's products liability insurance carrier, Steadfast, a wholly
owned subsidiary of Zurich Insurance Company ("Zurich"), has denied coverage for
this case and has filed suit against St. Jude in federal district court in
Minneapolis seeking rescission of the policy covering Pacesetter business
retroactive to the date St. Jude acquired Pacesetter. Zurich alleges that St.
Jude made material negligent misrepresentations to Zurich including failure to
disclose the Wilson case in order to procure the insurance policy. St. Jude has
filed an answer denying Zurich's claim and has alleged that Zurich specifically
had knowledge of the Wilson case.

         The terms of the products liability insurance policy which Zurich is
seeking to rescind provide that St. Jude would be entitled to $10 million in
coverage for the 1016T and 1026T pacemaker lead claims after payment by St. Jude
of a self insured retention. St. Jude is investigating whether it may have
claims against any entities, in addition to Zurich, arising from this situation,
and has brought suit against its former insurance broker, Johnson & Higgins.

Item 6.   EXHIBITS and REPORTS ON FORM 8-K

(a) Exhibits

                 Exhibit
                 Number       Exhibit
                 ------       -------

                 27           Financial data schedule

(b) Reports on Form 8-K       A Form 8-K was filed on February 11, 1998 to
                              present the supplemental financial statements,
                              supplemental management's discussion and analysis
                              of financial condition and results of operations,
                              and other financial information that give effect
                              to the May 15, 1997 acquisition of Ventritex,
                              Inc., accounted for as a pooling of interests, by
                              restating 1996 and certain prior years financial
                              statements and information as if the Company and
                              Ventritex always had been combined.

                                    13 of 14
<PAGE>
 
                                    SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed in its behalf by the
undersigned thereunto duly authorized.


                                             ST. JUDE MEDICAL, INC.


 May 11, 1998                                /s/ ROBERT E. MUNZENRIDER
-------------                                ----------------------------------
DATE                                         ROBERT E. MUNZENRIDER
                                             Vice President - Finance
                                             and Chief Financial Officer
                                             (Principal Financial and
                                              Accounting Officer)

                                    14 of 14
[{"type": "10-Q", "sequence": "1", "description": "FORM 10-Q", "secsgml_size_bytes": 38028}]
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SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

                  QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

For Quarter Ended March 31, 1998                   Commission File Number 0-8672

                             ST. JUDE MEDICAL, INC.
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)

          MINNESOTA                                       41-1276891
----------------------------                ------------------------------------
  (State or other jurisdiction              (I.R.S. Employer Identification No.)
of incorporation or organization)

                  One Lillehei Plaza, St. Paul, Minnesota 55117
                  ---------------------------------------------
                    (Address of principal executive offices)

                                 (612) 483-2000
              ----------------------------------------------------
              (Registrant's telephone number, including area code)

                                 Not Applicable
               ---------------------------------------------------
              (Former name, former address and former fiscal year,
                          if changed since last report)

Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.

YES _X_     NO ___

The number of shares of common stock, par value $.10 per share, outstanding at
May 1, 1998 was 83,992,884.

This Form 10-Q consists of 14 pages consecutively numbered.

The Exhibit Index to this Form 10-Q is set forth on page 13.

                                    1 of 14
PART I  FINANCIAL INFORMATION

                             ST. JUDE MEDICAL, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                (Dollars in thousands, except per share amounts)

NOTE 1 - BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information, and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three months ended March 31, 1998 are
not necessarily indicative of the results that may be expected for the full year
ended December 31, 1998. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997.

NOTE 2 - CONTINGENCIES

The Company is involved in various products liability lawsuits, claims and
proceedings of a nature considered normal to its business with the exception
noted below. Subject to self-insured retentions, the Company has products
liability insurance sufficient to cover such claims and suits. In connection
with two pacemaker lead models, the Company may be subject to future uninsured
claims. The Company's products liability insurance carrier has denied coverage
for these models and has filed suit against the Company seeking rescission of
the policy covering Pacesetter business retroactive to the date the Company
acquired Pacesetter in 1994. The Company is defending this suit and has brought
a claim against its insurance broker with respect to this matter. The Company
was a codefendant in a 1995 class action suit with respect to these leads. This
case was settled in November 1995. The Company's share of the settlement was
approximately $6,800. Additional claims could be filed by patients with these
leads who were not class members. Further, claims may be filed in the future
relative to events currently unknown to management. Management believes losses
that might be sustained from such actions would not have a material adverse
effect on the Company's liquidity or financial condition, but could potentially
be material to the net income of a particular future period if resolved
unfavorably.

                                    2 of 14
PART I  FINANCIAL INFORMATION (continued)

NOTE 3 - COMPREHENSIVE INCOME

Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive
Income" requires the Company to include in Other Comprehensive Income unrealized
gains or losses on the Company's available-for-sale securities and foreign
currency translation adjustments, net of taxes. Other Comprehensive Income
(Loss) for the first quarter 1998 and 1997 was $16,004 and $(15,344),
respectively. Total Comprehensive Income combines reported net income and Other
Comprehensive Income. Total Comprehensive Income for the quarters ended March
31, 1998 and 1997 was $45,179 and $7,533 respectively.

NOTE 4 - SPECIAL CHARGE UPDATE

The Company recorded special charge accruals of $52,926 and $58,669 in 1996 and
1997, respectively. These special charges have decreased by $46,975 and $29,650,
respectively, for cash payments since the date recorded.

NOTE 5 - STOCK REPURCHASE

On March 20, 1998, the Company repurchased 8,000,000 shares of its common stock
at $38 per share and bank debt increased by $304,000. The Company established a
$500,000 revolving credit line due in 2003. As of March 31, 1998, the Company
had $70,000 available under this credit line.

NOTE 6 - EARNINGS PER SHARE

The table below sets forth the computation of basic and diluted earnings per
share. There were no adjustments to the numerator.

                                                        1998             1997
                                                     -----------     -----------
Numerator:
       Net income                                    $    29,175     $    22,877
Denominator:
       Basic-weighted shares outstanding              90,573,000      91,357,000
       Effect of dilutive securities:
            Employee stock options                       690,000       1,268,000
            Restricted shares                             52,000          74,000
                                                     -----------     -----------
       Diluted-weighted shares outstanding            91,315,000      92,699,000
                                                     ===========     ===========
Basic earnings per share                             $      0.32     $      0.25
                                                     ===========     ===========
Diluted earnings per share                           $      0.32     $      0.25
                                                     ===========     ===========

                                    3 of 14
PART I   FINANCIAL INFORMATION (continued)

                             ST. JUDE MEDICAL, INC.
                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                (Amounts in thousands, except per share amounts)
                                   (Unaudited)

                                        THREE MONTHS
                                            ENDED
                                           MARCH 31
                                    ----------------------
                                       1998        1997
                                    ---------    ---------

Net Sales                           $ 257,488    $ 250,390
Cost of sales                          98,226       91,716
                                    ---------    ---------

Gross profit                          159,262      158,674

Selling, general & administrative      92,064       94,388
Research & Development                 22,213       30,290
                                    ---------    ---------

Operating profit                       44,985       33,996
Other income (expense), net              (101)         947
                                    ---------    ---------

Income before taxes                    44,884       34,943

Income tax provision                   15,709       12,066
                                    ---------    ---------

Net income                          $  29,175    $  22,877
                                    =========    =========

Earnings per common share:
     Basic                          $    0.32    $    0.25
                                    =========    =========
     Diluted                        $    0.32    $    0.25
                                    =========    =========

Average shares outstanding:
     Basic                             90,573       91,357
     Diluted                           91,315       92,699

See notes to condensed consolidated financial statements.

                                    4 of 14
PART I     FINANCIAL INFORMATION (continued)

                             ST. JUDE MEDICAL, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                (Dollars in thousands, except per share amounts)
MARCH 31      DECEMBER 31
                                                              1998           1997
                                                           (Unaudited)    (See Note)
                                                           -----------    -----------
ASSETS
Current assets:
    Cash and cash equivalents                              $    21,386    $    28,530
    Marketable securities                                      153,805        156,006
    Accounts receivable, less allowance
        (1998 $12,431; 1997 - $12,712)                         252,781        243,311
    Inventories
        Finished goods                                         121,452        137,651
        Work in process                                         29,111         39,079
        Raw materials                                           67,286         64,309
                                                           -----------    -----------
    Total inventories                                          217,849        241,039
    Other current assets                                        59,765         74,396
                                                           -----------    -----------
Total current assets                                           705,586        743,282
Property, plant and equipment                                  501,787        456,688
    Less accumulated depreciation                             (159,856)      (149,043)
                                                           -----------    -----------
Net property, plant and equipment                              341,931        307,645
Other assets                                                   400,584        407,689
                                                           -----------    -----------
TOTAL ASSETS                                               $ 1,448,101    $ 1,458,616
                                                           ===========    ===========
LIABILITIES & SHAREHOLDERS' EQUITY
Accounts payable and accrued expenses                      $   230,594    $   251,594
Long-term debt                                                 487,500        220,000
Contingencies
Shareholders' equity:
    Preferred stock, par value $1.00 per share -
        25,000,000 shares authorized; no shares issued
    Common stock, par value $.10 per share -
        25,000,000 shares authorized; issued and
        outstanding 1998 - 83,970,722 shares;
        1997 - 91,911,496 shares                                 8,397          9,191
    Additional paid-in capital                                     297        244,347
    Retained earnings                                          717,857        746,032
    Accumulated other comprehensive income:
        Cumulative translation adjustment                      (29,880)       (24,150)
        Unrealized gain on available-for-sale securities        33,336         11,602
                                                           -----------    -----------
Total shareholders' equity                                     730,007        987,022
                                                           -----------    -----------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY                   $ 1,448,101    $ 1,458,616
                                                           ===========    ===========
NOTE: The balance sheet at December 31, 1997 has been derived from the audited
financial statements at that date. See notes to condensed consolidated financial
statements.

                                    5 of 14
PART I     FINANCIAL INFORMATION (continued)

                             ST. JUDE MEDICAL, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Dollars in thousands)
                                   (Unaudited)
THREE MONTHS ENDED
                                                                   MARCH 31

                                                              1998        1997
                                                           ---------    ---------
Operating Activities:
     Net income                                            $  29,175    $  22,877
     Depreciation and amortization                            16,459       17,021
     Working capital change                                  (36,492)    (101,979)
                                                           ---------    ---------

     Net cash provided by (used in) operating activities       9,142      (62,081)
                                                           ---------    ---------

Investment Activities:
     Purchases of property, plant and equipment              (19,978)     (10,924)
     Sales of available-for-sale securities, net              37,000       39,956
     Other investing activities                                2,267          341
                                                           ---------    ---------

     Net cash provided by investing activities                19,289       29,373
                                                           ---------    ---------

Financing Activities:
     Proceeds from exercise of stock options                   1,771        1,791
     Purchase and retirement of common stock                (304,169)        --
     Net borrowings under lines of credit                    267,500       13,000
                                                           ---------    ---------

     Net cash provided by (used in) financing activities     (34,898)      14,791
                                                           ---------    ---------

Effect of currency exchange rate changes on cash                (677)        (873)
                                                           ---------    ---------

Increase (decrease) in cash and cash equivalents              (7,144)     (18,790)
Cash and cash equivalents at beginning of year                28,530       49,388
                                                           ---------    ---------

Cash and cash equivalents at end of period                 $  21,386    $  30,598
                                                           =========    =========
See notes to condensed consolidated financial statements.

                                    6 of 14
St. Jude Medical, Inc.
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
                (Dollars in thousands, except per share amounts)

Results of Operations:

NET SALES. Net sales for the first quarter 1998 totaled $257,488, a 3% increase
over net sales recorded in the 1997 first quarter of $250,390. Excluding the
1997 non-pacing net sales of Medtel, which was sold in the third quarter of
1997, first quarter 1998 net sales were 7% higher than the prior year first
quarter. Unfavorable foreign currency translation effects due to the stronger
U.S. dollar reduced first quarter 1998 net sales by approximately $5,400, or 2%.

Heart valve disease management net sales, which exceeded $73,000, increased
almost 5% over 1997 comparable period net sales. The increase was mainly
attributable to the successful domestic introduction of the Toronto SPV(R)
stentless porceine valve, and the strong European SJM Biocor(TM) stented tissue
valve net sales that were partially offset by unfavorable foreign currency
effects.

Cardiac rhythm management net sales of more than $184,000, increased almost
$4,000, or more than 2% over the 1997 first quarter net sales. The increase
principally resulted from higher implantable cardioverter defibrillator and
electrophysiology (EP) catheter net sales that were partially offset by the
elimination of non-pacing Medtel net sales and the effect of the stronger U.S.
dollar.

GROSS PROFIT. The first quarter 1998 gross profit totaled $159,262, or 61.9% of
net sales as compared to $158,674, or 63.4% of net sales in last year's first
quarter. The decrease in gross profit margin was primarily due to bradycardia
price decreases that resulted from a shift in geographical sales mix and price
compression in certain markets and the translation effects of the stronger U.S.
dollar that were partially offset by lower heart valve manufacturing costs.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative (SG&A)
expenses decreased in the first quarter 1998 to $92,064 from $94,388 in the
comparable period of 1997. The 2.5% decrease resulted mainly from the
consolidation of Telectronics' support functions and the fourth quarter 1997
restructuring of the Cardiac Rhythm Management Division (CRMD).

RESEARCH AND DEVELOPMENT. Research and development (R&D) expenses totaled
$22,213 in the first quarter 1998, an $8,077 decrease from the first quarter
1997. The decrease resulted principally from the consolidation of Telectronics
related projects that were partially offset by increased spending for EP related
products.

                                    7 of 14
PART I    MANAGEMENT DISCUSSION & ANALYSIS (continued)

OTHER INCOME (EXPENSE). Other expense totaled $101 in the first quarter 1998
compared to other income of $947 in the first quarter of 1997. Interest income
decreased in 1998 to approximately $1,300 from $2,000 in 1997 mainly because
certain investments were liquidated. Interest expense increased to almost $3,800
from $3,600 in 1997 primarily because the Company repurchased 8,000,000 shares
of its stock in the first quarter 1998 by increasing debt. Gain on the sale of
investments increased in 1998 to almost $1,900 from $1,000 in 1997. Foreign
exchange gains decreased to approximately $500 in 1998 from $1,300 in 1997.

INCOME TAX PROVISION. The Company's income tax rate was 35% in the first quarter
1998, compared to the 34.5% effective income tax rate in the first quarter 1997.
The higher effective tax rate was caused by changes to the Internal Revenue Code
(IRC) Section 936 regulations that were finalized in 1996. These regulations
reduced the tax benefits derived from the Company's Puerto Rican operations.

OUTLOOK. The Company expects that market demands, government regulation and
societal pressures will continue to change the healthcare industry worldwide
resulting in further business consolidations and alliances. To meet customer
needs, the Company intends to continue to broaden its product offerings through
internal development or external diversification opportunities. The Company will
participate with industry groups to promote the introduction and use of advanced
medical device technology within a cost conscious environment. Finally, customer
service in the form of cost-effective clinical outcomes will continue to be a
primary focus for the Company.

As provided for in the Private Securities Litigation Reform Act of 1995, the
Company cautions investors that a number of factors could cause actual future
results of operations to vary from those anticipated in any forward-looking
statements made in this document and elsewhere by or on behalf of the Company.
Net sales could be materially affected by legislative or administrative reforms
to the U.S. Medicare and Medicaid systems in a manner that would significantly
reduce reimbursement for procedures using the Company's medical devices, the
acquisition of key patents by competitors that would have the effect of
excluding the Company from new market segments, healthcare industry
consolidation resulting in customer demands for price concessions, products
introduced by competitors with advanced technology and better features and
benefits or lower prices, fewer procedures performed in a cost conscious
environment, and the lengthy approval time by the FDA to clear implantable
medical devices for commercial release. Cost of sales could be materially
affected by unfavorable developments in the area of products liability and price
increases from the Company's suppliers of critical components, a number of which
are sole sourced. Operations could be affected by the Company's ability to
execute its diversification strategy or to integrate acquired companies, a
serious earthquake affecting the Company's facilities in California, adverse
developments in the litigation arising from the acquisitions of Telectronics and
Ventritex, including litigation related to the Ventritex Cadence model V-110 ICD
device, unanticipated product failures and attempts by competitors to gain
market share through aggressive marketing programs.

                                    8 of 14
PART I    MANAGEMENT DISCUSSION & ANALYSIS (continued)

The Company's 1998 effective income tax rate decreased from the full-year 1997
effective income tax rate due to the elimination of non-deductible Ventritex
related transaction costs that were partially offset by lower Puerto Rican tax
benefits as IRC Section 936 tax benefits were reduced by an additional 5% per
year through 1998. Legislation was also passed in 1996 to phase out the Section
936 tax benefit over a ten year period which will further negatively impact the
Company's effective tax rate. In addition, the IRS has proposed adjustments of
approximately $58,200 in additional taxes relating primarily to the Company's
Puerto Rican operations in 1990 through 1994. It is likely that similar
adjustments will be proposed for 1995. The Company is vigorously contesting the
proposed adjustments.

FINANCIAL CONDITION. The financial condition of the Company at March 31, 1998,
continues to be strong. Long-term debt increased to $487,500 from $220,000 at
the end of 1997. The increase was associated with the repurchase of 8,000,000
shares of common stock for $304,000. The increase was partially offset by a
$36,500 reduction to debt mainly as a result of cash provided by operations, the
sale of securities and a reduction in excess cash balances.

Total assets decreased $10,515 during the first quarter 1998. Cash and
marketable securities decreased by $9,345 as cash was deployed to reduce debt.
Accounts receivable increased $9,470 due to an increase in sales. Inventories
decreased by $23,190 mainly because bradycardia programmers were placed into
service and converted to a fixed asset. Other assets decreased by $21,736
primarily due to lower deferred taxes and amortization of goodwill.

Shareholders' equity was reduced by $257,015 during the quarter to $730,007. Net
income of $29,175, the exercise of stock options of $1,772 and an increase in
unrealized gain on investments of $21,734 were offset by the repurchase of stock
of $303,966 and a foreign currency translation adjustment loss of $5,730.

                                    9 of 14
PART II   OTHER INFORMATION

Item 1.   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. The Indiana state court
action is currently in discovery and St. Jude Medical and Pacesetter are
vigorously defending against the claims which the Guidant Parties have asserted
in this action. The Indiana state court has set a January 11, 1999 trial date
for this case. St. Jude Medical and Pacesetter will continue to vigorously
defend their interests with respect to the claims asserted by the Guidant
Parties, in whatever forum such claims are addressed (see description of the
arbitration proceeding below).

                                    10 of 14
PART II   OTHER INFORMATION (continued)

         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. The federal court action is currently in
discovery, and St. Jude Medical and Pacesetter are vigorously defending against
the claims which the Federal Court Guidant Parties asserted in this action. The
federal court has reserved time in November 1998 for the trial of this case. St.
Jude Medical and Pacesetter will continue to vigorously defend their interests
with respect to the claims asserted by the Federal Court Guidant Parties, in
whatever forum such claims are addressed (see description of the arbitration
proceeding below).

         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 reasons and others, St. Jude Medical and Pacesetter believe that the
allegations set forth in the complaints are without merit, and, as previously
indicated, they are vigorously defending their interests.

         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. The Eighth Circuit Court of Appeals heard oral argument in this appeal on
February 12, 1998.

                                    11 of 14
PART II   OTHER INFORMATION (continued)

         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.

         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 trial is currently scheduled to begin in
September 1998. 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
         From 1987 to 1991, Siemens AG through its Pacesetter and other
affiliates ("Siemens") manufactured and sold approximately 32,000 model 1016T
and 1026T pacemaker leads of which approximately 25,000 were sold in the U.S. In
March 1993 Siemens was sued in federal district court in Cincinnati, Ohio ("the
Wilson case"). The suit alleged that the model 1016T leads were negligently
designed and manufactured. Class action status was granted by the court in
September 1993.

         When St. Jude acquired from Siemens substantially all of its worldwide
cardiac rhythm management business ("Pacesetter") on September 30, 1994, the
purchase agreement specifically provided that Siemens retain all liability for
the Wilson case, as well as all other litigation that was pending or threatened
before October 1, 1994. The purchase agreement also provided that St. Jude would
assume liability for other products liability claims which arose after September
30, 1994.

                                    12 of 14
PART II   OTHER INFORMAITON (continued)

         Siemens and St. Jude were named defendants in a class action suit filed
in March 1995 in Houston, Texas for alleged defects in models 1016T and 1026T
pacemaker leads (the "Hann case"). The suit sought class action status for
patients who had inner insulation failures of these leads after March 22, 1993
and who were not members of the Wilson class. Siemens and St. Jude settled the
Wilson and Hann cases in November 1995. Management currently estimates the
Company's share of the settlement to be approximately $6.8 million. Apart from
this class action settlement, additional claims could be made or lawsuits
brought by patients with these leads whose leads fail at a later date or whose
leads fail for reasons outside the class definition.

         St. Jude's products liability insurance carrier, Steadfast, a wholly
owned subsidiary of Zurich Insurance Company ("Zurich"), has denied coverage for
this case and has filed suit against St. Jude in federal district court in
Minneapolis seeking rescission of the policy covering Pacesetter business
retroactive to the date St. Jude acquired Pacesetter. Zurich alleges that St.
Jude made material negligent misrepresentations to Zurich including failure to
disclose the Wilson case in order to procure the insurance policy. St. Jude has
filed an answer denying Zurich's claim and has alleged that Zurich specifically
had knowledge of the Wilson case.

         The terms of the products liability insurance policy which Zurich is
seeking to rescind provide that St. Jude would be entitled to $10 million in
coverage for the 1016T and 1026T pacemaker lead claims after payment by St. Jude
of a self insured retention. St. Jude is investigating whether it may have
claims against any entities, in addition to Zurich, arising from this situation,
and has brought suit against its former insurance broker, Johnson & Higgins.

Item 6.   EXHIBITS and REPORTS ON FORM 8-K

(a) Exhibits

                 Exhibit
                 Number       Exhibit
                 ------       -------

                 27           Financial data schedule

(b) Reports on Form 8-K       A Form 8-K was filed on February 11, 1998 to
                              present the supplemental financial statements,
                              supplemental management's discussion and analysis
                              of financial condition and results of operations,
                              and other financial information that give effect
                              to the May 15, 1997 acquisition of Ventritex,
                              Inc., accounted for as a pooling of interests, by
                              restating 1996 and certain prior years financial
                              statements and information as if the Company and
                              Ventritex always had been combined.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed in its behalf by the
undersigned thereunto duly authorized.

                                             ST. JUDE MEDICAL, INC.

 May 11, 1998                                /s/ ROBERT E. MUNZENRIDER
-------------                                ----------------------------------
DATE                                         ROBERT E. MUNZENRIDER
                                             Vice President - Finance
                                             and Chief Financial Officer
                                             (Principal Financial and
                                              Accounting Officer)

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