SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549

# FORM 10-Q

QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT
OF 1934

For the quarterly
period ended March 31, 2004

Commission File Number
1-13388

GUIDANT CORPORATION 
(Exact name of
Registrant as specified in its charter)

|                                |  | 
|------------------------------- |  | 
|INDIANA                         |  | 
|(State or other jurisdiction of |  | 
|incorporation or organization)  |  | 

111 MONUMENT CIRCLE,
29TH FLOORINDIANAPOLIS, INDIANA
46204-5129
(Address of principal
executive offices)

Registrants
telephone number, including area code: (317) 971-2000

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 (or for such shorter period
that the Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes X                No

Indicate by check mark whether the
registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes X                No

The number of shares of common stock
outstanding as of May 5, 2004:

|       |  | 
|------ |  | 
|Class  |  | 
|Common |  | 

---

# PART IFINANCIAL INFORMATION

# Item 1. Financial
Statements

GUIDANT CORPORATIONConsolidated
Statements of Income (In millions, except
per share data)(unaudited)

|                                                       | Three Months EndedMarch 31,
|------------------------------------------------------ | ---------------------------
|
|
|Net sales                                              |                            
|Cost of products sold                                  |                            
|                                                       |                            
|Gross profit                                           |                            
|                                                       |                            
|Research and development                               |                            
|Purchased in-process research and development          |                            
|Sales, marketing and administrative                    |                            
|Interest, net                                          |                            
|Royalties, net                                         |                            
|Amortization                                           |                            
|Other, net                                             |                            
|                                                       |                            
|Income from continuing operations before income taxes  |                            
|Income taxes                                           |                            
|                                                       |                            
|Income from continuing operations                      |                            
|Loss from discontinued operations, net of income taxes |                            
|                                                       |                            
|Net income                                             |                            
|                                                       |                            
|Earnings per share - basic                             |                            
|Income from continuing operations                      |                            
|Loss from discontinued operations, net of income taxes |                            
|                                                       |                            
|Net income                                             |                            
|                                                       |                            
|Earnings per share - diluted                           |                            
|Income from continuing operations                      |                            
|Loss from discontinued operations, net of income taxes |                            
|                                                       |                            
|Net income                                             |                            
|                                                       |                            
|Dividends declared per common share                    |                            
|                                                       |                            

See Notes to Consolidated
Financial Statements

---

GUIDANT CORPORATION Consolidated Balance Sheets(In millions, except share data)

|                                                               | March 31,2004 | December 31,2003
|-------------------------------------------------------------- | ------------- | ----------------
|                                                               |               |                 
|                                                               |               | (unaudited)     
|Assets                                                         |               |                 
|Current Assets                                                 |              
|Cash and cash equivalents                                      |               | $1,612.3        
|Accounts receivable, net of allowances                         |              
|of $25.0 (2004) and $24.0 (2003)                               |               | 799.7           
|Inventories                                                    |               | 414.9           
|Deferred income taxes                                          |               | 302.4           
|Prepaid expenses and other current assets                      |               | 71.5            
|Current assets of discontinued operations                      |               | 13.3            
|                                                               |               |                 
|Total Current Assets                                           |               | 3,214.1         
|                                                               |              
|Other Assets                                                   |              
|Goodwill, net of allowances of $157.9 (2004) and $157.9 (2003) |               | 513.3           
|Other intangible assets, net of allowances of $83.4 (2004) and |              
|$81.7 (2003)                                                   |               | 187.3           
|Deferred income taxes                                          |               | --              
|Investments                                                    |               | 56.3            
|Sundry                                                         |               | 75.0            
|Other assets of discontinued operations                        |               | 0.2             
|                                                               |               |                 
|Total Other Assets                                             |               | 832.1           
|                                                              
|Property and equipment, net of accumulated depreciation of     |              
|$688.8 (2004) and $657.0 (2003)                                |               | 772.1           
|                                                               |               |                 
|Total Assets                                                   |               | $4,818.3        
|                                                               |               |                 

See Notes to Consolidated
Financial Statements

---

GUIDANT CORPORATION Consolidated Balance Sheets (In millions, except
share data)

|Liabilities and Shareholders' Equity           | March 31,2004 | December 31,2003
|---------------------------------------------- | ------------- | ----------------
|
|
|Current Liabilities                            |               |                 
|Accounts payable                               |               | $          74.6 
|Employee compensation                          |               | 130.6           
|Other liabilities                              |               | 296.0           
|Income taxes payable                           |               | 112.6           
|Short-term debt                                |               | 250.0           
|Current liabilities of discontinued operations |               | 20.7            
|                                               |               |                 
|Total Current Liabilities                      |               | 884.5           
|                                               |              
|Noncurrent Liabilities                         |              
|Long-term debt                                 |               | 775.1           
|Noncurrent deferred tax liabilities            |               | 18.8            
|Other                                          |               | 155.1           
|                                               |               |                 
|Total Noncurrent Liabilities                   |               | 949.0           
|Commitments and contingencies                  |               | --              
|                                               |              
|Shareholders' Equity                           |              
|Preferred stock:                               |              
|Authorized shares:        50,000,000           |              
|Issued shares:
             none               |               | --              
|Common stock, no par value:                    |              
|Authorized shares:   1,000,000,000             |              
|Issued shares:              310,910,000 (2004) |              
|312,129,000 (2003)                             |               | 340.7           
|Additional paid-in capital                     |               | 213.4           
|Retained earnings                              |               | 2,367.3         
|Deferred cost, ESOP                            |               | (16.0           
|Unearned compensation                          |               | (10.1           
|Treasury stock, at cost:                       |              
|Shares:        313,739 (2004)                  |               |                 
|3,158,000 (2003)                               |               | (21.2           
|Accumulated other comprehensive income         |               | 110.7           
|                                               |               |                 
|Total Shareholder's Equity                     |               | 2,984.8         
|                                               |               |                 
|Total Liabilities and Shareholders' Equity     |               | $     4,818.3   
|                                               |               |                 

See Notes to Consolidated
Financial Statements

---

GUIDANT CORPORATION
Consolidated Statements of Cash Flows
(In millions)(unaudited)

|                                                             | Three Months EndedMarch 31,
|------------------------------------------------------------ | ---------------------------
|
|Operating Activities                                         |                            
|Net income                                                   |                            
|Adjustments to Reconcile Net Income to Cash Provided by      |                            
|Operating Activities:                                        |                            
|Depreciation                                                 |                            
|Amortization of other intangible assets                      |                            
|Provision for inventory and accounts receivable              |                            
|Purchased in-process research and development                |                            
|Deferred income taxes                                        |                            
|Compensation earned under restricted stock and ESOP          |                            
|Other noncash, net                                           |                            
|                                                             |                            
|                                                             |                            
|Changes in Operating Assets and Liabilities:                 |                            
|Receivables                                                  |                            
|Inventories                                                  |                            
|Prepaid expenses and other current assets                    |                            
|Accounts payable and accrued liabilities                     |                            
|Income taxes payable                                         |                            
|Other liabilities                                            |                            
|                                                             |                            
|Net Cash Provided by Operating Activities                    |                            
|                                                             |                            
|Investing Activities                                         |                            
|Additions of property and equipment, net                     |                            
|Acquisition of business, net of cash acquired                |                            
|Investment purchases                                         |                            
|Additions of other assets, net                               |                            
|Purchase of in-process research and development              |                            
|                                                             |                            
|Net Cash Used for Investing Activities                       |                            
|                                                             |                            
|Financing Activities                                         |                            
|Increase in borrowings, net                                  |                            
|Issuance of common stock under stock plans and other capital |                            
|transactions                                                 |                            
|Dividends paid                                               |                            
|Repurchase of common stock                                   |                            
|                                                             |                            
|Net Cash Provided by Financing Activities                    |                            
|Effect of Exchange Rate Changes on Cash                      |                            
|                                                             |                            
|Net Increase in Cash and Cash Equivalents                    |                            
|Cash and Cash Equivalents at Beginning of Period             |                            
|                                                             |                            
|Cash and Cash Equivalents at End of Period                   |                            
|                                                             |                            

See Notes to Consolidated
Financial Statements

---

GUIDANT CORPORATION Notes to Consolidated Financial Statements (In millions, except
per share data)(unaudited)

# Note 1  Basis of Presentation

The accompanying unaudited
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 Article 10 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. Operating results from interim periods are not necessarily
indicative of results that may be expected for the fiscal year as a whole. In the opinion
of management, the consolidated financial statements reflect all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation of the
Companys results for the periods presented. The preparation of financial statements
in conformity with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets, liabilities,
revenues, expenses and related disclosures at the date of the financial statements and
during the reporting period. Actual results could differ from these estimates. A
discussion of the Companys significant accounting policies is described in the
Significant Accounting Policies section of Managements Discussion
and Analysis of Results of Operations and Financial Condition.

For further information, refer to the
consolidated financial statements and notes thereto included in the Companys Annual
Report on Form 10-K for the year ended December 31, 2003. As used herein, the terms
the Company and Guidant mean Guidant Corporation and its
consolidated subsidiaries.

Certain reclassifications have been
made to prior year amounts to conform to current year presentation (see Note 9).

# Note 2 
Stock-Based Compensation

The Company has adopted the
disclosure-only provisions of Statement of Financial Accounting Standard
(SFAS) 123, Accounting for Stock-Based Compensation, as amended by SFAS
148, Accounting for Stock-Based CompensationTransition and Disclosure.
Accordingly, the Company accounts for stock-based compensation under Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees,and related
interpretations, using the intrinsic value method. The following table illustrates the
effect on net income and earnings per share if the Company had applied the fair value
recognition provisions of SFAS 123 to all stock-based employee compensation. The fair
value of stock options was estimated as of the grant date using the Black-Scholes
option-pricing model, the attribution method and a forfeiture rate of 10%. The
Black-Scholes option-pricing model does not consider the non-traded nature of employee
stock options, the lack of transferability or a vesting period. If the model took these
items into consideration, the resulting estimate for fair value of the stock options could
be different. These pro forma amounts may not be representative of the effects on reported
net income for future years due to the uncertainty of stock option grant volume and
potential changes in assumptions driven by market factors.

|                                                                         | Three Months EndedMarch 31,
|------------------------------------------------------------------------ | ---------------------------
|
|                                                                         |                            
|Reported net income (1)                                                  |                            
|Deduct: Stock-based compensation not reflected in net income, net of tax |                            
|                                                                         |                            
|Pro forma net income                                                     |                            
|                                                                         |                            
|Earnings per share:                                                      |                            
|Basic--as reported                                                       |                            
|                                                                         |                            
|Basic--pro forma                                                         |                            
|                                                                         |                            
|Diluted--as reported                                                     |                            
|                                                                         |                            
|Diluted--pro forma                                                       |                            
|                                                                         |                            

(1)Reported amounts include expense associated with restricted stock awards.

---

GUIDANT CORPORATION Notes to Consolidated Financial Statements

# Note 2 
Stock-Based Compensation (continued)

In February 2003, Guidants
Board of Directors authorized the issuance of approximately 2.3 million restricted stock
awards to over 2,000 employees. Restricted stock awards are expensed ratably over the
vesting period. This grant included a performance element that allowed vesting to
accelerate when certain Guidant share price performance measures were met. Specifically,
1/3 of the general grants vested upon achievement of 25%, 50% and 75% appreciation of the
60-day moving average stock price from the date of grant ($34.37 on February 18, 2003).
Executive officer grants accelerated from six years to three years under this same
performance measure. Approximately two-thirds of the share price appreciation targets were
achieved and expensed in 2003. Grants may vest earlier upon a qualifying disability, death,
retirement or change in control.  The final share price appreciation target (75%) was
achieved in January 2004 and resulted in additional expenses in the first quarter of 2004
of $14.7 million.

On April 1, 2004, Guidant granted approximately 3.1 million
stock options and 610,000 restricted stock awards to over 2,500 employees.  Under this program,
stock options will vest ratably over three years and the restricted stock awards will vest on
April 1, 2007. For certain executive officers, the restricted stock awards vest over six
years, but may be accelerated to three-year vesting, 1/3 of the grant will vest upon achievement
of 25%, 50% and 75% appreciation of the 60-day moving average stock price from the date of grant
($63.11 on April 1, 2004).  Grants may vest earlier upon a qualifying disability, death, retirement or change in control.

Note 3  Inventories

Inventories consisted of the
following:

|                           | March 31, | December 31,
|-------------------------- | --------- | ------------
|
|                           |           |             
|Finished products          |           | $189.4      
|Work in process            |           | 77.6        
|Raw materials and supplies |           | 147.9       
|                           |           |             
|                           |           | $414.9      
|                           |           |             

# Note 4  Product
Warranties

Provisions for estimated expenses
related to product warranties are recorded at the time the products are sold. Estimates
for warranty costs are calculated based primarily upon historical warranty experience, but
may include assumptions related to anticipated changes in warranty costs and failure
rates. A summary of the changes in the product warranty activity is as follows:

|                                  | Three Months EndedMarch 31,
|--------------------------------- | ---------------------------
|
|January 1                         |                            
|Provisions for product warranties |                            
|Settlements during the period     |                            
|                                  |                            
|March 31                          |                            
|                                  |                            

---

GUIDANT CORPORATION
Notes to Consolidated Financial Statements

# Note 5  Earnings
Per Share

The following table sets forth the
computation of earnings per share:

|                                                         | Three Months EndedMarch 31,
|-------------------------------------------------------- | ---------------------------
|
|Income from continuing operations                        |                            
|Loss from discontinued operations, net of income taxes   |                            
|                                                         |                            
|Net income                                               |                            
|                                                         |                            
|Earnings per share--basic                                |                            
|Income from continuing operations                        |                            
|Loss from discontinued operations, net of income taxes   |                            
|                                                         |                            
|Net income                                               |                            
|                                                         |                            
|Earnings per share--diluted                              |                            
|Income from continuing operations                        |                            
|Loss from discontinued operations, net of income taxes   |                            
|                                                         |                            
|Net income                                               |                            
|                                                         |                            
|Weighted average common shares outstanding               |                            
|Effect of dilutive stock options and unvested restricted |                            
|stock awards (1)                                         |                            
|                                                         |                            
|Weighted average common shares outstanding               |                            
|and assumed conversions                                  |                            
|                                                         |                            

(1)    
          Increase is primarily due to the appreciation of Guidants average stock
          price for the quarter ending March 31, 2004, compared to the quarter ending
          March 31, 2003.

Total options outstanding at March
31, 2004 and 2003 were 39.6 million and 49.7 million. Earnings per share-diluted includes
39.5 million and 20.3 million stock options for the quarters ended March 31, 2004 and
2003. Stock options whose exercise price per share was greater than their average market
value per share were excluded from the calculation of earnings per share-diluted because
including them would have had an anti-dilutive impact.

# Note 6 
Comprehensive Income

Comprehensive income is comprised of
net income adjusted for changes in foreign currency translation adjustments and unrealized
gains or losses on foreign currency derivative contracts designated and qualifying as cash
flow hedges. For the first quarters of 2004 and 2003, comprehensive income was $126.2
million and $114.3 million. The increase in comprehensive income was primarily due to
higher net income in 2004, partially offset by foreign currency translation losses in 2004
compared to gains in 2003.

---

GUIDANT CORPORATION Notes to Consolidated Financial Statements

# Note 7  Segment
Information

# Geographic Information:

|              | Three Months EndedMarch 31,
|------------- | ---------------------------
|
|
|Net Sales(1): |                            
|US            |                            
|International |                            
|              |                            
|              |                            
|              |                            

(1)    
          Revenues are attributed to countries based on location of the customer.

|                   | March 31, | December 31,
|------------------ | --------- | ------------
|
|
|Long-lived Assets: |           |             
|US                 |           | $684.5      
|International      |           | 87.6        
|                   |           |             
|                   |           | $772.1      
|                   |           |             





|                                         | Three Months EndedMarch 31,
|---------------------------------------- | ---------------------------
|Classes of Similar Products:             |                            
|Net Sales:                               |                            
|Implantable defibrillator systems        |                            
|Pacemaker systems                        |                            
|Coronary stent systems                   |                            
|Angioplasty systems                      |                            
|Cardiac surgery, biliary, peripheral and |                            
|carotid systems                          |                            
|                                         |                            
|                                         |                            
|                                         |                            

# Note 8 
Acquisitions

AFx, inc.: On February 9,
2004, Guidant acquired AFx, inc., a manufacturer of microwave surgical cardiac ablation
medical devices. Guidant paid $48.4 million (including transaction expenses) in cash and
forgave a $5.8 million extension of credit. The purchase price was allocated to the
acquired assets and liabilities based upon fair market values (using the income approach),
including a $22.8 million in process research and development (IPRD) charge for technology
that had not reached technological feasibility and had no alternative use and $33.0
million for intangible assets related to proven technology. In addition, a deferred tax
liability was recorded for the tax effect of the intangible assets and deferred tax assets
of $11.7 million were recorded for the net operating loss carryovers expected to be
utilized in the future by Guidant. In order to value the IPRD, a risk-adjusted discount
rate of 22.5% was applied to the cash flows, which are expected to begin during the second
quarter of 2005. Guidant may make additional payments upon future satisfaction of
regulatory, clinical and sales performance criteria. These payments will be recorded when
the amount is determinable and will be allocated to the fair value of the intangibles or
IPRD, with any amounts paid above fair value of identifiable assets recorded as goodwill.

Biosensors International: In
March 2003, the Company completed its acquisition of certain assets of Biosensors
Internationals (Biosensors) everolimus eluting stent program, including an exclusive
worldwide license to Biosensors polymer formulation technology in the field of
everolimus eluting stents and a nonexclusive license to use this technology with other
drugs in drug eluting stents. Additionally, Guidant acquired the option of manufacturing
and commercializing the Biosensors everolimus eluting stent that has been used in
Biosensors clinical trials. Guidant recorded a $20.5 million IPRD charge in
connection with the purchase, since technological feasibility of the project has not been attained and the research has no
alternative future uses. Biosensors may receive additional milestone payments over the
course of clinical development and upon CE Mark approval. In addition, Biosensors will
receive royalties on future sales of products utilizing Biosensors technology.

---

Bioabsorbable Vascular
Solutions: In March 2003, Guidant acquired the majority interest in Bioabsorbable
Vascular Solutions (BVS) for $10.0 million and accrued an additional $6.0 million for a
future milestone. In addition, Guidant purchased the remaining interest for $6.0 million
in April 2004. All these amounts are accounted for as IPRD, since technological
feasibility of the project has not been attained and the research has no alternative
future uses. BVS is developing vascular stent platforms designed to be absorbed by tissue
following the restoration of blood flow in patients with coronary artery disease. Guidant
may pay milestone payments over the course of clinical development.

Certain of Guidants
acquisitions involve contingent consideration. Payment of the additional consideration is
generally contingent upon reaching performance-related milestones, including specified
revenue levels, product development targets or regulatory approvals or filings. At March
31, 2004, Guidants accrual for milestone obligations totaled $8.3 million and will
be paid during the next three years. In addition, future undiscounted contingent
consideration for performance-related milestones on acquisitions of up to $465.0 million
could be paid through 2010, depending on when and if milestones are attained. Potential
milestone payments under existing agreements during the next 12 months range from $6.0 to
$118.0 million. The Company continues to evaluate business development opportunities,
which may generate additional payments.

The operating results of all
acquisitions are included in the Companys consolidated financial statements from the
date of each acquisition.

# Note 9 
Discontinued Operations

In March 2004, Guidants Board
of Directors approved a plan to discontinue the GALILEO® Intravascular
Radiotherapy System (GALILEO System) product line for the treatment of in-stent restenosis
due to the significant competitive impact of drug eluting stents. On April 21, 2004,
Guidant signed a definitive agreement with Novoste Corporation (Novoste) to cooperate in
assisting existing US and Canadian customers of the GALILEO System who wish to transition
to Novoste products. Guidant received $2.5 million upon signing and will receive earn-out
payments up to a maximum of $4.0 million based on Novoste sales in the US and Canada.
  The disposal plan consists primarily of the termination of normal
activity, abandonment of property and equipment, product returns, collection of accounts
receivable and settlement of liabilities. Net loss from discontinued operations includes a
charge of $11.2 million during the quarter ended March 31, 2004, primarily related to the
write down of long-lived assets to fair value and recording inventory and accounts
receivable at net realizable value. Guidant expects this discontinuation to occur in
several phases, concluding within the next six to nine months. Following a brief
transition period, Guidant will close its Houston and Pearland, Texas, facilities.

In June 2003, Guidants Board of
Directors approved a plan to dispose of the ANCURE ENDOGRAFT System product line to treat
abdominal aortic aneurysms (AAA) due to continuing financial losses, limited prospects for
the Companys AAA product line and the impact of the Department of Justice
investigation.

In addition, Guidants Board of
Directors ratified a plan in December 2003 to discontinue Guidants operations in
Brazil due to unfavorable business conditions and poor operating performance.

In accordance with SFAS 144,
Accounting for the Impairment or Disposal of Long-Lived Assets, these disposals
represent discontinued operations. Accordingly, the accompanying consolidated financial
statements and notes reflect the results of operations and financial position of the AAA
and GALILEO product lines and the Brazil operations as discontinued operations for all
periods presented. Net loss from discontinued operations includes charges related to the
impairment of certain long-lived assets, inventory write-downs, customer returns and
accruals for employee severance and lease commitments. Net loss from discontinued
operations in 2003 also includes charges related to litigation settlements.

At March 31, 2004, and December 31,
2003, there were $13.5 million and $36.5 million in assets and $20.7 million and $23.9
million in liabilities related to discontinued operations. Assets are primarily comprised
of accounts receivable, inventory and property, plant and equipment. Liabilities primarily
include accruals for severance, product returns and lease commitments.

The following summarizes financial
information for discontinued operations:

|                                                      | Three Months Ended  March 31,
|----------------------------------------------------- | -----------------------------
|
|
|Net sales                                             |                              
|Loss from discontinued operations before income taxes |                              
|Net loss from discontinued operations                 |                              

# Note 10  Dividend

On February 17, 2004, Guidants
Board of Directors declared a first quarter 2004 dividend of $0.10 per common share
outstanding which was paid March 15, 2004, to shareholders of record on March 1, 2004,
compared to $0.08 per common share for the first quarter of 2003.

# Note 11 
Contingencies

A discussion of the Companys
policies with respect to legal proceedings and other loss contingencies is described in
the Significant Accounting Policies section of Managements
Discussion and Analysis of Results of Operations and Financial Condition. The
description of legal proceedings in Part II, Item 1 (Legal Proceedings) to
this filing is incorporated herein by reference.

---

Item 2. Managements
Discussion and Analysis of Results of Operations and Financial Condition (unaudited)

Guidant Corporation provides innovative,
therapeutic medical solutions of distinctive value for customers, patients and healthcare
systems around the world. Guidants lifesaving medical technologies are designed to
extend the lives and improve the quality of life of millions of patients suffering from
life-threatening cardiac and vascular disease. Approximately 12,000 employees develop,
manufacture and market the Companys medical devices in nearly 100 countries, with
key operations in the US, Europe and Asia. As used herein, the terms the
Company and Guidant mean Guidant Corporation and its consolidated
subsidiaries.

Cardiovascular disease is the leading
cause of death for both men and women in the US today and claims more lives each year than
the next five leading causes of death combined. Within cardiovascular disease, Guidant
develops, manufactures and markets products that focus on the treatment of coronary
arrhythmias, heart failure, coronary artery disease and biliary and artery disease
including:

| | o | Implantable defibrillator systems used to detect and treat abnormally fast heart rhythms
(tachycardia) that could result in sudden cardiac death (SCD), including implantable
cardiac resynchronization therapy defibrillator (CRT-D) systems used to treat heart
failure
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Implantable pacemaker systems used to manage slow or irregular heart rhythms
(bradycardia), including implantable cardiac resynchronization therapy pacemaker (CRT-P)
systems used to treat heart failure
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Coronary stent systems
for the treatment of coronary artery disease
| | - | -------------------------------------------------------------------

| | o | Angioplasty systems including
 dilatation catheters and related accessories for the treatment of coronary artery
              disease
| | - | --------------------------------------------------------------------------------------------------------------------------------------

| | o | Cardiac surgery systems and biliary,
peripheral and carotid systems used to treat biliary and peripheral artery
              disease
| | - | -------------------------------------------------------------------------------------------------------------------------------------

In March 2004, the Company decided to
discontinue the GALILEO® Intravascular Radiotherapy System (GALILEO System) product
line. This product line is reflected as a discontinued operation for all periods
presented.

# Operating Results 
Three Months Ended March 31, 2004

# Sales

Guidant reported $934.1 million in
worldwide sales for the quarter ended March 31, 2004, representing 9% growth compared to
the same period in 2003. Growth in unit volume favorably impacted sales by 8%, partially
offset by price declines of 3%. The impact of fluctuations in foreign currency exchange
rates increased sales by $32.9 million, or 4%. The Companys hedging policy serves to
mitigate the impact of foreign currency exchange rate fluctuations on net income and
therefore the impact in the first quarter 2004 was insignificant. US sales of $616.8
million grew 4% over the prior year and international sales of $317.3 million increased
20% (8% in constant currency).

Sales SummaryThree Months Ended

|                                     | March 31, 2004 | March 31, 2003
|------------------------------------ | -------------- | --------------
|(In millions)                        |                | US            
|                                    
|Implantable defibrillator systems    |                | $323.7        
|Pacemaker systems                    |                | 104.2         
|Coronary stent systems               |                | 86.2          
|Angioplasty systems                  |                | 54.0          
|Cardiac surgery, biliary, peripheral |               
|and carotid systems                  |                | 48.7          
|                                     |               
|                                     |                | $616.8        
|                                     |               

---

Implantable Defibrillator
Systems

Worldwide sales of implantable
defibrillator systems in the first quarter of 2004 were $405.0 million, an increase of 22%
over the same period in 2003. Growth was driven by increased implantable defibrillator
volume including a shift toward higher-value CRT-D systems. US implantable defibrillator
system sales increased 19% to $323.7 million and international sales increased 38% (22% in
constant currency) to $81.3 million in the first quarter of 2004 compared to the same
period in the prior year. Implantable defibrillator systems sales growth was driven by:

| | o | Increased awareness for implantable defibrillator and cardiac resynchronization therapies
based upon the findings of two Guidant-sponsored clinical trials  the pivotal MADIT
II and COMPANION. MADIT II demonstrated that a broader group of patients would benefit
from implantable defibrillator therapy and the investigators for the COMPANION Trial
recently reported that for advanced heart failure patients with desynchronized heart
contractions, the addition of resynchronization therapy to optimal drug treatment reduced
the combination of death or hospitalization when compared with optimal drug treatment
alone.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | VITALITY® family of implantable defibrillator systems
| | - | -----------------------------------------------------

| | o | CONTAK® RENEWAL family of CRT-D systems
| | - | ----------------------------------------

In April 2004, Guidant announced FDA
approval for the VITALITY 2 implantable defibrillator system. This device incorporates
Guidants RHYTHM ID feature, which utilizes rhythm discrimination technology to
distinguish between lethal and non-lethal heart rhythms to deliver the appropriate care.

The National Heart, Lung and Blood
Institutes Sudden Cardiac Death in Heart Failure Trial (SCD-HeFT) has been
completed, and the clinical trial results were presented in March 2004 at the American
College of Cardiology Annual Scientific Session. The results demonstrated positive
benefits of implantable defibrillators (reducing death by 23 percent versus patients who
did not receive defibrillators) in patients with heart failure. The Centers for Medicare
& Medicaid Services has indicated that it may consider the SCD-HeFT results as
evidence to further expand reimbursement coverage for implantable defibrillators. Guidant
formally joined in support of the petition to CMS for full SCD-HeFT patient population ICD
coverage. The publication of SCD-HeFT and COMPANION clinical trial results and the related
reimbursement decisions may impact the implantable defibrillator market.

---

Pacemaker Systems

Worldwide pacemaker system sales were
$179.5 million for the quarter ended March 31, 2004, a 13% increase over the same period
in the prior year. US pacemaker system sales grew 3% to $104.2 million and international
sales grew 31% (19% in constant currency) to $75.3 million for the first quarter of 2004
compared to the same period in 2003. Pacemaker system sales growth was driven by:

| | o | Continued acceptance of the INSIGNIA family of pacemaker systems
| | - | -----------------------------------------------------------------

| | o | Broad acceptance of the CONTAK RENEWAL TR 2 CRT-P system, launched in the third quarter of
2003 in Europe and the CONTAK RENEWAL TR CRT-P system launched in the US in January 2004
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Coronary Stent Systems

Worldwide coronary stent system sales
for the first quarter of 2004 were $171.4 million, a decline of 22% compared to the first
quarter of 2003. The decline in sales was primarily driven by increasing penetration of
competitive drug eluting stents in the US. Coronary stent system sales in the US were
$86.2 million ($65.1 million end-user metallic stents) for the first quarter of 2004
compared to $134.4 million ($117.3 million end-user metallic stents) for the first quarter
of 2003. In February 2004, Guidant entered into an agreement with Johnson & Johnson to
co-promote Cordis CYPHER Sirolimus-eluting Coronary Stent. This agreement also allows for
co-promotion of future drug eluting stents sold by Johnson & Johnson.  Co-promotion
commissions Guidant earns under this agreement, along with sales of stent delivery systems
(dilatation catheters) to Johnson & Johnson are included in US coronary stent system
sales. US end-user metallic coronary stent system sales (which exclude revenues associated
with Johnson & Johnson) now account for 7% of Guidants worldwide revenues
compared to 14% in the first quarter of 2003. These revenues are expected to continue to
decline as US drug eluting stent penetration continues. International sales of coronary
stent systems in the first quarter of 2004 were $85.2 million compared to $86.6 million in
the first quarter of 2003. Competitive launches of metallic and drug eluting stents in
Japan during 2004 are expected to impact future international sales of these systems.
Coronary stent system sales in 2004 primarily include:

| | o | MULTI-LINK VISION Coronary Stent System
| | - | -----------------------------------------

| | o | MULTI-LINK ZETA Coronary Stent System
| | - | --------------------------------------

| | o | MULTI-LINK PENTA Coronary Stent System
| | - | ---------------------------------------

| | o | MULTI-LINK PIXEL Coronary Stent System, designed to treat small-diameter vessels in
patients presenting with abrupt or threatened abrupt closure
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------

In April 2004, Guidant announced CE
Mark approval of the MULTI-LINK FRONTIER Coronary Bifurcation Stent System, which is
specifically designed to treat plaque in coronary arteries at the site of a bifurcation,
where one vessel branches from another.

Angioplasty Systems

Angioplasty system sales totaled
$116.6 million in the first quarter of 2004 compared to $99.6 million in the first quarter
of 2003, reflecting 17% sales growth. Sales growth is primarily attributable to unit
volume increases for guidewires, due to the increased number of metallic and drug eluting
stents being implanted and more complex lesions being treated.

Cardiac Surgery, Biliary,
Peripheral and Carotid Systems

Worldwide sales of cardiac surgery,
biliary, peripheral and carotid systems totaled $61.6 million in the first quarter of
2004, representing 34% growth over the same period in 2003. Sales growth was driven by:

| | o | VASOVIEW® Endoscopic Vessel Harvesting System
| | - | ---------------------------------------------

| | o | .035 Platforms: ABSOLUTE Self Expanding Stent, OMNILINK® Balloon Expandable
Stent and AGILTRAC Peripheral Dilatation
Catheter
| | - | -------------------------------------------------------------------------------------------------------------------------------

| | o | RX ACCULINK Carotid Stent
System in Europe including the RX ACCUNET Embolic Protection System
| | - | -----------------------------------------------------------------------------------------------

# Cost of Products Sold

Cost of products sold was $226.3
million in the first quarter of 2004 compared to $205.1 million for the same period in
2003. Gross profit percentage was 75.8% for the first quarter of 2004 compared to 76.1%
for the first quarter of 2003. The change in gross profit percentage was driven by the
decrease in stent sales, partially offset by continued sales mix shift toward higher value
implantable defibrillator systems, including CRT-D systems, and increased manufacturing
efficiencies.

# Research and Development

Guidant continued its commitment to
product innovation by increasing its investment in research and development in the first
quarter of 2004. Research and development expense was $137.6 million for the first quarter
of 2004, or 14.7% of sales, compared to $112.8 million in the first quarter of 2003, or
13.2% of sales. Significant investments in research and development in the first quarter
of 2004 included:

| | o | Guidants two primary drug
eluting stent programs:
| | - | --------------------------------------------------

| |  | The first program is the CHAMPION Everolimus Eluting Stent System mounted on the VISION
stent delivery system. It has a bioabsorbable polymer matrix and is being evaluated in the
FUTURE family of clinical trials.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The second program is the MULTI-LINK VISION Everolimus Eluting Stent System, which is
currently being evaluated in the SPIRIT FIRST Clinical Trial and includes a durable
polymer matrix.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Bioabsorbable stent research and development
| | - | --------------------------------------------

| | o | Advanced Patient Management applications, designed to enable physicians to monitor patient heart function
         remotely and automatically
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------

| | o | Clinical trials to further demonstrate the benefits of cardiac resynchronization therapy devices for treating
         heart failure
| | - | ------------------------------------------------------------------------------------------------------------------------------------

| | o | Development of next-generation devices for cardiac rhythm management, carotid stent systems and cardiac surgery
         products
| | - | ---------------------------------------------------------------------------------------------------------------------------------

Important
research and development milestones in 2004 included:

| | o | FUTURE III Clinical Trial  Study designed to provide additional safety and
performance data on the CHAMPION Everolimus Eluting Stent System. Enrollment in this
clinical trial began in April 2004 and is expected to include 800 patients.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | SPIRIT FIRST Clinical Trial  Feasibility study for durable polymer drug eluting
stent to support filings for larger US and European pivotal trials. Enrollment of 60
patients was completed in April 2004.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | DECREASE HF Clinical Trial  Heart failure study designed to demonstrate the safety
and effectiveness of the flexible pacing modes offered in Guidants newest CRT-D
systems. Enrollment of 360 patients was completed in April 2004.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | CONTAK RENEWAL 3 AVT Clinical Trial  Study designed to study the effect of device
therapy in patients who suffer from both heart failure and atrial arrhythmias. Guidant
expects to complete enrollment in the third quarter of 2004.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Acculink for Revascularization of Carotids in High Risk Patients (ARCHeR) Clinical Trial
 Study designed to evaluate the safety and effectiveness of carotid artery stenting
as a minimally invasive alternative for treating carotid artery disease in patients
ineligible for surgery or at high surgical risk. The Company announced positive one-year
results in March 2004. Guidant also announced positive 30-day results from its third
clinical trial designed to evaluate carotid stenting, the ARCHeR 3 Clinical Trial in March
2004.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

# In-Process Research and
Development (IPRD)

Guidant recorded a $26.8 million
pre-tax IPRD charge in the first quarter of 2004. This charge includes $22.8 million
associated with the acquisition of AFx, inc., a manufacturer of microwave surgical cardiac
ablation medical devices, for the technology that had not reached technological
feasibility and had no alternative use. See Note 9 to the consolidated financial
statements for further details regarding this acquisition. The remaining charge was
primarily for the purchase of technology to be utilized in conjunction with Guidants
carotid stent systems.

Guidant recorded a pre-tax IPRD
charge of $36.5 million in the first quarter of 2003 related to the following
acquisitions:

| | o | Biosensors International  Guidant purchased certain assets of
Biosensors International (Biosensors), resulting in
$20.5 million of IPRD. Guidant also obtained an exclusive worldwide license to
Biosensors polymer formulation technology in the field of everolimus eluting stents
and a non-exclusive license to this technology for use with other drugs in drug eluting
stents. Additionally, Guidant acquired the option of manufacturing and commercializing the
Biosensors everolimus eluting stent that has been used in Biosensors FUTURE I and II
clinical trials.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Bioabsorbable Vascular Solutions  Guidant purchased the majority interest in
Bioabsorbable Vascular Solutions (BVS), an early-stage developer of bioabsorbable stents,
resulting in a $16.0 million IPRD charge. In April 2004, an additional IPRD charge was
recorded when the remaining interest was purchased for $6.0 million. Bioabsorbable stents
are designed to be fully absorbed by tissue following the restoration of blood flow in
patients with coronary artery disease.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Sales, Marketing and
Administrative

Sales, marketing and administrative
expenses were $314.7 million for the three months ended March 31, 2004, compared to $269.0
million for the same period in 2003, an increase of 17%. The increases were driven
primarily by compensation associated with sales growth and the increase in the cardiac
rhythm management sales force.

Total expenses in the first quarter
of 2004 included $14.7 million of compensation expense as a result of restricted stock
grants made under the 2003 performance-based equity compensation program, including
accelerated vesting due to the final share price appreciation target of 75% growth
achieved from the grant date (February 2003) through January 2004. This represents an
increase in restricted stock expense of $11.9 million compared to the first quarter of
2003. These expenses were classified in the income statement consistent with the
functional area of related employees.

# Interest

Net interest income was $1.0 million
for the three months ended March 31, 2004, compared to $1.4 million for the same period in
2003. The decrease in net interest income from 2003 was driven by a higher average
outstanding debt balance, which was partially mitigated by increased interest income from
larger balances in cash and cash equivalents and short-term investments. Guidant currently
manages interest rate risk by using interest rate swap agreements to convert fixed-rate
debt to variable-rate debt.

# Royalties

Net royalties expense totaled $12.1
million in the first quarter of 2004 compared to $13.3 million for the same period in
2003. Net royalty expense included royalty income of less than $1.0 million in all periods
presented. Royalty expense is incurred for sales of certain implantable defibrillator
systems, pacemaker systems and stent delivery systems. The decrease was primarily due to
the December 2003 expiration of the Mirowski patent covering certain implantable
defibrillator products. At the end of the first quarter, the Company has accrued royalties
and interest of $58.1 million under a license agreement pertaining to that patent, the
ultimate payment of which will depend on the Federal Circuit Court of Appeals ruling on a
competitors challenge to the patents validity, claim construction and term
extension. (See Part II, Item 1, Legal Proceedings.)

Income TaxThe effective
income tax rates for the quarters ended March 31, 2004 and 2003 were 26.4% and 27.0%.
Guidants ongoing operations are impacted by overseas operations having statutory tax
rates that are lower than the US statutory tax rates.

# Discontinued Operations

In March 2004, Guidants Board
of Directors approved a plan to discontinue the GALILEO® Intravascular
Radiotherapy System (GALILEO System) product line for the treatment of in-stent restenosis
due to the significant competitive impact of drug eluting stents. On April 21, 2004,
Guidant signed a definitive agreement with Novoste Corporation (Novoste) to cooperate in
assisting existing US and Canadian customers of the GALILEO System who wish to transition
to Novoste products. Guidant received $2.5 million upon signing and will receive earn-out
payments up to a maximum of $4.0 million based on Novoste sales in the US and Canada.
 The disposal plan consists primarily of the termination of normal
activity, abandonment of property and equipment, product returns, collection of accounts
receivable and settlement of liabilities. Net loss from discontinued operations includes a
charge of $11.2 million during the quarter ended March 31, 2004, primarily related to the
write down of long-lived assets to fair value and recording inventory and accounts
receivable at net realizable value. Guidant expects this discontinuation to occur in
several phases, concluding within the next six to nine months. The Company expects to
incur pre-tax losses of between $22.0 million and $28.0 million associated with the exit
for the remainder of 2004. Following a brief transition period, Guidant will close its
Houston and Pearland, Texas, facilities.

In June 2003, Guidants Board of
Directors approved a plan to dispose of the ANCURE ENDOGRAFT System product line to treat
abdominal aortic aneurysms (AAA) due to continuing financial losses, limited prospects for
the Companys AAA product line and the impact of the Department of Justice
investigation.

---

In December 2003, Guidants
Board of Directors ratified a plan to discontinue Guidants operations in Brazil due
to unfavorable business conditions and poor operating performance.

In accordance with SFAS 144,
Accounting for the Impairment or Disposal of Long-Lived Assets, these disposals
represent discontinued operations. Accordingly, the accompanying consolidated financial
statements and notes reflect the results of operations and financial position of the AAA
and GALILEO product lines and the Brazil operations as discontinued operations for all
periods presented. Net loss from discontinued operations includes charges related to the
impairment of certain long-lived assets, inventory write-downs, customer returns and
accruals for employee severance and lease commitments. Net loss from discontinued
operations in 2003 also includes charges related to litigation settlements.

The following summarizes financial
information for discontinued operations (in millions):

|                                                      | Three Months EndedMarch 31,
|----------------------------------------------------- | ---------------------------
|
|
|Net sales                                             |                            
|Loss from discontinued operations before income taxes |                            
|Net loss from discontinued operations                 |                            

# LIQUIDITY AND FINANCIAL
CONDITION

|                              | March 31, 2004 | December 31, 2003
|----------------------------- | -------------- | -----------------
|(Dollars in millions)         |                |                  
|Cash and cash equivalents (1) |                | $  1,612.3       
|Working capital               |                | $  2,329.6       
|Current ratio                 |                | 3.6:1.0          
|Net cash position (2)         |                | $     587.2      
|Days receivable outstanding   |                | 79               
|Inventory turnover            |                | 2.22             

(1)    
          A substantial portion of cash and cash equivalents is indefinitely invested
          in Guidants non-US subsidiaries.

(2) Net cash position is the sum
          of cash and cash equivalents less total debt.

Certain of Guidants
acquisitions involve contingent consideration. Payment of the additional consideration is
generally contingent upon reaching performance-related milestones, including specified
revenue levels, product development targets or regulatory approvals or filings. At March
31, 2004, Guidants accrual for milestone obligations totaled $8.3 million to be paid
during the next three years. In addition, future undiscounted contingent consideration for
performance-related milestones on acquisitions of up to $465.0 million could be paid
through 2010, depending on when and if milestones are attained. Potential milestone
payments under existing agreements during the next 12 months range from $6.0 to $118.0
million. The Company continues to evaluate business development opportunities, which may
generate additional payments.

---

# Summary of Cash Flows

|                                          | Three Months EndedMarch 31, |        
|----------------------------------------- | --------------------------- | -------
|
|(In millions)                             |                             |        
|Net cash provided by (used for):          |                            
|Operating activities                      |                             | $ 131.2
|Investing activities                      |                             | (113.8 
|Financing activities                      |                             | 134.7  
|Effect of exchange rate changes on cash   |                             | (8.0   
|                                          |                             |        
|Net increase in cash and cash equivalents |                             | $ 144.1
|                                          |                             |        

Net cash provided by operating
activities was $131.2 million for the first three months of 2004, an increase of $20.9
million from the same period in 2003 primarily due to an increase of $128.2 million
increase in net income, adjusted for non-cash items, partially offset by a decrease in
taxes payable.

Net cash used for investing
activities was $113.8 million for the first three months of 2004, an increase of $60.5
million from the prior year primarily due to the following:

| | o | $48.4 million for the
acquisition of AFx, inc.
| | - | ----------------------------------------------

| | o | $24.4 million increase in net additions of property and equipment, primarily for buildings
due to the growth of the cardiac rhythm management product lines
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------

Net cash provided by financing
activities was $134.7 million for the first quarter of 2004, an increase of $125.2 million
from the prior year due to the following:

| | o | $177.8 million increase in issuances of common
stock for stock option exercises
| | - | -------------------------------------------------------------------------------

| | o | $75.6 million increase in borrowings
| | - | ------------------------------------

partially offset
by:

| | o | $97.2 million repurchase of common stock
| | - | ----------------------------------------

| | o | $31.0 million in dividend payments
| | - | ----------------------------------

Exchange rate fluctuations decreased
cash by $8.0 million for the three months ended March 31, 2004 compared to an increase in
cash of $23.7 million for the three months ended March 31, 2003. This decrease of $31.7
million is primarily due to the Euro weakening during the quarter ended March 31, 2004 and
strengthening during the quarter ended March 31, 2003 compared to the US dollar.

---

At March 31, 2004, the Company had
outstanding borrowings of $1,025.1 million at a weighted average interest rate of 1.76%,
including bank borrowings, commercial paper, $350.0 million principal balance in long-term
notes due in 2006 and interest rate swap agreements valued at $7.2 million. Bank
borrowings represent short-term uncommitted credit facilities with commercial banks. The
commercial paper borrowings are supported by two credit facilities aggregating $800.0
million. There are currently no outstanding borrowings under these facilities. The Company
classified $250.0 million as short-term debt at March 31, 2004. The Company believes that
cash and cash equivalent balances will be adequate to fund maturities of short-term
borrowings, obligations to make interest payments on its debt and other anticipated
operating cash needs for 2004, including planned capital expenditures of approximately
$125.0 million for the remainder of 2004.

The Company has recognized net
deferred tax assets aggregating $283.6 million at March 31, 2004, compared to $314.1
million at December 31, 2003. In view of the consistent profitability of its past
operations, the Company believes that these assets will be substantially recovered and
that no significant additional valuation allowances are necessary.

# Significant Accounting
Policies

It is important to understand
Guidants accounting policies in order to understand its financial statements. The
most significant policies are described in Note 2 and elsewhere in the Notes to the
Consolidated Financial Statements in the Companys latest Annual Report on Form 10-K.

In preparing the financial statements
in accordance with generally accepted accounting principles, management must often make
estimates and assumptions that affect the reported amounts of assets, liabilities,
revenues, expenses and related disclosures at the date of the financial statements and
during the reporting period. Some of those judgments can be subjective and complex.
Consequently, actual results could differ from those estimates. The accounting policies
that are most subject to important estimates or assumptions include those described below.
The Notes to the Consolidated Financial Statements in our latest Annual Report on Form
10-K described above and this 10-Q provide additional information about managements
evaluation of these items.

Guidant continually evaluates the
accounting policies and estimates it uses to prepare the consolidated financial
statements. In cases where management estimates are used, they are based on historical
experience, information from third-party professionals, and various other assumptions
believed to be reasonable.

Inventory Reserves  The
Company values its inventory at the lower of cost (first-in, first-out method) or market.
Reserves are estimated for excess, slow moving and obsolete inventory as well as inventory
with a carrying value in excess of its net realizable value. Write-offs are recorded when
product is destroyed. The Company reviews inventory on hand at least quarterly and records
provisions for excess and obsolete inventory based on several factors, including current
assessment of future product demand, anticipated release of new products into the market,
historical experience and product expiration. The Companys industry is characterized
by rapid product development and frequent new product introductions. Uncertain timing of
product approvals, variability in product launch strategies, product recalls and variation
in product utilization all impact the estimates related to excess and obsolete inventory.

---

Product Warranties 
Provisions for estimated expenses related to product warranties are recorded at the time
the products are sold. Estimates for warranty costs are calculated based primarily upon
historical warranty experience, but may include assumptions related to anticipated changes
in warranty costs and failure rates. Assumptions and historical warranty experience are
evaluated on at least a quarterly basis to determine the continued appropriateness of such
assumptions. Warranty cost accruals are adjusted from time to time when warranty claim
experience differs from estimates.

Valuation of Purchased In-Process
Research and Development (IPRD), Goodwill and Other Intangible Assets  When a
business combination occurs, the purchase price is allocated based upon the fair value of
tangible assets, intangible assets, IPRD and goodwill. The Company recognizes IPRD in
business combinations for the portion of the purchase price allocated to the appraised
value of in-process technologies, defined as those technologies relating to products that
have not received FDA approval and have no alternative future use. The portion assigned to
in-process technologies excludes the value of core and developed technologies, which are
recognized as intangible assets when purchased. Valuations require the use of significant
estimates. The amount of the purchase price allocated to IPRD is determined by estimating
future cash flows of the technology and discounting net cash flows back to present values.
The Company considers, among other things, the projects stage of completion,
complexity of the work completed as of the acquisition date, costs already incurred,
projected costs to complete, contribution of core technologies and other acquired assets,
expected introduction date and the estimated useful life of the technology. The discount
rate used to arrive at a present value as of the date of acquisition is based on the time
value of money and medical technology investment risk. Goodwill represents the excess of
cost over fair value of identifiable net assets of the business acquired and the amount
allocated to IPRD. The methodologies used in arriving at these estimates are in accordance
with accepted valuation methods.

Income Taxes  All income
tax amounts reflect the use of the liability method. Under this method, deferred tax
assets and liabilities are determined based on the expected future tax consequences of
temporary differences between the carrying amounts of assets and liabilities for financial
and income tax reporting purposes.

Guidant operates in multiple tax
jurisdictions with different tax rates and must determine the allocation of income to each
of these jurisdictions based on estimates and assumptions. In the normal course of
business, the Company will undergo scheduled reviews by taxing authorities regarding the
amount of taxes due. These reviews include questions regarding the timing and amount of
deductions and the allocation of income among various tax jurisdictions. Tax reviews often
require an extended period of time to resolve and may result in income tax adjustments if
changes to the allocation are required between jurisdictions with different tax rates.

Legal Proceedings and Other Loss
Contingencies  The Company is subject to various legal proceedings, many
involving routine litigation incidental to the business. Other matters contain allegations
that are not routine and involve compensatory, punitive or treble damage claims, or claims
for injunctive relief related to alleged infringement of a third partys patents, or
seek declarations affecting the validity of the Companys patents. Litigation
outcomes are not within the Companys complete control, are often very difficult to
predict and often are resolved over long periods of time. Estimating probable losses
requires the analysis of multiple possible outcomes that often depend on judgments about
potential actions by third parties. Contingencies are recorded in the consolidated
financial statements, or otherwise disclosed, in accordance with SFAS 5, Accounting for
Contingencies.

---

# Field Actions

As further described in the
Companys Annual Report on Form 10-K and Exhibit 99 to this filing, the medical
device industry is subject to substantial regulation, including by the FDA and comparable
international agencies. In addition to requiring clearance or approval to market new or
improved devices, the Company is subject to regulation as a device manufacturer.
Regulations cover many aspects of the Companys operations, including quality
systems, marketing and device reporting.

From time to time, the Company
initiates field actions with respect to market-released products. These actions may
include product recalls or communications with a significant number of physicians about a
product or labeling issue. The scope of such actions can range from very minor issues
affecting a small number of units to more significant actions. Since the Companys
last filing on Form 10-K, the Company conducted the following field actions:

In March 2004, certain lots of size 8
French guide catheters, used to assist in placement of Guidants heart failure lead delivery system,
were recalled due to a component issue. Regulatory authorities were notified and the
component issue has been resolved.

In April 2004, Guidant issued a field
notification to physicians related to the HEARTSTRING Proximal Seal. The
communication described specific steps the physician should use for the deployment and
removal of the device. FDA was notified and no product was required to be returned.
Regulatory authorities outside the US were also notified.

---

# Cautionary Factors

Certain statements made in this
report are forward-looking, including accounting estimates, statements concerning sales
trends, anticipated tax rates, capital expenditures, cash flows, costs of research
programs, the timing of discontinued operations and the timing of product developments.
The statements are based on assumptions about many important factors, including
assumptions concerning:

| | o | The development of the coronary stent market: Drug eluting stents present a significant
growth opportunity; however, the earlier introduction of drug eluting stents by the
Companys competitors has substantially affected the market for metallic coronary
stents and will continue to impact the Companys financial results.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | The effects of operating in a highly regulated industry, the necessity for appropriate
reimbursement of therapies and the significance of legal claims in Guidants
industry.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Changes in the location or volume
of production or changes in tax law.
| | - | ----------------------------------------------------------------------

| | o | Product development and production factors (including the uncertainties associated with
clinical trials), competitive factors (including the introduction of new products and
alternative therapies), business development factors, internal factors (including the
retention of key employees and changes in business strategies) and others, all as further
described in Exhibit 99 to this filing, which is incorporated herein by reference.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Actual results may differ materially.
The Company does not undertake to update its forward-looking statements.

# Item 4. Controls and
Procedures

An evaluation was carried out, under
the supervision of and with the participation of the Companys management, including
the Companys chief executive officer (CEO) and chief financial officer (CFO), of the
effectiveness of the Companys disclosure controls and procedures as of the end of
the period covered by this report. Based on the evaluation, the CEO and CFO have concluded
that the Companys disclosure controls and procedures are effective.

There was no change in the
Companys internal control over financial reporting during the Companys most
recently completed fiscal quarter that has materially affected, or is reasonably likely to
materially affect the Companys internal control over financial reporting.

Section 404 of the Sarbanes-Oxley Act
requires company management to assess and report on the companys internal controls.
It also requires a company's independent, outside auditors to issue an "attestation" to
management's assessment, as well as assess the proper design and function of internal controls.
Guidant expects to be required to comply with this requirement for the first time as of
December 31, 2004. Guidant has substantially completed the documentation to comply with
this standard and is now working on management testing of internal controls.

---

PART IIOTHER INFORMATION

# Item 1. Legal Proceedings

The Company is involved in patent,
product liability, shareholder and other legal proceedings that arise in the course of the
Companys business. The Company records a liability when a loss is considered
probable and the amount can be reasonably estimated. If the reasonable estimate of a
probable loss is a range, and no amount within the range is a better estimate, the lower
end of the range is accrued. If a loss is not probable or a probable loss cannot be
reasonably estimated, no liability is recorded.

Patent and other proprietary rights
are essential to the Companys business. Significant litigation concerning patents
and products is pervasive in the Companys industry. Patent claims include challenges
to the coverage and validity of the Companys patents on products or processes as
well as allegations that the Companys products infringe patents held by competitors
or other third parties. Although the Company believes that it has valid defenses to these
challenges with respect to material patents, there can be no assurance as to the outcome
of these matters, and a loss in any of these cases could result in a loss of patent
protection or the ability to market products, which could lead to a significant loss of
sales, or otherwise materially affect future results of operations.

Losses in the matters below are not
considered probable or cannot be reasonably estimated. Accordingly, the Company has not
recorded reserves for these matters. While the liability of the Company in connection with
the claims cannot be estimated with any certainty, the outcome of these legal proceedings,
except as specifically identified below, is not expected to have a material adverse effect
on the Companys consolidated financial position, although the resolution in any
reporting period of one or more of these matters could have a significant impact on the
Companys results of operations for that period. While the Company believes that it
has valid defenses in these matters, litigation is inherently uncertain, excessive
verdicts do occur, and the Company may in the future incur material judgments or enter
into material settlements of claims.

On February 18, 1998, Arterial
Vascular Engineering, Inc. (now known as Medtronic Vascular) filed suit against the
Companys subsidiary, Advanced Cardiovascular Systems, Inc. (ACS), in the District
Court for Delaware alleging that the sale of MULTI-LINK family of coronary stent systems
infringes the Boneau patents owned by Medtronic Vascular. The suit is consolidated with a
suit by ACS alleging infringement by Medtronic Vascular of the Companys Lau stent
patents. The Medtronic Vascular complaint also alleges misappropriation of trade secrets
and breach of a confidentiality agreement by ACS. In the lawsuit, Medtronic Vascular is
seeking injunctive relief, co-ownership of the Lau patents, monetary damages and a ruling
that the ACS stent patents asserted against Medtronic Vascular are invalid. Pretrial
matters are scheduled through 2004, with trial set in the first quarter of 2005. This suit
is one of a number of suits brought by Medtronic Vascular under the Boneau patents against
all substantial participants in the stent market. The allegations made by Medtronic
Vascular are wide-ranging and cover the Companys products broadly. Accordingly,
while potential liability cannot be estimated with any certainty, an adverse outcome could
have a material impact on results of operations or consolidated financial position.

---

On June 15, 2000, Medtronic, Inc.
(Medtronic) filed a declaratory judgment action against the Company and its Cardiac
Pacemakers, Inc. (CPI) subsidiary in the District Court for Minnesota requesting that the
court rule that Medtronic does not infringe certain of CPIs patents for atrial
fibrillation technology or that the patents are not valid. Subsequently, the Company
asserted additional patents related to atrial fibrillation technology against Medtronic in
the same court. Currently, eight patents are being asserted against Medtronic in this
consolidated litigation. Pretrial matters are scheduled into the second half of 2004.

On March 6, 2002, Pacesetter, Inc.
(Pacesetter), a subsidiary of St. Jude Medical, Inc. (St. Jude), filed suit against
the Companys subsidiaries, CPI and Guidant Sales Corporation (GSC), in the Central
District of California alleging that CPI and GSC have infringed a number of Pacesetter
patents covering various features of pacemakers and implantable defibrillators. On the
Companys motion, the case was transferred to the District Court for Minnesota.
Pacesetter is seeking injunctive relief, monetary damages and attorney fees. Currently
four patents are at issue. Pacesetter has sought reexamination of two of the patents. On
the Companys motion, the litigation has been stayed pending the completion of the
reexaminations.

On April 14, 2003, Medinol Ltd. filed
suit against the Company and its ACS subsidiary in the Southern District of New York
alleging that the sale of the Companys MULTI-LINK ZETA and MULTI-LINK PENTA Coronary
Stent Systems infringe five Medinol patents related to stent design. The complaint seeks
injunctive relief and monetary damages. Pretrial matters are scheduled through most of
2004.

On June 12, 2003, the Company
announced that its subsidiary, EndoVascular Technologies, Inc. (EVT), had entered into a
plea agreement with the US Department of Justice relating to a previously disclosed
investigation regarding the ANCURE ENDOGRAFT System for the treatment of abdominal aortic
aneurysms. At the time of the EVT plea, the Company had outstanding fourteen suits
alleging product liability related causes of action relating to the ANCURE System. The
Company settled eleven of the suits that predated the EVT plea for an amount recorded
in the third quarter of 2003 that was not material to the Company. Subsequent to the EVT
plea, the Company has been served with approximately thirty-five additional individual
complaints, and more such suits are likely to be filed. A consolidated class action
complaint covering ANCURE recipients is also pending in the Northern District of
California. These cases generally allege that plaintiffs died or suffered other injuries
as a result of purported defects in the device or the accompanying warnings and labeling.
The complaints seek damages, including punitive damages, and equitable relief. An
additional complaint includes state-law allegations of unfair trade and business practices
relating to sales of the product. While the Company maintains insurance that may serve to
reduce the Companys exposure with respect to these claims, one of the Companys
carriers, Allianz Insurance Company (Allianz), has filed suit in the Circuit Court, State
of Illinois, County of DuPage, seeking to rescind or otherwise deny coverage, and
additional carriers have sought to intervene in the case. The Company also has initiated
suit against certain of its carriers, including Allianz, in the Superior Court, State of
Indiana, County of Marion, in order to preserve the Companys rights to coverage.

Also following the EVT plea, the
Company has been served with securities class action and shareholder derivative complaints
relating to the ANCURE System. A consolidated securities class action, which names as
defendants the Company, EVT and certain of their current and former officers, is pending
in the Southern District of Indiana. Generally, it is alleged that during all or a portion
of the period from June 23, 1999, through June 12, 2003, public statements by the Company
relating to the ANCURE System were false and misleading. Damages are sought on behalf of
persons who purchased or otherwise acquired Company shares during that period. The Company
has filed a motion to dismiss the case, which motion is fully briefed.

The derivative suits relating to the
ANCURE System currently are pending in the Southern District of Indiana and in the
Superior Court of the State of Indiana, County of Marion. The suits, purportedly filed on
behalf of the Company, generally allege that the Companys directors breached their
fiduciary duties by taking improper steps or failing to take steps to prevent the ANCURE
and EVT related matters described above. The complaints seek damages and other equitable
relief. The state court suits have been stayed in favor of the federal action. The Company
has filed a motion to dismiss the federal action, which motion is fully briefed.

---

On August 29, 2003, Medtronic filed a
declaratory judgment action in the District Court for Delaware against the Company, GSC,
Eli Lilly and Company (Lilly), and Mirowski Family Ventures L.L.C. (Mirowski), challenging
its obligation to pay royalties to Mirowski on certain devices by alleging the invalidity
of certain claims of US patent RE 38,119 (119), which patent relates to cardiac
resynchronization therapy and bi-ventricular pacing therapy. The 119 patent is
exclusively licensed to the Company as part of a broader license covering Mirowski patents
and is sublicensed to Medtronic. The parties have agreed to an expedited proceeding with
limited scope and a bench trial is scheduled in August 2004.

On February 2, 2004, the Company,
GSC, CPI and Mirowski filed a declaratory judgment action in the District Court for
Delaware against St. Jude and Pacesetter alleging that their Epic HF, Atlas HF, and
Frontier 3x2 devices will infringe the 119 patent (described in the prior paragraph)
when those devices are approved for sale in the US.

On February 24, 2004, the
Companys subsidiary, CPI, filed a patent infringement action in the District Court
of Minnesota against St. Jude and Pacesetter alleging that their Quicksite over-the-wire
pacing lead has infringed US Patent No. 5,755,766/Reexamination Certificate No. 5,755,766
C1 (the 766 Patent).

On February 24, 2004, the Company
entered into an agreement with Johnson & Johnson (J&J) to co-promote the CYPHER
Sirolimus-eluting Coronary Stent in the US. Previously, Boston Scientific Corporation
(BSC) sued J&J in the U.S. District Court for the District of Delaware alleging that
the CYPHER stent infringes certain patents owned by BSC. On March 16, 2004, BSC filed an
amended complaint adding the Company as a defendant. Under the terms of the agreement with
J&J, J&J is required to indemnify the Company.

Anna Mirowski, Lilly and two Company
subsidiaries, GSC and CPI, are plaintiffs in a patent infringement suit originally filed
against St. Jude and its affiliates in November 1996 in the District Court in
Indianapolis. The suit alleges that St. Judes defibrillator products infringe
patents licensed to CPI. In July 2001, a jury found that two of the licensed patents were
valid and that St. Jude had infringed one, a patent that expired in March 2001. The jury
awarded damages of $140.0 million against St. Jude. The Company did not record a gain
given the uncertainty remaining as to the ultimate resolution. On February 13, 2002, the
court, in ruling on a number of post-trial motions, reversed each of the three jury
findings above, along with the jury award. The court awarded St. Jude certain post-trial
fees and costs (in an immaterial amount), along with contingent expenses and attorney fees
upon any retrial of the case if a retrial is required following any appeal of the
courts rulings. Cross appeals are pending in the Federal Circuit Court of Appeals.

Item 2. Changes in Securities, Use
of Proceeds and Issuer Purchases of Equity Securities

The following table provides
information about purchases by the Company during the quarter ended March 31, 2004, of the
Companys common shares:

|Period    | Total Number of Shares Purchased (1) | AveragePrice PerShare | Total Number ofShares Purchasedas Part of PubliclyAnnouncedProgram | ApproximateDollar Value of SharesThat May Yet BePurchased Underthe Program
|--------- | ------------------------------------ | --------------------- | ------------------------------------------------------------------ | --------------------------------------------------------------------------
|01/01/04- |                                      |                       |                                                                    |                                                                           
|01/31/04  |                                      | --                    |                                                                    | --                                                                        
|
|02/01/04- |                                     
|02/29/04  |                                      | --                    |                                                                    | --                                                                        
|
|03/01/04- |                                     
|03/31/04  |                                      | 1.2 million           |                                                                    | $69.11                                                                    



| | (1) | Guidant repurchased an aggregate of 1.2 million common shares pursuant to the
               repurchase program publicly announced on February 17, 2004.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------

# Item 6. Exhibits and
Reports on Form 8-K.

| | (a) | Exhibits. The Exhibit Index is incorporated herein by reference.
| | --- | ----------------------------------------------------------------

| | (b) | Reports on Form 8-K. During the quarter for which this Report on Form 10-Q is
               filed, the Registrant filed one current report on Form 8-K dated January 29,
               2004, describing pursuant to Item 12 the Companys earnings release of the
               same date.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

# SIGNATURES

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

|                    | 
|------------------- | 
|                    | 
|                    | 
|                    | 
|                    | 
|Date:   May 7, 2004 | 
|                    | 
|                    | 
|                    | 
|Date:   May 7, 2004 | 
|                    | 
|                    | 
|                    | 

---

# EXHIBIT INDEX

Exhibit 10.28:     Amendments through and including Settlement
and Release Agreement and Amendment to
Master License Agreement dated            
                February 24, 2004 by and between the Company, Johnson &
Johnson and their respective affiliates, portions of which have           
                 been omitted pursuant to a
request for confidential treatment.

Exhibit 31.1:
     Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of Ronald W. Dollens

Exhibit 31.2:
     Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of Keith E. Brauer

Exhibit 32.1:
     Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of Ronald W. Dollens

Exhibit 32.2:
     Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of Keith E. Brauer

Exhibit 99:         Factors
Possibly Affecting Future Operating Results