SECURITIES AND EXCHANGE
COMMISSION Washington, D.C. 20549

# FORM 10-Q

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

For the quarterly
period ended September 30, 2003

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 FLOOR INDIANAPOLIS, 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).

YesX           No _____

The number of shares of common stock
outstanding as of November 10, 2003:

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

---

# PART I FINANCIAL INFORMATION

# Item 1. Financial
Statements

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

|                                                       | Three Months EndedSeptember 30, | Nine Months EndedSeptember 30,
|------------------------------------------------------ | ------------------------------- | ------------------------------
|
|Net sales                                              |                                 | $   937.8                     
|Cost of products sold                                  |                                 | 224.3                         
|                                                       |                                 |                               
|Gross profit                                           |                                 | 713.5                         
|Research and development                               |                                 | 141.4                         
|Purchased in-process research and development          |                                 | 35.2                          
|Sales, marketing and administrative                    |                                 | 303.9                         
|Interest, net                                          |                                 | (1.0)                         
|Royalties, net                                         |                                 | 17.0                          
|Amortization                                           |                                 | 5.3                           
|Other, net                                             |                                 | 0.2                           
|Litigation, net                                        |                                 | --                            
|Foundation contribution                                |                                 | --                            
|Restructuring charge                                   |                                 | --                            
|                                                       |                                 |                               
|Income from continuing operations before income taxes  |                                 | 211.5                         
|Income taxes                                           |                                 | 64.1                          
|                                                       |                                 |                               
|Income from continuing operations                      |                                 | 147.4                         
|Loss from discontinued operations, net of income taxes |                                 | (18.3)                        
|                                                       |                                 |                               
|Net income                                             |                                 | $   129.1                     
|                                                       |                                 |                               
|Earnings per share-basic                               |                                
|Income from continuing operations                      |                                 | $     0.48                    
|Loss from discontinued operations, net of income taxes |                                 | (0.06)                        
|                                                       |                                 |                               
|Net income                                             |                                 | $     0.42                    
|                                                       |                                 |                               
|Earnings per share-diluted                             |                                
|Income from continuing operations                      |                                 | 0.47                          
|Loss from discontinued operations, net of income taxes |                                 | (0.06)                        
|                                                       |                                 |                               
|Net income                                             |                                 | $     0.41                    
|                                                       |                                 |                               
|Dividends declared per common share                    |                                 | $     0.08                    
|                                                       |                                 |                               

See notes to consolidated financial
statements

---

GUIDANT CORPORATIONConsolidated Balance
Sheets(In millions, except
share data)

|                                                               | September 30,2003(unaudited) | December 31,2002
|-------------------------------------------------------------- | ---------------------------- | ----------------
|Assets                                                         |                              |                 
|Current Assets                                                 |                             
|Cash and cash equivalents                                      |                              | $1,353.4        
|Short-term investments                                         |                              | 11.6            
|Accounts receivable, net of allowances                         |                             
|of $31.6 (2003) and $30.9 (2002)                               |                              | 796.9           
|Inventories                                                    |                              | 378.0           
|Deferred income taxes                                          |                              | 269.3           
|Prepaid expenses and other current assets                      |                              | 76.2            
|Current assets of discontinued operations                      |                              | 1.3             
|                                                               |                              |                 
|Total Current Assets                                           |                              | 2,886.7         
|                                                              
|Other Assets                                                   |                             
|Goodwill, net of allowances of $159.6 (2003) and $159.4 (2002) |                              | 516.2           
|Other intangible assets, net of allowances of $72.5 (2003) and |                             
|$60.3 (2002)                                                   |                              | 138.4           
|Deferred income taxes                                          |                              | 49.8            
|Investments                                                    |                              | 50.0            
|Sundry                                                         |                              | 53.4            
|Other assets of discontinued operations                        |                              | 0.2             
|                                                               |                              |                 
|                                                               |                              | 808.0           
|Property and equipment, net of accumulated depreciation of     |                             
|$633.0 (2003) and $550.6 (2002)                                |                              | 730.4           
|                                                               |                              |                 
|                                                               |                              | $4,425.1        
|                                                               |                              |                 

See notes to consolidated financial
statements

---

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

|                                               | September 30,2003(unaudited) | December 31,2002     
|---------------------------------------------- | ---------------------------- | ---------------------
|Liabilities and Shareholders' Equity           |                              |                      
|Current Liabilities                            |                             
|Accounts payable                               |                              | $                85.6
|Employee compensation                          |                              | 183.7                
|Cordis accrual                                 |                              | 425.0                
|Other liabilities                              |                              | 283.9                
|Income taxes payable                           |                              | 180.4                
|Short-term debt                                |                              | 90.4                 
|Current liabilities of discontinued operations |                              | 30.7                 
|                                               |                              |                      
|Total Current Liabilities                      |                              | 1,279.7              
|                                              
|Noncurrent Liabilities                         |                             
|Long-term debt                                 |                              | 358.0                
|Other                                          |                              | 158.4                
|                                               |                              |                      
|                                               |                              | 516.4                
|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:               311,948,000       |                              | 296.4                
|Additional paid-in capital                     |                              | 248.4                
|Retained earnings                              |                              | 2,078.4              
|Deferred cost, ESOP                            |                              | (18.3)               
|Unearned compensation                          |                              | (46.5)               
|Treasury stock, at cost:                       |                              |                      
|Shares:     2,388,000 (2002)                   |                              | --                   
|Accumulated other comprehensive income         |                              | 70.6                 
|                                               |                              |                      
|                                               |                              | 2,629.0              
|                                               |                              |                      
|                                               |                              | $4,425.1             
|                                               |                              |                      

See notes to consolidated financial
statements

---

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

|                                                                            | Nine Months EndedSeptember 30,
|--------------------------------------------------------------------------- | ------------------------------
|
|Cash Provided by Operating Activities                                       |                               
|Net income                                                                  |                               
|Adjustments to Reconcile Net Income to CashProvided by Operating Activities |                               
|Depreciation                                                                |                               
|Amortization of other intangible assets                                     |                               
|Provision for inventory and other losses                                    |                               
|Purchased in-process research and development                               |                               
|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                                                        |                               
|Investment purchases                                                        |                               
|Sale/maturity of investments                                                |                               
|Additions of property and equipment, net                                    |                               
|Additions of other assets, net                                              |                               
|Purchase of in-process research and development                             |                               
|Acquisition of business, net of cash acquired                               |                               
|                                                                            |                               
|Net Cash Used for Investing Activities                                      |                               
|                                                                           
|Financing Activities                                                        |                               
|Increase (decrease) in borrowings, net                                      |                               
|Issuance of common stock under stock plans and other capital transactions   |                               
|Dividends paid                                                              |                               
|Repurchase of common stock                                                  |                               
|                                                                            |                               
|Net Cash Provided by (Used for) 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, 2002. 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 8).

# 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 pro forma
impact on net income assumes a forfeiture rate of approximately 10%. The last broad-based
stock option grant was in July 2001 for approximately 11.0 million shares. 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 EndedSeptember 30, | Nine Months EndedSeptember 30,
|-------------------------------------------------------------------- | ------------------------------- | ------------------------------
|
|Reported net income                                                  |                                 | $  129.1                      
|Deduct: Total stock option employee compensation expense, net of tax |                                 | 15.1                          
|                                                                     |                                 |                               
|Pro forma net income                                                 |                                 | $  114.0                      
|                                                                     |                                 |                               
|Earnings per share:                                                  |                                
|Basic--as reported                                                   |                                 | $    0.42                     
|                                                                     |                                 |                               
|Basic--pro forma                                                     |                                 | $    0.37                     
|                                                                     |                                 |                               
|Diluted--as reported                                                 |                                 | $    0.41                     
|                                                                     |                                 |                               
|Diluted--pro forma                                                   |                                 | $    0.36                     
|                                                                     |                                 |                               

In February 2003, Guidants
Board of Directors authorized the issuance of approximately 2.3 million restricted shares
of common stock (U.S.) and restricted stock units (outside the U.S.) to over 2,000
employees. Restricted stock awards are expensed ratably over the vesting period.
Restricted stock awards granted to certain executive officers vest over six years. Awards
granted to other employees vest over three years. Grants may vest earlier upon a
qualifying disability, death, retirement or change in control. This grant includes a
performance element that allows vesting to accelerate if certain Guidant share price

---

GUIDANT CORPORATION Notes to Consolidated
Financial Statements

# Note 2 
Stock-Based Compensation (continued)

performance measures are met.
Specifically, 1/3 of the general grants will vest immediately 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). Portions of the executive officer grants may accelerate
from six years to three years under this same performance measure. Guidant recorded $79.0
million of unearned compensation in conjunction with this grant, representing the fair
value of restricted stock awards on the date of grant. Unearned compensation will be
recognized as compensation expense ratably over the vesting period or earlier based on the
aforementioned performance element. The related compensation expense totaled $12.8 million
and $32.2 million for the three- and nine-month periods ended September 30, 2003. The
first performance element was met in July 2003; therefore, additional compensation expense
was recorded in the second and third quarters of 2003 for the portion earned in each
respective quarter. The Company will record approximately $4.4 million of compensation
expense during the remainder of 2003 related to this award, absent the achievement of an
additional performance measure.

# Note 3  Inventories

Inventories consisted of the
following:

|                           | September 30,2003 | December 31,2002
|-------------------------- | ----------------- | ----------------
|Finished products          |                   | $159.6          
|Work in process            |                   | 68.8            
|Raw materials and supplies |                   | 149.6           
|                           |                   |                 
|                           |                   | $378.0          
|                           |                   |                 

The increase in inventories was
primarily due to cardiac rhythm management products driven by the market growth of
implantable defibrillators, a management decision to carry increased levels of certain key
components and inventories associated with Guidants growing U.S. sales force.

# Note 4  Earnings
Per Share

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

|                                                             | Three Months EndedSeptember 30, | Nine Months EndedSeptember 30,
|------------------------------------------------------------ | ------------------------------- | ------------------------------
|
|Income from continuing operations                            |                                 | $   147.4                     
|Loss from discontinued operations, net of income taxes       |                                 | (18.3)                        
|                                                             |                                 |                               
|Net income                                                   |                                 | $   129.1                     
|                                                             |                                 |                               
|Earnings per share-basic                                     |                                
|Income from continuing operations                            |                                 | $     0.48                    
|Loss from discontinued operations, net of income taxes       |                                 | (0.06)                        
|                                                             |                                 |                               
|Net Income                                                   |                                 | $     0.42                    
|                                                             |                                 |                               
|Earnings per share-diluted                                   |                                
|Income from continuing operations                            |                                 | $     0.47                    
|Loss from discontinued operations, net of income taxes       |                                 | (0.06)                        
|                                                             |                                 |                               
|Net income                                                   |                                 | $     0.41                    
|                                                             |                                 |                               
|Weighted average common shares outstanding                   |                                 | 306.64                        
|Effect of dilutive stock options and restricted stock awards |                                 | 8.32                          
|                                                             |                                 |                               
|Weighted average common shares outstanding                   |                                
|and assumed conversions                                      |                                 | 314.96                        
|                                                             |                                 |                               

---

GUIDANT CORPORATION Notes to Consolidated
Financial Statements

# Note 4  Earnings
Per Share (continued)

Total options outstanding at
September 30, 2003 and 2002 were 46.8 million and 50.3 million. Earnings per share-diluted
includes 32.5 million and 20.3 million stock options for the quarters ended September 30,
2003 and 2002, and 24.7 million and 26.8 million stock options for the nine months ended September 30, 2003 and 2002.
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 5 
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 third quarters 2003 and 2002, comprehensive income was $143.4 million
and $172.4 million. The decrease in comprehensive income was primarily due to lower net
income in 2003, partially offset by foreign currency translation gains in 2003 compared to
losses in 2002. Comprehensive income for the nine months ended September 30, 2003 and 2002
was $187.0 million and $575.3 million. The decrease in comprehensive income was primarily
due to lower net income in 2003 versus 2002.

# Note 6  Segment
Information

|               | Three Months EndedSeptember 30, | Nine Months EndedSeptember 30,
|-------------- | ------------------------------- | ------------------------------
|
|Net Sales (1): |                                 |                               
|U.S.           |                                 | $643.6                        
|International  |                                 | 294.2                         
|               |                                 |                               
|               |                                 | $937.8                        
|               |                                 |                               

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



|                   | September 30,2003 | December 31,2002
|------------------ | ----------------- | ----------------
|Long-lived Assets: |                   |                 
|U.S.               |                   | $643.3          
|International      |                   | 87.1            
|                   |                   |                 
|                   |                   | $730.4          
|                   |                   |                 



|                                         | Three Months EndedSeptember 30, | Nine Months EndedSeptember 30,
|---------------------------------------- | ------------------------------- | ------------------------------
|
|Net Sales:                               |                                 |                               
|Implantable defibrillator systems        |                                 | $384.8                        
|Pacemaker systems                        |                                 | 182.9                         
|Coronary stent systems                   |                                 | 199.6                         
|Angioplasty systems                      |                                 | 119.3                         
|Cardiac surgery, biliary, peripheral and |                                
|carotid systems                          |                                 | 51.2                          
|                                         |                                 |                               
|                                         |                                 | $937.8                        
|                                         |                                 |                               

---

GUIDANT CORPORATION Notes to Consolidated
Financial Statements

# Note 7 
Acquisitions

MediVas LLC: In September
2003, Guidant acquired a subsidiary of MediVas LLC (MediVas), including rights to certain
bioabsorbable polymer technologies. The agreement provides Guidant with an exclusive
worldwide license to these bioabsorbable polymer products, related pre-clinical and
clinical data, and intellectual property for use with drugs in the rolimus
family, as well as a non-exclusive license for use with other drugs. Guidant recorded a
$35.2 million in-process research and development (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. MediVas may receive additional milestone payments
over the course of clinical development and receive royalties on future sales of licensed
products utilizing MediVas technology.

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 stent platform used in the FUTURE I and FUTURE II 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. In June 2003, Guidant recorded a $10.1 million IPRD charge as a
result of the achievement of a performance milestone related to positive six-month
clinical data of the everolimus-eluting stent trial, FUTURE I. Biosensors may receive
additional milestone payments over the course of clinical development and upon CE Mark
approval and 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, formerly referred to as Bioerodible Vascular Solutions) for $10.0
million. 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
has the option to purchase the remaining interest for $6.0 million beginning in January
2004 and is required to purchase it if certain conditions are met. Guidant recorded a
$16.0 million IPRD charge in March 2003 in connection with the purchase of the majority
interest and a related milestone payment, since technological feasibility of the project
has not been attained and the research has no alternative future uses. Guidant may make
milestone payments over the course of clinical development.

X Technologies, Inc.: In June
2003, Guidant acquired X Technologies, Inc. (X Technologies), the manufacturer of the
FDA-approved FX miniRAIL Dilatation Catheter, a device for the treatment of coronary
artery disease. Guidant paid $60.0 million in cash and forgave a $4.5 million extension of
credit. Guidant may make additional payments upon future satisfaction of sales performance
criteria. The purchase price was allocated to the acquired assets and liabilities based
upon fair market values, including $55.9 million to intangible assets related to developed
technology.

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
September 30, 2003, Guidants accrual for milestone obligations totaled $10.8 million
and will be paid during the next four years. In addition, future undiscounted contingent
consideration for performance-related milestones on acquisitions of up to $386.0 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 $2.0
million to $53.0 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.

---

GUIDANT CORPORATION Notes to Consolidated
Financial Statements

# Note 8 
Discontinued Operations

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. The disposal plan consists primarily of the termination of normal activity,
abandonment of property and equipment, product returns, collection of receivables and
settlement of liabilities. Guidant has written down long-lived assets to fair value and
recorded inventory and accounts receivable at net realizable value. Management expects the
disposal process to be completed no later than June 2004.

In accordance with SFAS 144,
Accounting for the Impairment or Disposal of Long-Lived Assets, the disposal of the
AAA product line represents a discontinued operation. Accordingly, the accompanying
consolidated financial statements and notes reflect the results of operations and
financial position of AAA as a discontinued operation for all periods presented. Net loss
from discontinued operations includes impairment of certain long-lived assets, inventory
write-downs, litigation settlements, customer returns and accruals for employee severance
and lease commitments. The Company anticipates recording total after-tax losses from
discontinued operations of up to $125.0 million in 2003. Guidant has incurred $101.0
million of these losses through September 30, 2003, and could incur up to $24.0 million in
the fourth quarter of 2003.

At September 30, 2003, and December
31, 2002, there were $1.5 million and $21.1 million in assets and $30.7 million and $42.8
million in liabilities related to the AAA product line. Assets are primarily comprised of
accounts receivable, inventory and property, plant and equipment. Liabilities primarily
include accruals for severance, product returns and lease commitments expensed in 2003.
Liabilities also include the accrual for the ANCURE-related investigation of $30.0 million
at December 31, 2002, which was increased to $92.0 million in March 2003 and settled in
June 2003 for $92.4 million.

The following summarizes financial
information for the AAA product line (in millions):

|                                                      | Three Months EndedSeptember 30, | Nine Months EndedSeptember 30,
|----------------------------------------------------- | ------------------------------- | ------------------------------
|
|Net sales                                             |                                 | ($9.2)                        
|Loss from discontinued operations before income taxes |                                 | 25.8                          
|Net loss from discontinued operations                 |                                 | 18.3                          

(1) Represents primarily
product returns from customers

# Note 9  Dividend

The Company paid a third quarter 2003
dividend of $24.6 million or $0.08 per common share outstanding on September 15, 2003, to
shareholders of record on September 1, 2003. Total dividends paid to date in 2003 are
$49.2 million. On October 21, 2003, Guidants Board of Directors declared a fourth
quarter 2003 dividend of $0.08 per common share outstanding to be paid on December 15,
2003, to shareholders of record on December 1, 2003.

# Note 10  New
Accounting Pronouncements

SFAS 149, Amendment of Statement
133 on Derivative Instruments and Hedging Activities, was issued in April 2003 and
amends and clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and for hedging
activities under SFAS 133, Accounting for Derivative Instruments and Hedging
Activities. In general, SFAS 149 is effective for contracts entered into or modified
after June 30, 2003, and for hedging relationships designated after June 30, 2003. Upon
adoption, SFAS 149 did not have a material impact on the Companys results of
operations or financial condition.

---

# GUIDANT CORPORATIONNotes to Consolidated
Financial Statements

# Note 10  New
Accounting Pronouncements (continued)

SFAS 150, Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and Equity, was
issued in May 2003. SFAS 150 establishes standards for classification and measurement of
certain financial instruments with characteristics of both liabilities and equity. SFAS is
effective for financial instruments entered into or modified after May 31, 2003, and
is otherwise effective at the beginning of the first interim period beginning after
June 15, 2003. Upon adoption, SFAS 150 did not have a material impact on the
Companys results of operations or financial condition.

# 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 pioneers lifesaving
technology for millions of cardiac and vascular patients worldwide. The Company develops,
manufactures and markets the following products and services that enable less-invasive
care for some of lifes most threatening medical conditions:

| |  |  |  |  |  | Implantable defibrillator systems used to detect and treat abnormally fast heart rhythms
(tachycardia), including implantable cardiac resynchronization therapy defibrillator
(CRT-D) systems used to treat heart failure
| |  |  |  | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  |  |  | 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
| |  |  |  | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| |  |  |  |  |  | Angioplasty systems including dilatation catheters, intravascular radiotherapy systems and
related accessories for the treatment of coronary artery disease
| |  |  |  | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  |  |  | Cardiac surgery, biliary, peripheral, and carotid systems
| |  |  |  | - |  | ---------------------------------------------------------

In June 2003, the Company announced
that it would dispose of the ANCURE ENDOGRAFT System product line to treat abdominal
aortic aneurysms (AAA). This product line is reflected as a discontinued operation for all
periods presented.

Guidant has principal operations in
the U.S., Europe and Japan. The Company markets its products in nearly 100 countries
through a direct sales force in the U.S. and a combination of direct sales
representatives, agents and independent distributors in international markets. As used
herein, the terms the Company and Guidant mean Guidant Corporation
and its consolidated subsidiaries.

---

# Operating Results 
Three and Nine Months Ended September 30, 2003

# Summary

Guidant reported $937.8 million in
worldwide sales for the quarter ended September 30, 2003, representing 15% growth compared
to the same period in 2002. Growth in unit volume favorably impacted sales by 13%. The
impact of fluctuations in foreign currency exchange rates increased sales by $23.6 million
or 3%. Price declines negatively impacted sales by 1%. U.S. sales of $643.6 million grew
12% over the prior year and international sales of $294.2 million increased 22% (12% in
constant currency). Gross margin for the third quarter of 2003 was 76.1%, an increase from
75.4% in the third quarter of 2002. Income from continuing operations was $147.4 million
in the third quarter of 2003 compared to $178.0 million for the same period in 2002.

Worldwide sales for the first nine
months of 2003 were $2,758.4 million, an increase of $463.4 million or 20% over the same
period in 2002. Growth in unit volume favorably impacted sales by 15%. The impact of
fluctuations in foreign currency exchange rates increased sales by $89.2 million or 4%.
Price increases impacted sales by 1%. U.S. sales of $1,890.9 million grew 17% over the
prior year, while international sales of $867.5 million increased 27% (14% in constant
currency). Gross margin for the first nine months of 2003 was 75.7% compared to 75.5% in
the first nine months of 2002. Income from continuing operations was $226.4 million in the
first nine months of 2003 compared to $537.3 million for the same period in 2002.

# Sales SummaryThree
Months Ended

|                                     | September 30, 2003 | September 30, 2002 | 
|------------------------------------ | ------------------ | ------------------ | 
|
|                                    
|Implantable defibrillator systems    |                    | $316.6             | 
|Pacemaker systems                    |                    | 117.3              | 
|Coronary stent systems               |                    | 104.3              | 
|Angioplasty systems                  |                    | 63.7               | 
|Cardiac surgery, biliary, peripheral |                   
|and carotid systems                  |                    | 41.7               | 
|                                    
|                                     |                    | $643.6             | 
|                                    

# Sales SummaryNine
Months Ended

|                                     | September 30, 2003 | September 30, 2002 | 
|------------------------------------ | ------------------ | ------------------ | 
|
|                                    
|Implantable defibrillator systems    |                    | $   896.3          | 
|Pacemaker systems                    |                    | 326.7              | 
|Coronary stent systems               |                    | 362.2              | 
|Angioplasty systems                  |                    | 185.2              | 
|Cardiac surgery, biliary, peripheral |                   
|and carotid systems                  |                    | 120.5              | 
|                                    
|                                     |                    | $1,890.9           | 
|                                    

---

# Sales

Implantable Defibrillator
Systems

Worldwide sales of implantable
defibrillator systems in the third quarter of 2003 were $384.8 million, an increase of 48%
over the same period in 2002. Growth was driven by increased implantable defibrillator
volume including a shift toward higher-value CRT-D systems. U.S. implantable defibrillator
system sales increased 50% to $316.6 million and international sales increased 40% (26% in
constant currency) to $68.2 million in the third quarter of 2003 compared to the same
period in the prior year. For the first nine months of 2003, worldwide implantable
defibrillator system sales were $1,094.4 million, an increase of 55% over the same period
in the prior year. U.S. implantable defibrillator system sales increased 57% to $896.3
million and international sales increased 50% (30% in constant currency) to $198.1 million
in the third quarter of 2003 compared to the same period in 2002. Implantable
defibrillator systems sales growth was driven by:

| |  |  |  | Growth of the implantable defibrillator market following announcement of the Multicenter Automatic Defibrillator Implantation
Trial (MADIT II) and COMPANION clinical trial results  These landmark clinical
trials were sponsored by Guidant.
| |  | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  | Strong market acceptance for CRT-D systems  Guidants first CRT-D system
received FDA approval in May 2002. Guidant has introduced four new systems since that
time. The most recent system, the CONTAK® RENEWAL 4 CRT-D, received Conformité
Européene (CE) Mark approval in October 2003. The CONTAK RENEWAL 3 CRT-D received
FDA approval in July 2003.
| |  | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  | Positive market acceptance of the VITALITY family of implantable defibrillator
systems  VITALITY AVT received FDA approval in April 2003 and VITALITY DS®
received FDA approval in September 2003. Additionally, VITALITY EL received FDA approval
in September 2003 and was launched in the U.S. in October 2003.
| |  | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In June 2003, the Centers for
Medicare and Medicaid Services (CMS) announced its intent to expand national reimbursement
coverage for the use of implantable defibrillators for patients with a previous heart
attack, left ventricular ejection fraction of less than or equal to 30%, and QRS duration >120
milliseconds. This patient group represents a sub-population of the MADIT II clinical
trial. The CMS decision, which is effective October 1, 2003, will help assure the
availability of Guidant implantable defibrillator therapy to a larger population of
patients and extend uniform national coverage to the landmark MADIT I clinical trial
population. Additionally, in August 2003, CMS approved Guidants proposal for a new
hospital reimbursement group for implantable defibrillator therapy for heart failure
patients. In recognition of increased costs to treat this patient group, this change
provides higher reimbursement levels to healthcare providers and is effective October 1,
2003.

In November 2003, FDA granted approval
for expansion of the original CRT-D indication to now include those advanced failure patients
(NYHA Class III-IV and a QRS duration greater than or equal to 120 milliseconds) who qualify for an ICD under the MADIT
II indications.  As a result of this expansion, heart failure patients, who also qualify under the
MADIT II criteria, can now receive CRT-D therapy without having to undergo invasive electrophysiological
testing.

Pacemaker Systems

Worldwide pacemaker system sales were
$182.9 million for the quarter ended September 30, 2003, an increase of $11.7 million or
7% over the same period in the prior year. U.S. pacemaker system sales grew 4% to $117.3
million and international sales grew 11% (2% in constant currency) to $65.6 million for
the third quarter of 2003 compared to the same period in 2002. Worldwide sales of these
products for the first nine months of 2003 were $515.6 million, an increase of $43.1
million or 9% over the same period in 2002. U.S. pacemaker system sales grew 7% to $326.7
million and international sales grew 14% (2% in constant currency) to $188.9 million
compared to the same nine-month period in 2002. Pacemaker system sales growth was driven
by:

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

| |  |  | o |  | FDA approval of INSIGNIA ENTRA Pacemaker
Systems in first quarter of 2003
| |  |  | - |  | -------------------------------------------------------------------------

| |  |  | o |  | European launch of INSIGNIA Ultra and INSIGNIA AVT
Pacemaker Systems in third quarter of 2003
| |  |  | - |  | ---------------------------------------------------------------------------------------------

| |  |  |  |  | Broad acceptance of Guidants second-generation CRT-P system, the CONTAK RENEWAL TR
2, launched in the second quarter of 2003 in Europe
| |  |  | - |  | ---------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  |  | Significant additions to cardiac rhythm management U.S. sales force
| |  |  | - |  | -------------------------------------------------------------------

In November 2003, Guidant announced
FDA approval of the latest addition to the INSIGNIA family of pacemakers, the
INSIGNIA Ultra.

Coronary Stent Systems

Worldwide coronary stent system sales
for the third quarter of 2003 were $199.6 million, a decrease of 14% compared to third
quarter 2002 sales of $232.6 million. Total U.S. coronary stent system sales were $104.3
million ($92.9 million to U.S. end-users) for the third quarter of 2003 compared to $156.8
million ($142.7 million to U.S. end-users) for the third quarter of 2002. This decline in
sales was primarily driven by increasing penetration of competitive drug-eluting stents in
the U.S. The Company expects that drug-eluting stent penetration will continue. An
additional competitive entry to the U.S. drug-eluting stent market is expected by the
first quarter of 2004, which will likely increase the penetration rate through the end of
2004. Coronary stent system sales in the U.S. include sales of stent delivery systems
(dilatation catheters) to Cordis Corporation. U.S. end-user coronary stent system sales
(which exclude the sales to Cordis Corporation) now account for less than 10% of
Guidants worldwide revenues compared to 18% in the third quarter of 2002.
International sales of coronary stent systems in the third quarter of 2003 grew 25% (18%
in constant currency) to $95.3 million compared to $75.8 million in the third quarter of
2002, primarily attributable to unit volume growth of 54% in Japan. Worldwide average
pricing for metallic stents has remained stable compared to the third quarter of 2002 and
the second quarter of 2003. Price stability resulted from sales growth of the
Companys cobalt chromium MULTI-LINK VISION Coronary Stent System and
favorable geographic mix, offset by modest declines in worldwide stainless steel stent
prices.

Worldwide coronary stent system sales
for the first nine months of 2003 were $646.0 million compared to $681.5 million for the
same period in the prior year. U.S. coronary stent system sales decreased 23% to $362.2
million and international sales grew 33% (22% in constant currency) to $283.8 million in
2003 compared to the same nine-month period in 2002. Coronary stent system sales include:

| |  |  |  | MULTI-LINK VISION Coronary Stent System in Europe since June 2003 and in the U.S. since August 2003
| |  | - |  | ---------------------------------------------------------------------------------------------------

| |  |  |  | MULTI-LINK ZETA Coronary Stent System launched in the U.S. in September 2002 - International acceptance continues
         despite competitive drug-eluting stent therapy and competitive launches of new metallic stents.
| |  | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  | MULTI-LINK TRI-STAR Coronary Stent System launched in Japan in the fourth quarter of 2001 and the MULTI-LINK
PENTA
Coronary Stent System launched in Japan in March 2003
| |  | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Angioplasty Systems

Angioplasty system sales totaled
$119.3 million in the third quarter of 2003 compared to $107.9 million in the third
quarter of 2002, reflecting 11% sales growth. Sales of these products for the nine months
ended September 30, 2003, were $352.8 million compared to $316.6 million for the same
period in the prior year, an increase of 11%. Sales growth is primarily attributable to
unit volume increases for guidewires.

---

Cardiac Surgery, Biliary,
Peripheral and Carotid Systems

Worldwide sales of cardiac surgery,
biliary, peripheral and carotid systems totaled $51.2 million in the third quarter of
2003, representing 23% growth over the same period in 2002. Sales for these systems during
the first nine months of 2003 were $149.6 million compared to $120.1 million for the same
period in 2002, representing a 25% increase. Sales growth was driven by:

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

| |  |  |  | ACROBAT Mechanical Off-Pump System
| |  | - |  | -----------------------------------

| |  |  |  | ..035 Biliary Platform (DYNALINK® Self Expanding Stent and OMNILINK® Balloon Expandable Stent) and AGILTRAC
          Peripheral Dilatation Catheter
| |  | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------

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

See Discontinued
Operation and Legal Matters for additional discussion of the
Companys AAA business.

# Cost of Products Sold

Cost of products sold was $224.3
million in the third quarter of 2003 compared to $200.2 million for the same period in
2002. Gross profit percentage was 76.1% for the third quarter of 2003, an improvement of
70 basis points over the same period in 2002 and at the high end of Guidants
historical range. The improved gross profit percentage was driven by a sales mix shift
toward higher value implantable defibrillator systems, including CRT-D systems, and
increased manufacturing efficiencies. Cost of products sold was $670.1 million for the
first nine months of 2003 compared to $563.3 million for the same period in 2002. Gross
profit percentage for the nine months ended September 30, 2003, was 75.7%, compared to
75.5% for the same period in 2002.

# Research and Development

Guidant continued its commitment to
product innovation by increasing its investment in research and development in the third
quarter of 2003. Research and development expense was $141.4 million for the third quarter
of 2003, or 15.1% of sales, compared to $101.9 million in the third quarter of 2002, or
12.5% of sales. Research and development expense for the first nine months of 2003 totaled
$385.3 million (14.0% of sales) compared to $298.7 million (13.0% of sales) for the same
period in 2002. Significant investments in research and development in 2003 include
development of next-generation cardiac rhythm management products, drug-eluting stent
research and development and Advanced Patient Management, designed to allow
physicians to continuously monitor patient heart function remotely and automatically.
Important research and development milestones in 2003 include:

| |  |  |  | COMPANION Clinical Trial  Prospective, multi-center, randomized study of patients
with advanced heart failure. Results of the COMPANION clinical trial demonstrated 20%
reduction in the primary endpoint of combined all-cause death and hospitalization by
adding Guidants CRT systems to optimal drug therapy and 36% reduction in all-cause
mortality for Guidants CRT-D systems.
| |  | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  | 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 that began in March 2003.
| |  | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

| |  |  |  | FUTURE I and II Clinical Trials  Studies that evaluate the safety of an
everolimus-eluting coronary stent utilizing a bioabsorbable drug-delivery coating compared
to a metallic stent platform in previously untreated lesions. In June 2003, Biosensors
achieved a milestone related to the positive six-month clinical data of FUTURE I. In
September 2003, Guidant announced favorable results from FUTURE II, which confirmed the
FUTURE I data. FUTURE II six-month results met its primary safety endpoint with a 4.8%
major adverse cardiac events (MACE) rate and 0% in-stent restenosis in the everolimus
eluting stent arm. The everolimus-eluting stent reduced in-stent tissue proliferation
compared to the control arm. FUTURE I 12-month results were also announced, confirming the
results of the six-month data. Guidant expects to first enter a market through one of its
everolimus-eluting stent programs in 2005.
| |  | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  | European PIXEL Clinical Trial  Study designed to evaluate the performance of
Guidants MULTI-LINK PIXEL Small Vessel Stent System. The clinical trial
compared the restenosis rates of patients with first-time lesions whose vessels were
expanded with a balloon catheter prior to stent implantation versus those who received
direct stenting with a MULTI-LINK PIXEL stent. Guidant announced in July 2003 that the
study demonstrated six-month restenosis rates of 25% for the patients in the
pre-dilatation group, compared to 16% for those patients who received direct stenting.
| |  | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  | 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 preliminary 30-day results in March 2003. In September 2003, Guidant completed
enrollment in its second clinical trial designed to evaluate carotid stenting, the ARCHeR
RX Clinical Trial.
| |  | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Guidant recorded pre-tax in-process
research and development (IPRD) charges of $35.2 million and $83.7 million for the three-
and nine-month periods ended September 30, 2003. The Company recorded a $6.5 million
pre-tax charge for the nine-month period ended September 30, 2002. Key components of these
charges include:

| |  |  |  | MediVas LLC  In September 2003, Guidant acquired a subsidiary of
MediVas LLC, including the right to use certain bioabsorbable
polymer technologies. Guidant recorded a $35.2 million IPRD charge in connection with the
purchase.
| |  | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  | Biosensors  In June 2003, a milestone related to the positive six-month clinical
data results of FUTURE I was achieved, resulting in an IPRD charge of $10.1 million. In
March 2003, Guidant purchased certain assets of 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 stent platform used
in the FUTURE I and FUTURE II clinical trials.
| |  | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  | Bioabsorbable Vascular Solutions  In March 2003, Guidant purchased the majority
interest in Bioabsorbable Vascular Solutions (BVS, formerly referred to as Bioerodible
Vascular Solutions), an early-stage developer of bioabsorbable stents, resulting in a
$16.0 million IPRD charge. Bioabsorbable stents are designed to be absorbed by tissue
following the restoration of blood flow in patients with coronary artery disease.
| |  | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  | Novartis  Guidant recorded a pre-tax IPRD charge of $6.5 million in the second
quarter of 2002 in connection with its worldwide co-exclusive license agreement with
Novartis Pharma AG and Novartis AG granting Guidant rights to utilize the drug everolimus
in drug-eluting stents for the treatment of coronary and peripheral vascular diseases. In
September 2002, the parties expanded the license to make Guidants rights exclusive
and to provide Guidant the right to sublicense.
| |  | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

# Sales, Marketing and
Administrative

Sales, marketing and administrative
expenses were $303.9 million for the three months ended September 30, 2003, compared to
$243.9 million for the same period in 2002, an increase of 24.6%. These expenses for the
nine months ended September 30, 2003, totaled $878.0 million compared to $697.0 million
for the same period in 2002, an increase of 26.0%. The increases were driven by
compensation associated with sales growth and continued expansion of the global sales
organization, particularly U.S. sales representatives dedicated to cardiac rhythm
management products.

Total expenses increased as a result
of compensation expense from the restricted stock grants awarded in February 2003.
Restricted stock is expensed ratably over the vesting period or earlier based on
performance elements. Additional compensation expense was recorded in the second and third
quarter of 2003 as the first performance element was met in July 2003. This performance
element was based on 25% appreciation of the 60-day moving average stock price from the
date of grant. The related compensation expense totaled $12.8 million and $32.2 million
for the three and nine-month periods ended September 30, 2003, and was 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 September 30, 2003, compared to $0.1 million of net interest
expense for the same period in 2002. Net interest income was $4.1 million for the nine
months ended September 30, 2003, compared to $5.9 million of net interest expense for the
same period in 2002. The favorable change from 2002 was driven by a lower average
outstanding debt balance, increased interest income due to larger balances in cash and
cash equivalents and short-term investments and lower interest rates on borrowings, in
part due to an additional interest rate swap agreement entered into in March 2003 that was
not in effect during 2002. Guidant manages interest rate risk by using interest rate swap
agreements to convert fixed-rate debt to variable-rate debt.

# Royalties

Net royalties expense totaled $17.0
million in the third quarter of 2003 compared to $13.8 million for the same period in
2002. These expenses for the nine months ended September 30, 2003, totaled $48.2 million
compared to $38.7 million in the same period in the prior year. The increase was primarily
due to increased sales of implantable defibrillator systems.

# Litigation

The Company recorded a $422.8 million
net litigation charge in the second quarter of 2003 primarily related to the arbitration
decision involving Cordis Corporation. In the second quarter of 2002, Guidant recorded a
net legal benefit of $137.1 million primarily due to an award in Guidants favor
against Medtronic, Inc. See also Part II, Item I, Legal Proceedings.

---

# Income Tax

The income tax rates for the quarters
ended September 30, 2003 and 2002 were 30.3% and 27.0%. The increase in the third quarter
tax rate is due to an IPRD charge in the third quarter that is not tax-deductible. The
income tax rates for the nine months ending September 30, 2003 and 2002 were 11.7% and
27.9%. The decrease in the nine-month income tax rate in 2003 is primarily due to
litigation charges in 2003 that are tax-deductible at U.S. tax rates, partially offset by
non-tax-deductible IPRD charges. Guidants ongoing operations are impacted by
overseas operations having statutory tax rates that are lower than the U.S. statutory tax
rates.

# Discontinued Operation

In June 2003, Guidants Board of
Directors approved a plan to dispose of the ANCURE ENDOGRAFT System product line to treat
AAA due to continuing financial losses, limited prospects for the Companys AAA
product line and the impact of the Department of Justice investigation. The disposal plan
consists primarily of the termination of normal activity, abandonment of property and
equipment, product returns, collection of receivables and settlement of liabilities.
Guidant has written down long-lived assets to fair value and recorded inventory and
accounts receivable at net realizable value. Management expects the disposal process to be
completed no later than June 2004.

The accompanying consolidated
financial statements and notes reflect the results of operations and financial position of
AAA as a discontinued operation 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, litigation settlements and accruals for employee
severance and lease commitments expensed in 2003. The Company anticipates recording total
after-tax losses from discontinued operations of up to $125.0 million in 2003. Guidant has
incurred $101.0 million of these losses through September 30, 2003, and could incur up to
$24.0 million in the fourth quarter of 2003. The accrual for the ANCURE-related
investigation of $30.0 million at December 31, 2002, was increased to $92.0 million in
March 2003 and settled in June 2003 for $92.4 million. See Part II, Item I for additional
information concerning related litigation.

The following summarizes financial
information for the AAA product line (in millions):

|                                                      | Three Months EndedSeptember 30, | Nine Months EndedSeptember 30,
|----------------------------------------------------- | ------------------------------- | ------------------------------
|
|Net sales                                             |                                 | ($9.2)                        
|Loss from discontinued operations before income taxes |                                 | 25.8                          
|Net loss from discontinued operations                 |                                 | 18.3                          

(1)
Represents primarily product returns from customers

---

# LIQUIDITY AND FINANCIAL
CONDITION

|                                | September 30, 2003 | December 31, 2002
|------------------------------- | ------------------ | -----------------
|(Dollars in millions)           |                    |                  
|Cash and cash equivalents (1)   |                    | $  1,353.4       
|Working capital                 |                    | $  1,607.0       
|Current ratio                   |                    | 2.3:1.0          
|Net cash position (2)           |                    | $     916.6      
|Days receivable outstanding (3) |                    | 76               
|Inventory turnover              |                    | 2.65             

| | (1) | A substantial portion of cash and cash equivalents is held as a permanent
                    investment by Guidants non-U.S. subsidiaries.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Net cash position is the sum of cash and cash equivalents and short-term
                    investments less total debt.
| | --- | -------------------------------------------------------------------------------------------------------------------------

| | (3) | Days receivable outstanding remain within Guidant's historical price range.
| | --- | ---------------------------------------------------------------------------

Certain of Guidants
acquisitions involve contingent consideration. Payment of the additional consideration is
generally contingent upon the acquired companies reaching certain performance-related
milestones, including specified revenue levels, product development targets or regulatory
approvals or filings. At September 30, 2003, Guidants accrual for milestone
obligations totaled $10.8 million and will be paid during the next four years. In
addition, future undiscounted contingent consideration for performance-related milestones
on acquisitions of up to $386.0 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 $2.0 million to $53.0 million. The Company continues to
evaluate business development opportunities, which may require additional commitments of
cash in the future.

# Summary of Cash Flows

|                                          | Nine Months EndedSeptember 30, |        
|----------------------------------------- | ------------------------------ | -------
|
|(In millions)                             |                                |        
|Net cash provided by (used for):          |                               
|Operating activities                      |                                | $ 535.7
|Investing activities                      |                                | (328.2)
|Financing activities                      |                                | 108.8  
|Effect of exchange rate changes on cash   |                                | 22.3   
|                                          |                                |        
|Net increase in cash and cash equivalents |                                | $ 338.6
|                                          |                                |        

Net cash provided by operating
activities was $535.7 million for the first nine months of 2003, a decrease of $252.0
million from the same period in 2002 primarily due to:

| |  |  |  | $270.2 million decrease in net
income, adjusted for noncash items
| |  | - |  | -----------------------------------------------------------------

| |  |  |  | $128.5 million decrease in income taxes payable due
to lower taxable income in 2003
| |  | - |  | -----------------------------------------------------------------------------------

| |  |  |  | $106.0 million decrease in other liabilities including
$50.0 million termination fee to Cook Incorporated and $30.0
million ANCURE litigation accrual, both incurred in 2002 and paid in 2003 (remaining
ANCURE litigation of $62.4 million accrued and paid in 2003) and $40.0 million Guidant
Foundation contribution accrued in 2003 ($14.0 million paid in 2003)
| |  | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

| |  |  |  | $52.0 million decrease in accounts payable and accrued liabilities primarily due to increased performance-based
         employee bonus payouts in 2003
| |  | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------

partially offset by:

| |  |  |  | $425.0 million increase in other liabilities for the Cordis accrual
| |  | - |  | -------------------------------------------------------------------

Net cash used for investing
activities was $328.2 million for the first nine months of 2003, an increase of $201.0
million from the prior year due to the following:

| |  |  |  | $63.6 million for the acquisition of X
Technologies, Inc.
| |  | - |  | ---------------------------------------------------------

| |  |  |  | $57.1 million primarily related to
the termination of a lease and purchase of the related land and buildings
| |  | - |  | ------------------------------------------------------------------------------------------------------------

| |  |  |  | $35.2 million
for the purchase of a MediVas LLC subsidiary
| |  | - |  | ----------------------------------------------------------

| |  |  |  | $27.6 million for the asset purchase and
related milestone payment to Biosensors
| |  | - |  | --------------------------------------------------------------------------------

| |  |  |  | $10.0 million for the purchase of Bioabsorbable
Vascular Solutions
| |  | - |  | ------------------------------------------------------------------

Net cash provided by financing
activities was $108.8 million for the first nine months of 2003, compared to net cash used
of $246.3 million in the prior year, a change of $355.1 million due to the following:

| |  |  |  | $79.5 million increase in borrowings in 2003 compared to net payments of $285.9 million in
2002
| |  | - |  | -----------------------------------------------------------------------------------------------

| |  |  |  | $49.4 million increase in issuances of common stock for stock option exercises
| |  | - |  | ------------------------------------------------------------------------------

partially offset by:

| |  |  |  | $49.2 million in dividend payments in 2003
| |  | - |  | ------------------------------------------

| |  |  |  | $10.5 million repurchase of common stock
| |  | - |  | ----------------------------------------

The effect of exchange rate changes
on cash decreased $33.0 million for the nine months ended September 30, 2003, compared to
the same period in 2002 primarily due to the strengthening of the Euro at a decreasing
rate in 2003 compared to 2002. Effective January 1, 2003, Guidants manufacturing
affiliate in Ireland changed from Euro to U.S. dollar functional currency since the
majority of transactions are now denominated in U.S. dollars.

At September 30, 2003, the Company
had outstanding borrowings of $448.4 million at a weighted average interest rate of 2.58%,
including the effect of interest rate swap agreements. Outstanding borrowings included
short-term bank borrowings and commercial paper of $90.4 million, along with long-term
notes of $358.0 million, which include interest rate swap agreements valued at $12.0
million, due 2006. At September 30, 2003, Guidant had interest rate swap agreements with a
notional amount of $350.0 million, converting the fixed interest rate to a variable
interest rate indexed to LIBOR. Bank borrowings represent short-term uncommitted credit
facilities with various commercial banks, primarily outside the U.S. At September 30,
2003, the Company had a $400.0 million credit facility that permits borrowings through
August 2004 and a $400.0 million credit facility that permits borrowings through August
2007. There are currently no outstanding borrowings under these facilities, which carry a
variable rate of interest.

---

The Company believes that amounts
available through existing commercial paper programs and 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 the remainder of 2003,
including planned capital expenditures of approximately $55.0 million and the Cordis
payment of $425.0 million. The Company also believes its liquidity position will provide
adequate funding to repurchase up to $250.0 million of common shares beginning in the fourth
quarter of 2003, subject to market conditions.

The Company has recognized net
deferred tax assets aggregating $319.1 million at September 30, 2003, compared to $263.9
million at December 31, 2002. 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, determined on a 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. 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 product reliability 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 as required by SFAS 141, Business
Combinations. 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 the future cash flows of the
technology and discounting the net cash flows back to their present values. Goodwill
represents the excess of cost over the 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.

Goodwill is required to be tested for
impairment annually, or more frequently if changes in circumstances or the occurrence of
events suggest impairment exists. The test for impairment requires us to make several
estimates about fair value, most of which are based on projected cash flows. Furthermore,
our projections of future cash flows require several estimates, including the expected
life cycles of the technologies acquired. Our estimates associated with goodwill
impairment tests are considered to be significant due to the judgment required in
determining fair value amounts, including projected future cash flows.

Income Taxes  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 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. Loss contingencies are recorded as liabilities in the
consolidated financial statements 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-Q, the Company conducted the following field action:

In October 2003, certain
manufacturing lots of the 3.0 millimeter diameter MULTI-LINK VISION Coronary Stent System
were recalled, as they did not meet Guidants manufacturing specification for stent
retention. Replacement units of the 3.0 millimeter diameter MULTI-LINK VISION Coronary
Stent System were made available to customers within two weeks of the recall. This action
did not have a material impact on the Companys results of operations or financial
condition.

# Cautionary Factors

This report includes forward-looking
statements, including statements concerning accounting estimates, expectations with
respect to announced transactions and related milestone payments, anticipated litigation
and field action outcomes and related reserves, sales trends, recovery of tax assets, cash
flows and the timing of product developments (particularly with respect to clinical trials
and product launch dates for stents). The statements are based on assumptions about many
important factors, including assumptions concerning:

| |  |  |  | The development of the coronary stent market, including the effects of the introduction of
drug-eluting stents by the Companys competitors, which has affected the market for
coronary stents generally
| |  | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| |  |  |  | Other factors included on 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.

---

# PART II

# OTHER INFORMATION

# Item 1. Legal Proceedings

A discussion of the Companys
policies with respect to legal proceedings and other loss contingencies is provided in
Significant Accounting Policies of Managements Discussion and
Analysis of Results of Operations and Financial Condition.

The Company is involved in various
patent, product liability, commercial, shareholder, and other legal proceedings that arise
from time to time in the course of the Companys business. The Company believes that
it is not currently involved in legal proceedings other than those identified below that
could reasonably be expected to have a material effect on the financial condition or
results of operations of the Company. Nevertheless, litigation is inherently
unpredictable, and excessive verdicts do occur. Although the Company believes that it has
valid defenses in the matters identified below (subject to the decisions and accruals
described below), the Company may in the future incur material judgments or enter into
material settlements of claims.

Patent claims include challenges to
the coverage and/or validity of the Companys patents on various 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.

On October 3, 1997, Cordis
Corporation (Cordis), a subsidiary of Johnson & Johnson, filed suit against the
Company, alleging that the sale of the Companys stent products infringes the
Palmaz/Schatz patents owned by Cordis. On April 3, 2000, the parties agreed to dismiss all
patent litigation between them and resolve remaining disputes in arbitration proceedings.
As part of the agreement, each party received licenses to the others patents
involved in the disputes; thus, future sales of the Companys products are not
affected by the resolution of this matter. On August 19, 2003, the arbitration panel
entered a final ruling that the Companys MULTI-LINK DUET Coronary Stent System
infringes certain claims under the patents owned by Cordis. As a result, the Company will
make a payment of $425.0 million to Cordis in the fourth quarter of 2003. The Company
accrued the amount of the award in the second quarter of 2003.

In a separate arbitration, the
Company asserted claims against Cordis under the Companys Lau/Lam patents. The
arbitration process commenced in the first quarter of 2002, with the Company asserting
claims under U.S. patents 5,514,154 and 6,066,167 relating to Cordis BX VELOCITY and
OMNI BX stents. The arbitration hearing took place in October 2003, and a preliminary
decision is expected in March 2004.

On February 18, 1998, Arterial
Vascular Engineering, Inc. (now known as Medtronic AVE, Inc.) 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 Coronary Stent Systems infringes
certain patents owned by Medtronic AVE. The suit is consolidated with a suit by ACS
alleging infringement by Medtronic AVE of certain ACS stent patents. The Medtronic AVE
complaint also alleges misappropriation of trade secrets and breach of a confidentiality
agreement by ACS. In the lawsuit, Medtronic AVE is seeking injunctive relief, co-ownership
of the patents, monetary damages and a ruling that the ACS stent patents asserted against
Medtronic AVE are invalid. Pretrial matters are scheduled through 2004.

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 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. The
Company has moved to stay the case in light of the reexaminations.

On December 3, 2002, the Company
filed suit against Boston Scientific Corporation (Boston Scientific) in the Northern
District of California claiming that Boston Scientifics Express 2 Monorail stent
system infringes the Companys Lau patent directed to a rapid exchange stent delivery
system. Boston Scientific subsequently filed a counterclaim alleging that the
Companys products infringe five of Boston Scientifics patents relating to
balloon dilatation. The parties are seeking injunctive relief and monetary damages. On
July 2, 2003, the court ruled that certain defenses raised by Boston Scientific are
subject to an arbitration provision in a prior settlement agreement between the Company
and Boston Scientific. As a result, the court issued a stay of the litigation, including
Boston Scientifics claims against the Company, pending the outcome of the
arbitration.

On December 30, 2002, Boston
Scientific filed suit against the Company in the Northern District of California alleging
that the sale of the Companys stent delivery systems and balloon catheter
angioplasty products, including the MULTI-LINK ZETA, MULTI-LINK PENTA and AGIL-TRAC
products, infringe certain patents owned by Boston Scientific. In the lawsuit, Boston
Scientific is seeking injunctive relief and monetary damages. Pretrial matters are
scheduled through 2004.

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 into late 2004.

On June 12, 2003, the Company
announced that its subsidiary, EndoVascular Technologies, Inc. (EVT), had entered into a
plea agreement with the U.S. Department of Justice relating to the previously disclosed
investigation regarding the ANCURE ENDOGRAFT System for the treatment of abdominal aortic
aneurysms. (Expenses of approximately $92.4 million associated with this settlement were
recorded in prior periods.) 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. During the third quarter, the Company settled eleven of the suits that predated the
EVT plea for an amount recorded in the third quarter that is not material to the Company.
Subsequent to the EVT plea, the Company has been served with approximately fifteen
additional individual complaints and more such suits may be filed. Two putative class
action complaints covering ANCURE recipients are 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. 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.  The Company 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.
  The Company will continue to pursue coverage, and, as described above, continues to make
progress in managing its product liability exposure with respect to the ANCURE System.

Also following the EVT plea, the
Company has been served with a number of securities class action complaints and
shareholder derivative suits relating to the ANCURE System. The securities complaints
filed against the Company, EVT and certain of their current and former officers and
directors have been consolidated 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 derivative suits 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. During
the third quarter, a derivative complaint formerly pending in the Superior Court of the
State of California, County of San Mateo, was voluntarily dismissed. An additional
complaint has been filed in the Superior Court of the State of California, County of San
Mateo, naming only the Company and EVT, which also includes state-law allegations of
unfair trade and business practices relating to sales of the product.

In August 2003, Cordis sent the
Company a letter alleging that the Companys MULTI-LINK VISION, MULTI-LINK ZETA,
MULTI-LINK PENTA, MULTI-LINK PIXEL and MULTI-LINK ULTRA Coronary Stent Systems infringe a
patent of Cordis. If these products are determined to infringe the patent, they are
licensed under the April 3, 2000 agreement referred to above in the description of the
Cordis matter initiated October 3, 1997. As a result, the dispute relates to what, if
any, royalty payments may be required to be made to Cordis.

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), alleging
the invalidity of certain claims of U.S. 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.

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 million against St. Jude. The Company did not record a gain. 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. The plaintiffs appeal and defendants
cross appeal are pending in the Federal Circuit Court of Appeals.

---

# 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 July 17, 2003,
               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: |  | November 11, 2003 | 
|      |  |                   | 
|     
|     
|Date: |  | November 11, 2003 | 
|      |  |                   | 

---

# EXHIBIT INDEX

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