UNITED STATES 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 June 30, 2004

Commission File Number
1-13388

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

|                                                                     | 
|-------------------------------------------------------------------- | 
|INDIANA(State or other jurisdiction ofincorporation 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).

Yes   X            No _____

The number of shares of common stock
outstanding as of August 4, 2004:

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

---

# PART IFINANCIAL INFORMATION

# Item 1. Financial
Statements

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

|                                                             | Three Months EndedJune 30, | Six Months EndedJune 30,
|------------------------------------------------------------ | -------------------------- | ------------------------
|
|Net sales                                                    |                            | $   938.8               
|Cost of products sold                                        |                            | 234.6                   
|                                                             |                            |                         
|Gross profit                                                 |                            | 704.2                   
|                                                            
|Research and development                                     |                            | 136.8                   
|Purchased in-process research and development                |                            | 73.0                    
|Sales, marketing and administrative                          |                            | 298.1                   
|Interest, net                                                |                            | (0.2)                   
|Royalties, net                                               |                            | 12.5                    
|Amortization                                                 |                            | 7.7                     
|Other, net                                                   |                            | 6.4                     
|Litigation, net                                              |                            | --                      
|                                                             |                            |                         
|Income (loss) from continuing operations before income taxes |                            | 169.9                   
|Income taxes                                                 |                            | 34.3                    
|                                                             |                            |                         
|Income (loss) from continuing operations                     |                            | 135.6                   
|Loss from discontinued operations, net of income taxes       |                            | (9.1)                   
|                                                             |                            |                         
|Net income (loss)                                            |                            | $   126.5               
|                                                             |                            |                         
|Earnings (loss) per share-basic                              |                           
|Income (loss) from continuing operations                     |                            | $     0.44              
|Loss from discontinued operations, net of income taxes       |                            | (0.03)                  
|                                                             |                            |                         
|Net income (loss)                                            |                            | $     0.41              
|                                                             |                            |                         
|Earnings (loss) per share-diluted                            |                           
|Income (loss) from continuing operations                     |                            | $     0.42              
|Loss from discontinued operations, net of income taxes       |                            | (0.03)                  
|                                                             |                            |                         
|Net income (loss)                                            |                            | $     0.39              
|                                                             |                            |                         
|Dividends declared per common share                          |                            | $     0.10              
|                                                             |                            |                         

See notes to consolidated financial
statements

---

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

|                                                               | June 30,2004(unaudited) | December 31,2003
|-------------------------------------------------------------- | ----------------------- | ----------------
|Assets                                                         |                         |                 
|Current Assets                                                 |                        
|Cash and cash equivalents                                      |                         | $1,690.4        
|Short-term investments                                         |                         | 100.6           
|Accounts receivable, net of allowances                         |                        
|of $23.5 (2004) and $24.0 (2003)                               |                         | 826.9           
|Inventories                                                    |                         | 398.0           
|Deferred income taxes                                          |                         | 289.0           
|Prepaid expenses and other current assets                      |                         | 57.8            
|Current assets of discontinued operations                      |                         | 3.6             
|                                                               |                         |                 
|Total Current Assets                                           |                         | 3,366.3         
|Other Assets                                                   |                        
|Goodwill, net of allowances of $157.9 (2004) and $157.9 (2003) |                         | 513.3           
|Other intangible assets, net of allowances of $91.1 (2004) and |                        
|$81.7 (2003)                                                   |                         | 179.7           
|Deferred income taxes                                          |                         | 9.9             
|Investments                                                    |                         | 69.6            
|Sundry                                                         |                         | 65.7            
|Other assets of discontinued operations                        |                         | 0.3             
|                                                               |                         |                 
|Total Other Assets                                             |                         | 838.5           
|Property and equipment, net of accumulated depreciation of     |                        
|$715.9 (2004) and $657.0 (2003)                                |                         | 791.8           
|                                                               |                         |                 
|Total Assets                                                   |                         | $4,996.6        
|                                                               |                         |                 

See notes to consolidated financial
statements

---

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

|Liabilities and Shareholders' Equity             | June 30,2004 | December 31,2003
|------------------------------------------------ | ------------ | ----------------
|
|Current Liabilities                              |              |                 
|Accounts payable                                 |              | $      57.0     
|Employee compensation                            |              | 140.4           
|Other liabilities                                |              | 308.2           
|Income taxes payable                             |              | 203.9           
|Short-term debt                                  |              | 250.0           
|Current liabilities of discontinued operations   |              | 25.4            
|                                                 |              |                 
|Total Current Liabilities                        |              | 984.9           
|                                                 |              |                 
|Noncurrent Liabilities                           |             
|Long-term debt                                   |              | 704.1           
|Other                                            |              | 156.6           
|                                                 |              |                 
|Total Noncurrent Liabilities                     |              | 860.7           
|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:               
314,844,000 (2004) |              |                 
|312,129,000 (2003)                               |              | 384.3           
|Additional paid-in capital                       |              | 252.3           
|Retained earnings                                |              | 2,462.5         
|Deferred cost, ESOP                              |              | (14.7           
|Unearned compensation                            |              | (50.8           
|Treasury stock, at cost:                         |             
|Shares:        3,158,000 (2003)                  |              | --              
|                                                 |              |                 
|Accumulated other comprehensive income           |              | 117.4           
|                                                 |              |                 
|Total Shareholders' Equity                       |              | 3,151.0         
|                                                 |              |                 
|Total Liabilities and Shareholders' Equity       |              | $ 4,996.6       
|                                                 |              |                 

See notes to consolidated financial
statements

---

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

|                                                             | Six Months EndedJune 30,
|------------------------------------------------------------ | ------------------------
|
|Operating Activities                                         |                         
|Net income (loss)                                            |                         
|                                                             |                         
|Adjustments to Reconcile Net Income (Loss) to Cash           |                         
|Provided by Operating Activities                             |                         
|Depreciation                                                 |                         
|Amortization of other intangible assets                      |                         
|Provision for inventory and accounts receivable              |                         
|Purchased in-process research and development                |                         
|Deferred income taxes                                        |                         
|Compensation earned under restricted stock and ESOP          |                         
|Other noncash, net                                           |                         
|                                                             |                         
|                                                             |                         
|Changes in Operating Assets and Liabilities                  |                         
|Receivables                                                  |                         
|Inventories                                                  |                         
|Prepaid expenses and other current assets                    |                         
|Accounts payable and accrued liabilities                     |                         
|Income taxes payable                                         |                         
|Other liabilities                                            |                         
|                                                             |                         
|Net Cash Provided by Operating Activities                    |                         
|                                                             |                         
|Investing Activities                                         |                         
|Additions of property and equipment, net                     |                         
|Acquisitions, net of cash acquired                           |                         
|Purchases of equity and short-term investments               |                         
|                                                             |                         
|Net Cash Used for Investing Activities                       |                         
|                                                             |                         
|Financing Activities                                         |                         
|Increase in borrowings, net                                  |                         
|Issuance of common stock under stock plans and other capital |                         
|transactions                                                 |                         
|Dividends paid                                               |                         
|Repurchase of common stock                                   |                         
|                                                             |                         
|Net Cash Provided by Financing Activities                    |                         
|                                                             |                         
|Effect of Exchange Rate Changes on Cash                      |                         
|                                                             |                         
|                                                             |                         
|Net Increase in Cash and Cash Equivalents                    |                         
|                                                             |                         
|Cash and Cash Equivalents at Beginning of Period             |                         
|                                                             |                         
|                                                             |                         
|Cash and Cash Equivalents at End of Period                   |                         
|                                                             |                         

See notes to consolidated financial
statements

---

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

# Note 1  Basis of Presentation

The accompanying unaudited
consolidated financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles for
complete financial statements. Operating results from interim periods are not necessarily
indicative of results that may be expected for the fiscal year as a whole. In the opinion
of management, the consolidated financial statements reflect all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation of the
Companys results for the periods presented. The preparation of financial statements
in conformity with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets, liabilities,
revenues, expenses and related disclosures at the date of the financial statements and
during the reporting period. Actual results could differ from these estimates.

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

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

# Note 2 
Stock-Based Compensation

The Company has adopted the
disclosure-only provisions of Statement of Financial Accounting Standard
(SFAS) 123, Accounting for Stock-Based Compensation, as amended by SFAS
148, Accounting for Stock-Based CompensationTransition and Disclosure.
Accordingly, the Company accounts for stock-based compensation under Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees,and related
interpretations, using the intrinsic value method. The following table illustrates the
effect on net income and earnings per share if the Company had applied the fair value
recognition provisions of SFAS 123 to all stock-based employee compensation. The fair
value of stock options was estimated as of the grant date using the Black-Scholes
option-pricing model, the attribution method and a forfeiture rate of 10%. 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 EndedJune 30, | Six Months EndedJune 30,
|------------------------------------------------- | -------------------------- | ------------------------
|
|Reported net income (loss)(1)                     |                            | $  126.5                
|Deduct: Stock-based compensation not reflected in |                           
|net income (loss), net of tax                     |                            | 17.6                    
|                                                  |                            |                         
|Pro forma net income (loss)                       |                            | $  108.9                
|                                                  |                            |                         
|Earnings (loss) per share:                        |                           
|Basic--as reported                                |                            | $    0.41               
|                                                  |                            |                         
|Basic--pro forma                                  |                            | $    0.35               
|                                                  |                            |                         
|Diluted--as reported                              |                            | $    0.39               
|                                                  |                            |                         
|Diluted--pro forma                                |                            | $    0.34               
|                                                  |                            |                         

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

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

Note
3  Inventories

Inventories consisted of the
following:

|                           | June 30,2004 | December 31,2003
|-------------------------- | ------------ | ----------------
|
|Finished products          |              | $191.3          
|Work in process            |              | 69.9            
|Raw materials and supplies |              | 136.8           
|                           |              |                 
|                           |              | $398.0          
|                           |              |                 

# Note 4  Product
Warranties

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

|                                  | Six Months EndedJune 30,
|--------------------------------- | ------------------------
|
|January 1                         |                         
|Provisions for product warranties |                         
|Settlements during the period     |                         
|                                  |                         
|June 30                           |                         
|                                  |                         

---

GUIDANT CORPORATION Notes to Consolidated
Financial Statements

# Note 5  Earnings
(Loss) Per Share

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

|                                                         | Three Months EndedJune 30, | Six Months EndedJune 30,
|-------------------------------------------------------- | -------------------------- | ------------------------
|
|Income (loss) from continuing operations                 |                            | $   135.6               
|Loss from discontinued operations, net of income taxes   |                            | (9.1)                   
|                                                         |                            |                         
|Net income (loss)                                        |                            | $   126.5               
|                                                         |                            |                         
|Earnings (loss) per share-basic                          |                           
|Income (loss) from continuing operations                 |                            | $     0.44              
|Loss from discontinued operations, net of income taxes   |                            | (0.03)                  
|                                                         |                            |                         
|Net income (loss)                                        |                            | $     0.41              
|                                                         |                            |                         
|Earnings (loss) per share-diluted                        |                           
|Income (loss) from continuing operations                 |                            | $     0.42              
|Loss from discontinued operations, net of income taxes   |                            | (0.03)                  
|                                                         |                            |                         
|Net income (loss)                                        |                            | $     0.39              
|                                                         |                            |                         
|Weighted average common shares outstanding               |                            | 310.91                  
|Effect of dilutive stock options and unvested restricted |                           
|stock awards                                             |                            | 9.24                    
|                                                         |                            |                         
|Weighted average common shares outstanding               |                           
|and assumed conversions                                  |                            | 320.15                  
|                                                         |                            |                         

Total options outstanding at June 30,
2004 and 2003 were 41.2 million and 48.3 million. Earnings per share-diluted includes 37.8
million and 39.5 million stock options for the three- and six-month periods ended June 30,
2004 and includes 22.2 million stock options for the six-month period ended June 30, 2003.
Stock options with an exercise price greater than the average market value stock price for
the period were excluded from the calculation of earnings per share-diluted because
including them would have had an anti-dilutive impact. All stock options were excluded
from loss per share-diluted for the three-month period ended June 30, 2003, as the impact
would have been anti-dilutive.

---

# Note 6 
Comprehensive Income (Loss)

Comprehensive income (loss) is
comprised of net income (loss) 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 second quarters of 2004 and 2003,
comprehensive income (loss) was $133.1 million and ($70.7) million. Comprehensive income
for the six months ended June 30, 2004 and 2003 was $259.3 million and $43.6 million. The
increase in comprehensive income was primarily due to net income in 2004, compared to net
losses in 2003, partially offset by foreign currency translation losses in 2004 compared
to gains in 2003.

GUIDANT CORPORATION Notes to Consolidated
Financial Statements

# Note 7  Segment
Information

# Geographic Information

|              | Three Months EndedJune 30, | Six Months EndedJune 30,
|------------- | -------------------------- | ------------------------
|
|Net Sales(1): |                            |                         
|US            |                            | $631.3                  
|International |                            | 307.5                   
|              |                            |                         
|              |                            | $938.8                  
|              |                            |                         

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



|                             | June 30,2004 | December 31,2003
|---------------------------- | ------------ | ----------------
|Property and Equipment, Net: |              |                 
|US                           |              | $706.5          
|International                |              | 85.3            
|                             |              |                 
|                             |              | $791.8          
|                             |              |                 
|                             |              |                 
|                             |              |                 

|                                     | Three Months EndedJune 30, | Six Months EndedJune 30,
|------------------------------------ | -------------------------- | ------------------------
|Classes of Similar Products:         |                            | 2004                    
|Net Sales:                           |                           
|Implantable defibrillator            |                           
|systems                              |                            | $  455.7                
|Pacemaker systems                    |                            | 183.1                   
|Coronary stent systems               |                            | 120.4                   
|Angioplasty systems                  |                            | 111.2                   
|Cardiac surgery, biliary, peripheral |                           
|and carotid systems                  |                            | 68.4                    
|                                     |                            |                         
|                                     |                            | $  938.8                
|                                     |                            |                         

# Note 8 
Acquisitions

AFx, inc.: On February 9,
2004, Guidant acquired AFx, inc., a manufacturer of microwave surgical cardiac ablation
medical devices. Guidant paid $48.4 million (including transaction expenses) in cash and
forgave a $5.8 million extension of credit. The purchase price was allocated to the
acquired assets and liabilities based upon fair market values (using the income approach),
including a $22.8 million in process research and development (IPRD) charge for technology
that had not reached technological feasibility and had no alternative use and $33.0
million for intangible assets related to proven technology. In addition, a deferred tax
liability of $12.2 million was recorded for the tax effect of the intangible assets and
deferred tax assets of $11.7 million were recorded for the net operating loss carryovers.
In order to value the IPRD, a risk-adjusted discount rate of 22.5% was applied to the cash
flows. Guidant may make additional payments upon future satisfaction of regulatory,
clinical and sales performance criteria. These payments will be recorded when the amount
is determinable and will be allocated to the fair value of the intangibles or IPRD, with
any amounts paid above fair value of identifiable assets recorded as goodwill.

Biosensors International
(Biosensors): In March 2003, the Company completed its acquisition of certain assets
of 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 Biosensors everolimus eluting stent platform that has been
used in Biosensors FUTURE I and II Clinical Trials. Guidant recorded a $20.5 million
IPRD charge in connection with the purchase, since technological feasibility of the
project had not been attained and the research had 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 six-month clinical data of the everolimus eluting stent
trial, FUTURE I. An additional IPRD charge of $50.0 million was recorded in the second
quarter of 2004 for clinical results related to Biosensors everolimus eluting stent
trial, FUTURE II. Over the course of clinical development, Biosensors may receive
additional milestone payments. In addition, Biosensors will receive royalties on future
sales of products utilizing Biosensors technology.

Bioabsorbable Vascular Solutions
(BVS): In March 2003, Guidant acquired the majority interest in BVS for $10.0 million
and accrued an additional $6.0 million for a future clinical milestone. In addition,
Guidant purchased the remaining 49% interest for $6.0 million in April 2004. All these
amounts are accounted for as IPRD, since technological feasibility of the project has not
been attained and the research has no alternative future uses. BVS is developing vascular
stent platforms designed to be absorbed by tissue following the restoration of blood flow
in patients with coronary artery disease. Guidant may pay milestone payments over the
course of clinical development.

X Technologies, Inc. (X
Technologies): In June 2003, Guidant acquired X Technologies, the manufacturer of the
FDA-approved FX miniRAIL Balloon 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. The purchase price was allocated to the acquired assets and
liabilities based upon fair market values, including $88.7 million to intangible assets
related to developed technology and the related deferred tax liability of $32.8 million.
Guidant may make additional payments upon future satisfaction of sales performance
criteria.

Novartis Pharma AG and Novartis AG
(Novartis): In 2002, Guidant entered into an agreement with Novartis that provided
Guidant an exclusive worldwide license to use everolimus in drug eluting stents. In the
second quarter of 2004, a payment of $15.0 million was made to Novartis for completion of
SPIRIT FIRST clinical trial enrollment. This amount was recorded as IPRD, since
technological feasibility of the project has not been attained and the research has no
alternative future uses.

Certain of Guidants
acquisitions involve contingent consideration and certain equity investments may involve
contingent payments, which would provide additional ownership to Guidant (collectively
referred to as milestone payments). These milestone payments are generally
contingent upon reaching performance-related milestones, including specified revenue
levels, product development targets or regulatory approvals or filings. At June 30, 2004,
Guidants accrual for milestone payments totaled $35.3 million and is expected to be
paid during the next two years. In addition, future undiscounted performance-related
milestone payments of up to $268.3 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 to $80.0 million. The Company continues to
evaluate business development opportunities, which may generate additional payments.

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

# Note 9 
Discontinued Operations

In March 2004, Guidants Board
of Directors approved a plan to discontinue the GALILEO® Intravascular
Radiotherapy System (GALILEO System) product line for the treatment of in-stent restenosis
due to the significant competitive impact of drug eluting stents. On April 21, 2004,
Guidant signed a definitive agreement with Novoste Corporation (Novoste) to cooperate in
assisting existing US and Canadian customers of the GALILEO System who wish to transition
to Novoste products. Guidant received $2.5 million upon signing and will receive earn-out
payments up to a maximum of $4.0 million based on Novoste sales in the US and Canada. The
disposal plan consists primarily of the termination of normal activity, abandonment of
property and equipment, product returns, collection of accounts receivable and settlement
of liabilities. Net loss from discontinued operations for the six months ended June 30,
2004 includes a charge of $11.2 million, primarily related to the write down of long-lived
assets to fair value and recording inventory and accounts receivable at net realizable
value.

Guidant expects this discontinuation
to occur in several phases, concluding within the next six months. Guidant has taken steps
to close the Houston and Pearland, Texas, facilities.

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

In June 2003, Guidants Board of
Directors approved a plan to dispose of the ANCURE ENDOGRAFT System (ANCURE) 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 US Department of
Justice investigation.

In accordance with SFAS 144,
Accounting for the Impairment or Disposal of Long-Lived Assets, these disposals
represent discontinued operations. Accordingly, the accompanying consolidated financial
statements and notes reflect the results of operations and financial position of the AAA
and GALILEO product lines and the Brazil operations as discontinued operations for all
periods presented.

At June 30, 2004, and December 31,
2003, there were $3.9 million and $36.5 million in assets and $25.4 million and $23.9
million in liabilities related to discontinued operations. Assets are primarily comprised
of accounts receivable, inventory and property, plant and equipment. Liabilities primarily
include accruals for severance, product returns, ANCURE-related settlements and lease
commitments. Net loss from discontinued operations includes charges related to the
impairment of certain long-lived assets, inventory write-downs, customer returns,
ANCURE-related settlements, employee severance and facility costs. Loss from discontinued
operations before income taxes, for the six months ended June 30, 2003, includes a $62.4
million charge for the previously disclosed agreement with the US Department of Justice
surrounding the ANCURE product line for the treatment of AAA.

The following summarizes financial
information for discontinued operations:

|                                                      | Three Months EndedJune 30, | Six Months EndedJune 30,
|----------------------------------------------------- | -------------------------- | ------------------------
|
|Net sales                                             |                            | $   4.1                 
|Loss from discontinued operations before income taxes |                            | (15.0)                  
|Net loss from discontinued operations                 |                            | (9.1)                   

# Note 10  Dividend

For the six months ended June 30,
2004 Guidants Board of Directors declared total dividends of $0.20 per common share
outstanding compared to $0.08 per common share outstanding for the first six months ended
June 30, 2003.

# Note 11 
Subsequent Event

On July 21, 2004 Guidants Board
of Directors approved a management action that will include work force reductions and
termination of certain contracts, resulting primarily from the weakness in the metallic
coronary stent market. The pre-tax expense associated with this plan is estimated between
$50.0 million and $70.0 million and will be recorded during the third quarter of 2004.
This charge includes severance, benefits packages for affected employees, contract
termination costs and other related costs.

# Note 12 
Contingencies

The description of legal proceedings
in Part II, Item 1 (Legal Proceedings) to this filing is incorporated herein
by reference.

---

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

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

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

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

| |  | 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 and related accessories for the treatment of coronary artery
              disease
| | - | -------------------------------------------------------------------------------------------------------------------------------------

| |  | Cardiac surgery systems
| | - | -----------------------

| |  | Peripheral systems, including those to treat biliary, peripheral vascular and carotid artery disease
| | - | ----------------------------------------------------------------------------------------------------

# Operating Results 
Three and Six Months Ended June 30, 2004

# Sales

Guidant reported $938.8 million in
worldwide sales for the quarter ended June 30, 2004, representing 1% growth compared to
the same period in 2003. The impact of fluctuations in foreign currency exchange rates
increased sales by $17.0 million, or 2%, partially offset by price declines of 1%. All
product lines, except coronary stent systems, experienced growth during the second quarter
of 2004. US sales of $631.3 million remained relatively flat compared to the prior year
and international sales of $307.5 million increased 3%. Sales of products other than
worldwide coronary stent systems represented 87% of total revenues and increased 16% in
the second quarter 2004 compared to the second quarter 2003.

Sales for the six months ended June
30, 2004, of $1,872.9 million, increased $88.4 million, or 5% over the same period in
2003. The impact of fluctuations in foreign currency exchange rates increased sales by
$49.9 million, or 3%, volume increased sales 5% and price declines decreased sales 3%. US
sales of $1,248.1 million grew 2% over the prior year due to an increase in volume, while
international sales of $624.8 million increased 11%.

# Sales SummaryThree
Months Ended

|                                     | June 30, 2004 | June 30, 2003
|------------------------------------ | ------------- | -------------
|(In millions)                        |               | US           
|                                    
|Implantable defibrillator systems    |               | $363.7       
|Pacemaker systems                    |               | 111.2        
|Coronary stent systems               |               | 51.2         
|Angioplasty systems                  |               | 51.5         
|Cardiac surgery, biliary, peripheral |              
|and carotid systems                  |               | 53.7         
|                                    
|                                     |               | $631.3       
|                                    

# Sales SummarySix
Months Ended

|                                     | June 30, 2004 | June 30, 2003
|------------------------------------ | ------------- | -------------
|(In millions)                        |               | US           
|                                    
|Implantable defibrillator systems    |               | $   687.4    
|Pacemaker systems                    |               | 215.4        
|Coronary stent systems               |               | 137.4        
|Angioplasty systems                  |               | 105.5        
|Cardiac surgery, biliary, peripheral |              
|and carotid systems                  |               | 102.4        
|                                    
|                                     |               | $1,248.1     
|                                    

Implantable Defibrillator
(ICD) Systems

Worldwide sales of implantable
defibrillator systems in the second quarter of 2004 were $455.7 million, an increase of
21% over the same period in 2003. Growth was driven primarily by increased volume,
including a shift toward higher-value CRT-D systems. US implantable defibrillator system
sales increased 19% to $363.7 million and international sales increased 32% to $92.0
million in the second quarter of 2004 compared to the same period in the prior year. For
the first six months of 2004, worldwide ICD system sales were $860.7 million, an increase
of 21% over the same period in the prior year. Sales of ICD systems increased due to the
following:

| |  | Increased awareness for implantable defibrillator and cardiac resynchronization therapies
based upon the findings of two Guidant-sponsored clinical trials  MADIT II and
COMPANION. MADIT II demonstrated that a broader group of patients would benefit from
implantable defibrillator therapy. The investigators for the COMPANION trial reported that
for advanced heart failure patients with desynchronized heart contractions, the addition
of resynchronization therapy to optimal drug treatment reduced the combination of death or
hospitalization when compared with optimal drug treatment alone. This trial demonstrated
20% reduction in combined all-cause death and hospitalization by adding Guidants
CRT-D systems to optimal drug therapy and 36% reduction in all-cause mortality for
Guidants CRT-D systems for patients with advanced heart failure. The COMPANION trial
was published in May 2004 in the New England Journal of Medicine.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Continued acceptance of the following:
| | - | --------------------------------------

| |  | VITALITY® family of
implantable defibrillator systems, primarily the VITALITY DS and VITALITY 2
| | - | -----------------------------------------------------------------------------------------------

| |  | CONTAK® RENEWAL family of CRT-D systems, primarily the RENEWAL 3 and RENEWAL 4
| | - | -------------------------------------------------------------------------------

In July 2004, Guidant received Conformité Européenne
(CE) Mark approval of its CONTAK RENEWAL® 4 AVT cardiac resynchronization therapy defibrillator, designed to
treat heart failure patients who are at risk for sudden cardiac death and also suffer from
atrial arrhythmias. In May 2004 Guidant launched the VITALITY 2 implantable defibrillator
system in the US. This device incorporates Guidants RHYTHM ID® feature, which
utilizes rhythm discrimination technology to distinguish between lethal and non-lethal
heart rhythms to deliver the appropriate care.

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

| |  | Recent entry of a new competitor in the resynchronization segment
| | - | -----------------------------------------------------------------

| |  | Expected publication of SCD-HeFT clinical trial results
| | - | -------------------------------------------------------

| |  | Recent publication of the COMPANION trial
| | - | -----------------------------------------

| |  | Potential expanded indication and reimbursement supported by both COMPANION and SCD-HeFT
clinical trials. In July 2004, the Circulatory System Devices Panel of the FDA unanimously
recommended approval, with conditions, of expanded user labeling, including indications,
for Guidant cardiac resynchronization therapy defibrillators based on the results of the
COMPANION clinical trial. The FDA will now consider the panels recommendation prior
to making its final decision.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Pacemaker Systems

Worldwide pacemaker system sales were
$183.1 million for the quarter ended June 30, 2004, a 7% increase over the same period in
the prior year. US pacemaker system sales grew 3% to $111.2 million and international
sales grew 13% to $71.9 million. Worldwide sales of these products for the first six
months of 2004 were $362.6 million, an increase of $31.7 million or 10% over the same
period in 2003. Pacemaker system sales growth was primarily due to a shift toward
higher-value CRT-P systems driven by the acceptance of the CONTAK RENEWAL TR 2 CRT-P
system, launched in the third quarter of 2003 in Europe and the CONTAK RENEWAL TR CRT-P
system launched in the US in January 2004.

Coronary Stent Systems

Worldwide coronary stent system sales
for the second quarter of 2004 were $120.4 million, a decline of 46% compared to the
second quarter of 2003. Coronary stent system sales comprised 24% of sales in the second
quarter of 2003 and have now declined to 13% in the second quarter of 2004. Coronary stent
system sales in the US were $51.2 million for the second quarter of 2004 compared to
$123.5 million for the second quarter of 2003. Increasing penetration of competitive drug
eluting stents in the US primarily drove this decline. International sales for the second
quarter of 2004 and 2003 were $69.2 million and $99.5 million. This decrease was primarily
due to declining stent sales in Japan as a result of competitive metallic stent launches
since late 2003. Further decreases are expected in Japan when the full launch of a
competitors drug eluting stent occurs in the second half of 2004. In February 2004,
Guidant entered into an agreement with Johnson & Johnson to co-promote Cordis
CYPHER Sirolimus-eluting Coronary Stent. This agreement also allows for co-promotion
of future drug eluting stents sold by Johnson & Johnson. Co-promotion commissions
earned by Guidant under this agreement, along with sales of stent delivery systems
(dilatation catheters) to Johnson & Johnson, are included in US coronary stent system
sales. Worldwide coronary stent system sales for the first six months of 2004 were $291.8
million compared to $444.0 million for the same period in the prior year. International
sales were $154.4 million in the first six months of 2004 compared to $186.1 million in
the first six months of 2003. Continued decreases in coronary stent system sales are
expected until Guidant directly participates in the drug eluting stent market. Coronary
stent system sales in 2004 primarily include:

| |  | MULTI-LINK VISION®
Coronary Stent System
| | - | -----------------------------------------

| |  | MULTI-LINK ZETA® Coronary Stent System
| | - | --------------------------------------

| |  | MULTI-LINK PENTA® Coronary Stent System
| | - | ---------------------------------------

| |  | MULTI-LINK PIXEL® Coronary Stent System
| | - | ---------------------------------------

In May 2004, Guidant announced CE
Mark approval and launch of the MULTI-LINK MINI VISION Coronary Stent System, a
cobalt chromium stent designed for treating coronary artery disease in small vessels. In
April 2004, Guidant announced CE Mark approval of the MULTI-LINK FRONTIER Coronary
Bifurcation Stent System, which is specifically designed to treat plaque in coronary
arteries at the site of a bifurcation, where one vessel branches from another. In July
2004, Guidant announced Japan regulatory approval and launch of the MULTI-LINK ZETA
Coronary Stent System.

Angioplasty Systems

Angioplasty system sales totaled
$111.2 million in the second quarter of 2004 compared to $103.4 million in the second
quarter of 2003, reflecting 8% sales growth. Sales of these products for the six months
ended June 30, 2004, were $227.8 million compared to $203.0 million for the same period in
the prior year, an increase of 12%. During the second and third quarter of 2004, Guidant
announced FDA approval and launched the over-the-wire VOYAGER (OTW) and the rapid
exchange VOYAGER (RX) Coronary Dilatation Catheters.

Cardiac Surgery, Biliary,
Peripheral and Carotid Systems

Worldwide sales of cardiac surgery,
biliary, peripheral and carotid systems totaled $68.4 million in the second quarter of
2004, representing 32% growth over the same period in 2003. Sales for these systems during
the first six months of 2004 were $130.0 million compared to $98.1 million for the same
period in 2003, representing a 33% increase. Sales growth was driven by:

| |  | Continued growth in the endoscopic vessel harvesting market driven by adoption of the
VASOVIEW® Endoscopic Vessel Harvesting System
| | - | -----------------------------------------------------------------------------------------------------------------------------------

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

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

Cost of Products
Sold

Cost of products sold was $234.6 million and $460.9 million in the second quarter
of 2004 and six months ended June 30, 2004, compared to $224.5 million and $429.6 million
for the same respective periods in 2003. Gross profit percentage was 75.0% for the second
quarter of 2004 and 75.4% for six months ended June 30, 2004, compared to 75.8% for the
second quarter of 2003 and 75.9% for the six months ended June 30, 2003. The change in
gross profit percentages was primarily driven by the decrease in sales of stents in the US
and Japan, partially offset by continued sales mix shift toward higher value implantable
defibrillator systems, including CRT-D systems. Guidant has implemented a lean
manufacturing initiative across the cardiac rhythm management product lines. This
initiative is expected to improve inventory management throughout the supply chain and
serve to reduce raw material levels in the short term. Over the long term this will
improve responsiveness of the supply chain and help offset the Companys decreasing
gross profit percentage due to decreasing stent sales.

# Research and Development

Guidant continued its commitment to
product innovation by increasing its investment in research and development in the second
quarter of 2004. Research and development expense was $136.8 million for the second
quarter of 2004, or 14.6% of sales, compared to $129.4 million in the second quarter of
2003, or 14.0% of sales. Research and development expense for the first six months of 2004
totaled $274.4 million (14.7% of sales) compared to $242.2 million (13.6% of sales) in the
same period in 2003. Significant investments in research and development in the first half
of 2004 included:

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

| |  | CHAMPION Everolimus Eluting Coronary Stent System mounted on the MULTI-LINK VISION
stent delivery system. This system includes a bioabsorbable polymer matrix and is being
evaluated in the FUTURE family of clinical trials.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | MULTI-LINK VISION Everolimus Eluting Stent System, which is currently being evaluated in
the SPIRIT FIRST Clinical Trial and includes a durable polymer matrix. SPIRIT FIRST is a
feasibility study for durable polymer drug eluting stent to support filings for larger US
and European pivotal trials.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Bioabsorbable stent research and development
| | - | --------------------------------------------

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

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

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

Important
research and development events in 2004 included:

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

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

| |  | FUTURE II Clinical Trial  Study designed to evaluate the safety of the CHAMPION
Everolimus Eluting Coronary Stent System compared to a metallic stent platform in
previously untreated lesions. The Company announced positive one-year results in May 2004,
which confirmed the positive six-month results presented in September 2003.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | SPIRIT FIRST Clinical Trial  Enrollment of 60 patients was completed in April 2004
and 30-day Major Adverse Cardiac Event (MACE) results were reported.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Acculink for Revascularization of Carotids in High Risk Patients (ARCHeR) Clinical Trial
 Study designed to evaluate the safety and effectiveness of carotid artery stenting
as a minimally invasive alternative for treating carotid artery disease in patients
ineligible for surgery or at high surgical risk. In March 2004, the Company announced
positive one-year results for the ARCHeR 1 and 2 Clinical Trials and positive 30-day
results for the ARCHeR 3 Clinical Trial.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Company, subject to completion of
appropriate clinical trials and receipt of regulatory approvals, expects to launch its
first drug eluting stent in Europe in 2005 and in the US in 2007.

# In-Process Research and
Development (IPRD)

Guidant recorded pre-tax IPRD charges
of $73.0 million and $99.8 million for the three- and six-month periods ended June 30,
2004. This compares to $12.0 million and $48.5 million for the comparable periods in the
prior year. Key components of these charges include:

2004

| |  | Biosensors International (Biosensors)$50.0 million recorded during the second
quarter of 2004 in conjunction with milestones related to the FUTURE II clinical trial
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Novartis Pharma AG and Novartis AG$15.0 million payment for completion of SPIRIT
FIRST clinical trial enrollment that occurred in April 2004
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------

| |  | Bioabsorbable Vascular Solutions (BVS)$6.0 million payment to purchase the remaining
interest of BVS, an early-stage developer of bioabsorbable stents, in April 2004.
Bioabsorbable stents are designed to be absorbed by tissue following the restoration of
blood flow in patients with coronary artery disease.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | AFx, inc.-$22.8 million associated with the February 2004 acquisition of AFx, inc., a manufacturer of microwave
              surgical cardiac ablation medical devices
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

The remaining charges in 2004 were primarily for the purchase of technology to be utilized in
conjunction with Guidants carotid embolic protection systems.

2003

| |  | BiosensorsIn March 2003, Guidant purchased certain assets of Biosensors
everolimus eluting stent program, resulting in $20.5 million IPRD. In June 2003, Guidant
recorded a $10.1 million IPRD charge as a result of the achievement of a performance
milestone related to six-month clinical data of the everolimus eluting stent trial, FUTURE
I.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | BVS-In March 2003, Guidant purchased the majority interest in BVS, resulting in a $16.0 million IPRD charge
| | - | -----------------------------------------------------------------------------------------------------------

# Sales, Marketing and
Administrative

Sales, marketing and administrative
expenses were $298.1 million for the three months ended June 30, 2004, relatively
unchanged from the same period in 2003, due to spending controls. These expenses for the
six months ended June 30, 2004, totaled $612.8 million compared to $566.2 million for the
same period in 2003, an increase of 8%. The increases for the six-month period were
driven primarily by compensation associated with sales growth and the increase in the
cardiac rhythm management sales force.

# Restructuring

On July 21, 2004 Guidants Board
of Directors approved a management action that will include work force reductions and
termination of certain contracts, resulting primarily from the weakness in the metallic
stent market. The pre-tax expense associated with this plan is estimated between $50.0
million and $70.0 million and will be recorded during the third quarter of 2004. This
charge includes severance, benefits packages for affected employees, contract termination
costs and other related costs. This initiative, along with other structural spending
controls, is expected to decrease sales, marketing, administrative and research and
development expenses by approximately 8-13% in the second half of 2004 compared to the
first half of 2004. This management action is expected to provide an improved cost
structure in future years. In connection with this action, the Company changed its bonus
programs in a manner expected to reduce bonus compensation in the second half of 2004,
including the elimination of the management committee bonuses for all of 2004.

# Interest

Net interest income was ($0.2)
million for the three months ended June 30, 2004, compared to ($2.5) million for the same
period in 2003. Net interest income was ($1.2) million for the six months ended June 30,
2004, compared to ($3.9) million for the same period in 2003. The decrease in net interest
income from 2003 was driven by a higher average outstanding debt balance, which was
partially mitigated by increased interest income from larger balances in cash and cash
equivalents and short-term investments.

|                 | Three Months EndedJune 30, | Six Months EndedJune 30,
|---------------- | -------------------------- | ------------------------
|
|Interest income  |                            | ($6.6)                  
|Interest expense |                            | 6.4                     
|                 |                            |                         
|Interest, net    |                            | ($0.2)                  
|                 |                            |                         

# Royalties

Royalty expense is incurred for sales
of certain implantable defibrillator systems, pacemaker systems, coronary stent systems
and angioplasty systems. Net royalty expense totaled $12.5 million in the second quarter
of 2004 compared to $15.7 million for the same period in 2003. These expenses for the six
months ended June 30, 2004, totaled $24.6 million compared to $29.0 million in the same
period in the prior year. Net royalty expense included royalty income of less than $1.0
million in all periods presented. The decrease in royalty expense was primarily due to the
December 2003 expiration of a Mirowski patent covering certain implantable defibrillator
products. At the end of the second quarter, the Company has accrued $58.7 million, which
represents all royalties and interest potentially payable under the license agreement
pertaining to that patent. The ultimate payment will depend on a decision by the Federal
Circuit Court of Appeals ruling on a competitors challenge to the patents
validity, claim construction and term extension. (See Part II, Item 1, Legal Proceedings.)

# Amortization

Amortization for other intangible
assets was $7.7 million in the second quarter of 2004 compared to $3.3 million in the
second quarter of 2003. These expenses for the six months ended June 30, 2004, totaled
$15.0 million compared to $6.5 million for the same period in 2003. The increases are
attributable to the intangibles recorded in conjunction with the June 2003 acquisition of
X Technologies, Inc. and the February 2004 acquisition of AFx, inc.

# Other, net

Other, net was $6.4 million in the
second quarter of 2004 compared to $0.4 million in the second quarter of 2003, and $8.9
million and $5.7 million for the six months ended June 30, 2004 and 2003. For all periods
presented this line item primarily includes losses on sale of fixed assets and write downs
of equity investments and fixed assets. The increase in expense during 2004 compared to
2003 is primarily due to impairments of equity investments that were considered other than
temporary.

# Income Tax

The effective income tax rates for
the quarters ended June 30, 2004 and 2003 were 20.2% and (53.6%). The income tax rates for
the six-month periods ending June 30, 2004 and 2003 were 23.6% and (96.8%) ($36.7 million
tax benefit). The effective tax rate change in 2004 was primarily due to the litigation
settlement in 2003 that was deductible at the US statutory tax rates. Guidants
ongoing operations are impacted by overseas operations having statutory tax rates that are
lower than the US statutory tax rates.

# 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.

# Discontinued Operations

In March 2004, Guidants Board
of Directors approved a plan to discontinue the GALILEO Intravascular Radiotherapy System
(GALILEO System) product line for the treatment of in-stent restenosis due to the
significant competitive impact of drug eluting stents. On April 21, 2004, Guidant signed a
definitive agreement with Novoste Corporation (Novoste) to cooperate in assisting existing
US and Canadian customers of the GALILEO System who wish to transition to Novoste
products. Guidant received $2.5 million upon signing and will receive earn-out payments up
to a maximum of $4.0 million based on Novoste sales in the US and Canada. The disposal
plan consists primarily of the termination of normal activity, abandonment of property and
equipment, product returns, collection of accounts receivable and settlement of
liabilities. Net loss from discontinued operations for the six months ended June 30, 2004
includes a charge of $11.2 million, primarily related to the write down of long-lived
assets to fair value, severance-related charges and recording inventory and accounts
receivable at net realizable value. Guidant expects this discontinuation to occur in
several phases, concluding within the next six months. Guidant has taken steps to close
the Houston and Pearland, Texas, facilities.

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

In June 2003, Guidants Board of
Directors approved a plan to dispose of the ANCURE ENDOGRAFT System (ANCURE) 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 US Department of
Justice investigation.

In accordance with SFAS 144,
Accounting for the Impairment or Disposal of Long-Lived Assets, these disposals
represent discontinued operations. Accordingly, the accompanying consolidated financial
statements and notes reflect the results of operations and financial position of the AAA
and GALILEO product lines and the Brazil operations as discontinued operations for all
periods presented.

At June 30, 2004, and December 31,
2003, there were $3.9 million and $36.5 million in assets and $25.4 million and $23.9
million in liabilities related to discontinued operations. Assets are primarily comprised
of accounts receivable, inventory and property, plant and equipment. Liabilities primarily
include accruals for severance, product returns, litigation accruals and lease
commitments. Net loss from discontinued operations includes charges related to the
impairment of certain long-lived assets, inventory write-downs, customer returns,
ANCURE-related settlements, employee severance and facility costs. Loss from discontinued
operations before income taxes, for the six months ended June 30, 2003, includes a $62.4
million charge for the previously disclosed agreement with the US Department of Justice
surrounding the ANCURE product line for the treatment of AAA. The Company expects to incur
pre-tax losses of up to $25.0 million associated with the exit of these three businesses
for the remainder of 2004, excluding litigation charges (see Part II, Item 1, Legal
Proceedings).

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

|                                                      | Three Months EndedJune 30, | Six Months EndedJune 30,
|----------------------------------------------------- | -------------------------- | ------------------------
|
|Net sales                                             |                            | $4.1                    
|Loss from discontinued operations before income taxes |                            | (15.0)                  
|Net loss from discontinued operations                 |                            | (9.1)                   

# LIQUIDITY AND FINANCIAL
CONDITION

|                              | June 30, 2004 | December 31, 2003
|----------------------------- | ------------- | -----------------
|(Dollars in millions)         |               |                  
|Cash and cash equivalents (1) |               | $  1,690.4       
|Working capital               |               | $  2,381.4       
|Current ratio                 |               | 3.4:1.0          
|Net cash position (2)         |               | $     836.9      
|Days receivable outstanding   |               | 79               
|Inventory turnover            |               | 2.31             

(1)    
          A substantial portion of cash and cash equivalents is indefinitely invested
          in Guidants non-US subsidiaries.(2)    Net cash position is the sum
          of cash and cash equivalents and short-term investments less total debt.

Certain of Guidants
acquisitions involve contingent consideration and certain equity investments may involve
contingent payments, which would provide additional ownership to Guidant (collectively
referred to as milestone payments). These milestone payments are generally
contingent upon reaching performance-related milestones, including specified revenue
levels, product development targets or regulatory approvals or filings. At June 30, 2004,
Guidants accrual for milestone payments totaled $35.3 million and will be paid
during the next two years. In addition, future undiscounted performance-related milestone
payments of up to $268.3 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 to $80.0 million. The Company continues to evaluate
business development opportunities, which may generate additional payments.

# Summary of Cash Flows

|                                          | Six Months EndedJune 30, |        
|----------------------------------------- | ------------------------ | -------
|
|(In millions)                             |                          |        
|Net cash provided by (used for):          |                          |        
|Operating activities                      |                          | $ 495.5
|Investing activities                      |                          | (337.1 
|Financing activities                      |                          | 67.5   
|Effect of exchange rate changes on cash   |                          | (3.7   
|                                          |                          |        
|Net increase in cash and cash equivalents |                          | $ 222.2
|                                          |                          |        

Net cash provided by operating
activities was $495.5 million for the first six months of 2004, an increase of $252.0
million primarily due to a decrease in tax payments of $94.2 million during the six months
ended June 30, 2004 compared to the six months ended June 30, 2003.

Net cash used for investing
activities was $337.1 million for the first six months of 2004, an increase of $106.4
million from the prior year primarily due to an increase of $122.3 million for purchases
of equity and short-term investments. The majority of these purchases are interest-bearing
investments with maturities between three and six months.

Net cash provided by financing
activities was $67.5 million for the first six months of 2004, a decrease of $12.7 million
from the prior year due to the following:

| |  | $127.2 million increase in repurchases of
common stock
| | - | ------------------------------------------------------

| |  | $37.6 million increase in dividend payments
| | - | -------------------------------------------

| |  | $56.1 million decrease in
additional borrowings
| | - | -----------------------------------------------

partially offset by:

| |  | $208.2 million increase in issuances of common stock for stock option exercises
| | - | -------------------------------------------------------------------------------

Exchange rate fluctuations decreased
cash by $3.7 million for the six months ended June 30, 2004 compared to an increase in
cash of $82.6 million for the six months ended June 30, 2003. This decrease of $86.3
million is primarily due to the Euro weakening during the six months ended June 30, 2004
and strengthening during the six months ended June 30, 2003 compared to the US dollar.

At June 30, 2004, the Company had
outstanding borrowings of $954.1 million at a weighted average interest rate of 2.21%,
including bank borrowings, commercial paper, $350.0 million principal balance in long-term
notes due in 2006 and interest rate swap agreements valued at $3.4 million. Bank
borrowings represent advances under short-term uncommitted credit facilities with
commercial banks. The commercial paper borrowings are supported by two credit facilities;
a $400.0 million facility that expires August 2007 and a $400.0 million facility that
expires August 2004. The Company is currently renegotiating the credit facility that
expires August 2004. There are currently no outstanding borrowings under these facilities.
The Company classified $250.0 million as short-term debt at June 30, 2004. The Company
believes that cash and cash equivalent balances will be adequate to fund maturities of
short-term borrowings, obligations to make interest payments on its debt and other
anticipated operating cash needs for 2004, including planned capital expenditures of
approximately $135.0 million for the remainder of 2004.

The Company has recognized net
deferred tax assets aggregating $298.9 million at June 30, 2004, compared to $314.1
million at December 31, 2003. In view of the consistent profitability of its past
operations, the Company believes that these assets will be substantially recovered and
that no significant additional valuation allowances are necessary.

# 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 actions:

In June, Guidant initiated a field
action in Japan related to product labeling of the Pulsar/Discovery II pacemaker systems.
Changes to product labeling, including the Physician Technical Manual and labels on
programming devices, were completed; however, no product was required to be returned.
Affected physicians and the Japanese Ministry of Health, Labor and Welfare (MHLW) were
notified.

In June, Guidant initiated a field
action in Japan related to the ENDOTAK ENDURANCE® EZ lead, distributed only in Japan.
Root cause analysis identified a small number of devices potentially affected. Physicians
with suspect leads implanted were provided with diagnostic and follow-up recommendations
and the MHLW was notified.

# Cautionary Factors

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

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

| |  | The effects of operating in an industry subject to complex regulation, the necessity for
appropriate reimbursement of therapies and the significance of legal claims in
Guidants industry.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

# Item 4. Controls and
Procedures

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

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

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

# PART IIOTHER INFORMATION

# Item 1. Legal Proceedings

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The following table provides
information about purchases by the Company during the quarter ended June 30, 2004, of the
Companys common shares:

|Period    | Total Number ofShares Purchased (1) | AveragePrice PerShare | Total Number ofShares Purchasedas Part of PubliclyAnnouncedProgram | ApproximateDollar Value of SharesThat May Yet BePurchased Underthe Program
|--------- | ----------------------------------- | --------------------- | ------------------------------------------------------------------ | --------------------------------------------------------------------------
|04/01/04- |                                     |                       |                                                                    |                                                                           
|04/30/04  |                                     | 452,116               |                                                                    | $65.90                                                                    
|          |                                    
|05/01/04- |                                    
|05/31/04  |                                     | --                    |                                                                    | --                                                                        
|          |                                    
|06/01/04- |                                    
|06/30/04  |                                     | --                    |                                                                    | --                                                                        

| |  | 
| |  | 

| | (1) | Guidant repurchased an aggregate of 452,116 common shares pursuant to
               the $250.0 million repurchase program publicly announced on February 17, 2004.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

Item 4. Submission of Matters to a
Vote of Security Holders.

The Companys Annual Meeting of
Shareholders was held on May 18, 2004. The following matters were voted on at the meeting:

Election of Directors:

Each of the following was elected to
a three-year term to expire in 2007:

|NAME                      | FOR | WITHHELD   
|------------------------- | --- | -----------
|                         
|Maurice A. Cox, Jr        |     | 240,053,869
|Nancy-Ann Min DeParle     |     | 267,039,280
|Ronald W. Dollens         |     | 265,763,945
|Enrique C. Falla          |     | 240,206,957
|Kristina M. Johnson, Ph.D |     | 268,749,715

Mr. Dollens, who also serves as President and Chief Executive Officer of the
          Company, has announced his intention to retire from that position at the end of
          the year. Ms. Susan B. King, a director of the Company from 1996 and member of
          the director class of 2005, passed away in July 2004.

Ratification of the appointment of
Ernst & Young LLP as independent auditors for the year 2004:

|For     |  | 236,122,762 | 
|------- |  | ----------- | 
|Against |  | 35,003,377  | 
|Abstain |  | 1,712,113   | 

Shareholder proposal to adopt a
policy regarding stock option expensing:

|For              |  | 153,034,896 | 
|---------------- |  | ----------- | 
|Against          |  | 87,060,595  | 
|Abstain          |  | 4,971,637   | 
|Broker Non-Votes |  | 27,771,124  | 

Thus, each listed director was
elected to a three-year term, the appointment of auditors was ratified and the shareholder
proposal received a majority of the votes cast (however not a majority of the shares
outstanding).

The Companys board of directors
is continuing to evaluate the advisory vote of the shareholders concerning stock option
expensing, particularly in light of continuing developments in the area, including
proposed rules from the Financial Accounting Standards Board as well as potentially
inconsistent Congressional actions.

---

# 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 two current reports on Form 8-K dated April 6, 2004
               and April 22, 2004, describing pursuant to Item 12 the Companys earnings
               releases.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

# 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:  August 6, 2004 |  | 
|                      |  | 
|                      |  | 

|                      |  | 
|--------------------- |  | 
|                      |  | 
|                      |  | 
|                      |  | 
|Date:  August 6, 2004 |  | 
|                      |  | 
|                      |  | 

---

# 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

---