<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-Q


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


               For the quarterly period ended September 30, 1999


                         Commission File Number 1-13388



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


               INDIANA                                35-1931722
   (State or other jurisdiction of                 (I.R.S. Employer
   incorporation or organization)                  Identification No.)


                        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 _____
    -----

The number of shares of common stock outstanding as of November 5, 1999:

               Class                 Number of Shares Outstanding
               -----                 ----------------------------
               Common                      302,133,519


                                       1
<PAGE>

                                     PART I
                             FINANCIAL INFORMATION

Item 1.  Financial Statements

                      GUIDANT CORPORATION and Subsidiaries
                       Consolidated Statements of Income
                      (In millions, except per-share data)
                                  (unaudited)
<TABLE>
<CAPTION>

                                              Three Months Ended       Nine Months Ended
                                                 September 30,            September 30,
                                             --------------------      -------------------
                                               1999         1998       1999           1998
                                             --------     -------      -----        ------
<S>                                           <C>        <C>           <C>          <C>
Net sales..................................  $ 560.9     $ 445.4       $1,754.5    $1,403.5

Cost of products sold......................    141.1        95.7          445.0       313.1
                                              ------    --------       --------    --------

 Gross profit..............................    419.8       349.7        1,309.5     1,090.4

Research and development...................     74.0        70.0          235.5       197.8
Purchased research and development.........       --        90.0           49.0       118.7
Sales, marketing, and administrative.......    164.6       135.2          505.6       411.4
Foundation contribution....................     20.2          --           20.2          --
                                              ------    --------       --------    --------
                                               258.8       295.2          810.3       727.9

Other income (expenses):
 Interest, net.............................    (14.9)       (3.2)         (42.9)      (10.1)
 Royalties, net............................     (7.3)      (11.4)         (33.3)      (31.8)
 Amortization..............................    (10.9)       (4.8)         (30.3)      (13.1)
 Litigation settlement charge..............       --      (200.0)            --      (260.0)
 Other, net................................     (0.2)        0.4            6.4        (4.8)
                                              ------    --------       --------    --------

                                               (33.3)     (219.0)        (100.1)     (319.8)
                                              ------    --------       --------    --------

Income (loss) before income taxes and
 cumulative effect of change in
 accounting principle......................    127.7      (164.5)         399.1        42.7

Income taxes...............................     29.0        12.5          151.2        85.7
                                              ------    --------       --------    --------

Income (loss) before cumulative effect of
 change in accounting principle............     98.7      (177.0)         247.9       (43.0)

Cumulative effect of change in accounting
 principle, net............................       --          --           (3.3)         --
                                              ------    --------       --------    --------

Net income(loss)...........................   $ 98.7     ($177.0)      $  244.6      ($43.0)
                                              ======    ========       ========    ========

Earnings(loss)per share....................   $ 0.33      ($0.60)      $   0.83      ($0.15)
                                              ======    ========       ========    ========

Earnings(loss)per share -
 assuming dilution.........................   $ 0.32      ($0.60)      $   0.80      ($0.15)
                                              ======    ========       ========    ========

Dividends paid per share...................   $   --    $0.00625       $     --    $0.01875
                                              ======    ========       ========    ========

</TABLE>


See notes to consolidated financial statements.

                                       2
<PAGE>

                      GUIDANT CORPORATION and Subsidiaries
                          Consolidated Balance Sheets
                             (Dollars in millions)

<TABLE>
<CAPTION>


                                              September 30,   December 31,
                                                   1999           1998
                                              --------------  ------------
                                                (unaudited)
<S>                                           <C>             <C>
Assets

Current Assets
Cash and cash equivalents...................         $ 25.5         $ 15.6

Accounts receivable, net of allowances
   of $15.9(1999) and $19.5(1998)...........          449.2          435.4

Other receivables...........................           22.1            8.3

Inventories.................................          242.3          193.4

Deferred income taxes.......................           82.0           83.3

Prepaid expenses............................           52.3           27.5
                                                   --------       --------

   Total Current Assets.....................          873.4          763.5



Other Assets
Goodwill, net of allowances
   of $101.9(1999) and $78.9(1998)..........          567.7          202.6

Other intangible assets, net of allowances
   of $24.2(1999) and $16.6(1998)...........          107.5           44.3

Deferred income taxes.......................           78.7           73.8

Investments.................................           46.2           62.5

Sundry......................................           33.9           33.6

Property and equipment, net of accumulated
   depreciation of $306.3 (1999) and
   $262.3 (1998)............................          484.4          389.2
                                                   --------       --------
                                                   $2,191.8       $1,569.5
                                                   ========       ========
</TABLE>




See notes to consolidated financial statements.

                                       3
<PAGE>

                      GUIDANT CORPORATION and Subsidiaries
                          Consolidated Balance Sheets
                             (Dollars in millions)
<TABLE>
<CAPTION>

                                             September 30,     December 31,
                                                 1999              1998
                                            ---------------   -------------
                                              (unaudited)
<S>                                                 <C>          <C>

Liabilities and Shareholders' Equity

Current Liabilities
Accounts payable........................            $   52.9       $   65.3

Employee compensation...................               100.9          129.5

Other liabilities.......................               196.8          137.9

Current portion of long-term debt.......               430.0           54.5

Payable to Sulzer Medica................                 --           200.0
                                                    --------       --------

   Total Current Liabilities............               780.6          587.2


Noncurrent Liabilities
Long-term debt..........................               569.5          390.0

Other...................................               116.0           38.4
                                                    --------       --------

                                                       685.5          428.4

Commitments and contingencies...........                 --             --

Shareholders' Equity
Common stock-no par value:
   Authorized shares: 1,000,000,000.....
   Issued shares: 302,138,000 (1999)
                  301,848,000 (1998)....               192.9          192.5

Additional paid-in capital..............               149.7          197.0

Retained earnings.......................               497.6          253.0

Deferred cost, ESOP.....................               (39.2)         (41.3)

Treasury stock, at cost:
   Shares: 676,710  (1999)..............
           671,618  (1998)..............               (37.3)         (27.0)

Accumulated other comprehensive income..               (38.0)         (20.3)
                                                    --------       --------

                                                       725.7          553.9
                                                    --------       --------

                                                    $2,191.8       $1,569.5
                                                    ========       ========

</TABLE>
See notes to consolidated financial statements.

                                       4
<PAGE>

                      GUIDANT CORPORATION and Subsidiaries
                      Consolidated Statements of Cash Flow
                                 (In millions)
<TABLE>
<CAPTION>

                                                       Nine Months Ended
                                                          September 30,
                                                       -----------------
                                                         1999      1998
                                                       -------   -------
                                                          (unaudited)
<S>                                                   <C>        <C>
Cash Provided by Operating Activities:
  Net income (loss).................................   $ 244.6   $ (43.0)

Adjustments to Reconcile Net Income (Loss) to Cash
 Provided by Operating Activities:
  Depreciation......................................      58.2      38.2
  Amortization of intangible assets.................      30.3      13.1
  Purchased research and development................      49.0     118.7
  Change in deferred income taxes...................      15.7     (42.3)
  Other noncash expenses, net.......................      47.9      54.1
                                                       -------   -------
                                                         445.7     138.8

Changes in Operating Assets and Liabilities:
  Receivables, (increase) decrease..................     (13.6)      2.4
  Inventories, increase.............................     (16.4)    (57.0)
  Prepaid expenses and other assets,
    decrease........................................       0.2       5.3
  Accounts payable and accrued expenses,
    (decrease) increase.............................     (47.6)     18.4
  Income taxes payable, increase (decrease).........     133.1     (27.8)
  Other liabilities, (decrease) increase............    (228.3)    215.8
                                                       -------   -------

Net Cash Provided by Operating Activities...........     273.1     295.9

Investing Activities:
  Additions of property and equipment, net..........    (128.0)    (76.6)
  Purchases of available-for-sale securities........        --      (1.2)
  Sale/maturity of available-for-sale securities....        --      13.1
  Additions of other assets, net....................     (35.3)    (56.6)
  Acquisition and disposition, net of
   cash acquired....................................    (539.2)   (180.7)
                                                       -------   -------

Net Cash Used for Investing Activities..............    (702.5)   (302.0)

Financing Activities:
  Proceeds from long-term borrowings................     346.4        --
  Increase in borrowings, net.......................     207.4      69.6
  Dividends.........................................        --      (5.5)
  Purchases of common stock and other capital
   transactions.....................................    (113.0)    (47.0)
                                                       -------   -------

Net Cash Provided by Financing Activities...........     440.8      17.1

Effect of Exchange Rate Changes on Cash.............      (1.5)       --
                                                       -------   -------

Net Increase in Cash and Cash Equivalents...........       9.9      11.0

Cash and Cash Equivalents at Beginning of Period....      15.6      17.7
                                                       -------   -------

Cash and Cash Equivalents at End of Period..........   $  25.5   $  28.7
                                                       =======   =======
</TABLE>

See notes to consolidated financial statements.

                                       5
<PAGE>

                      GUIDANT CORPORATION and Subsidiaries
                   Notes to Consolidated Financial Statements
                                 (In millions)
                                  (unaudited)

Note 1 - General Information

Guidant Corporation (Guidant or the Company) operates in one segment: the
development, manufacture, and marketing of a broad range of innovative, high-
quality therapeutic medical devices for the treatment of cardiovascular and
vascular diseases. Guidant is a leader in i) minimally invasive procedures used
for opening blocked coronary arteries with coronary stents, coronary balloon
dilatation catheters, and related accessories; ii) automatic implantable
cardioverter defibrillator systems, which are used to detect and treat
abnormally fast heart rhythms (tachycardia); iii) the design, manufacture, and
marketing of a full line of implantable pacemaker systems used to manage slow or
irregular heart rhythms (bradycardia); and iv) products for use in minimally
invasive cardiac and vascular surgeries. Guidant is a global company with
principal operations in the United States, Western Europe, and Japan. The
Company markets its products in over 100 countries through a direct sales force
in the United States and a combination of direct sales representatives and
independent distributors in international markets.


Note 2 - 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
necessary for a fair presentation of results of operations, financial position,
and cash flows in conformity with generally accepted accounting principles. 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, 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, 1998.


Note 3 - Inventories

Inventories consisted of the following:

<TABLE>
<CAPTION>

                                   September 30,  December 31,
                                       1999           1998
                                   -------------  ------------
     <S>                           <C>            <C>

     Finished products                    $122.4        $ 89.9
     Work in process                        62.3          51.9
     Raw materials and supplies             57.6          51.6
                                          ------        ------
                                          $242.3        $193.4
                                          ======        ======
</TABLE>

                                       6
<PAGE>

                      GUIDANT CORPORATION and Subsidiaries
                   Notes to Consolidated Financial Statements

Note 4 - Acquisitions and Disposal

On February 1, 1999, the Company completed its acquisition of the
electrophysiology business of Sulzer Medica, Ltd. (Sulzer), which includes
Intermedics, Inc. (Intermedics), a leader in the manufacture and distribution of
bradycardia pacemakers, for an aggregate cost of $810 million in cash. The
purchase price was based on the aggregate sales volume produced by independent
U.S. representatives of Sulzer who agreed to become Guidant employees. Guidant
received purchase price adjustments, based upon the closing balance sheet of the
electrophysiology business, of $30 million in the second quarter and $14 million
in the third quarter. The final purchase price was also subject to an adjustment
based on the aggregate sales volume produced by the U.S. representatives of the
electrophysiology business who agreed to become employees of Guidant in the six
month period following the closing. This adjustment was paid by Guidant in the
third quarter and increased the purchase price by $6 million. Therefore, as of
September 30, 1999, the aggregate purchase price is $772 million. The
acquisition was accounted for using the purchase method. The consolidated
financial statements include the Intermedics operating results from the date of
acquisition.

The aggregate amount paid to Intermedics includes $200 million required to
settle the Company's intellectual property litigation with Intermedics, which
was payable regardless of the consummation of the acquisition. This litigation
settlement charge was recorded in the third quarter of 1998. The remaining
purchase price has been allocated on a preliminary basis to the assets acquired
and liabilities assumed based on their estimated fair values at the date of
acquisition. Final adjustments will be made over the next two quarters and will
adjust the amount of goodwill recorded in connection with this transaction.

The Company recorded $73 million of liabilities relative to the announced
closing of the acquired facilities and termination of various Intermedics'
contractual commitments. Intangible assets related to developed technology will
be amortized over ten years and intangible assets related to the sales network,
assembled work force, and the excess of cost over net assets acquired (goodwill)
will be amortized over twenty years. The preliminary aggregate purchase price
allocation is as follows:

<TABLE>

<S>                                        <C>
Litigation settlement                      $200
Developed technology                         28
Purchased research and development           49
Sales network and assembled workforce       101
Net tangible assets                         104
Excess of cost over net assets acquired     290
                                           ----
                                           $772
                                           ====
</TABLE>

Liabilities recorded are included in net assets as follows:


Workforce reductions       $45
Contractual commitments     28
                           ---
                           $73
                           ===

                                       7
<PAGE>

                      GUIDANT CORPORATION and Subsidiaries
                   Notes to Consolidated Financial Statements

Note 4 - Acquisitions and Disposal - (Continued)

The majority of these costs will be paid by the end of the first quarter of
2000. Approximately $33 million of the liabilities assumed remain outstanding at
September 30, 1999.

The Company recorded a $49 million charge at the time of the acquisition related
to the ascribed value of Intermedics' in-process technology. The valuation of
this technology was based upon guidelines provided by the Securities and
Exchange Commission and involved an analysis of those projects which had not
reached technological feasibility and had no alternative future use. This charge
reflects the unproven status of these technologies.

The following unaudited pro forma information presents a summary of consolidated
results of operations of the Company and Intermedics as if the acquisition had
occurred at the beginning of each period presented, with pro forma adjustments
to give effect to amortization of intangibles, purchased research and
development, and an increase in interest expense related to acquisition
financing. The pro forma amounts do not reflect any benefits from synergies and
are not necessarily indicative of the results that would have occurred had the
acquisition taken place at the beginning of the specified periods, or the
expected results of future operations.

<TABLE>
<CAPTION>

                                            Nine Months Ended
                                              September 30,
                                              1999      1998
                                            --------  --------
<S>                                         <C>       <C>

Net sales                                   $1,770.6  $1,627.1
Net income                                     229.0      62.0
Net income per share - assuming dilution    $   0.75  $   0.21
</TABLE>

On August 30, 1999, the Company announced the signing of a definitive agreement
to acquire CardioThoracic Systems, Inc. (CTS). CTS has developed a broad range
of products to advance the field of less invasive cardiac surgery and has
pioneered the coronary artery bypass grafting (CABG) procedure performed on a
beating heart, with the CTS OPCAB and CTS MIDCAB access platform and stabilizer
systems. The system enables the CABG procedure to be completed without the use
of cardiopulmonary bypass, potentially reducing post-operative hospital stay and
surgical complications while preserving the high quality clinical outcomes
associated with conventional CABG. CTS has also recently introduced products for
less invasive valve surgery and arrested heart CABG procedures.

Each outstanding share of CTS common stock will be exchanged for shares of
Guidant common stock valued at $19.50 per CTS share assuming the applicable
average price of Guidant common stock, as defined in the agreement, is between
$54.00 and $66.00. This price is defined as the average per share closing price
of Guidant common stock during the twenty trading days preceding the date of the
last trading day prior to the special meeting of the CTS shareholders, which is
scheduled for November 15, 1999. If the applicable average selling price of
Guidant common stock is at or above $66.00, each CTS share will be exchanged for
 .2955 of a share of Guidant common stock. If it is at or below $54.00, each CTS
share will be exchanged for .3611 of a share of Guidant common stock. If it is
less than $47.00, CTS has the right to terminate the merger agreement. CTS has
approximately 16 million shares outstanding on a fully diluted basis. The
transaction will be a tax-free exchange and will be

                                       8
<PAGE>

                      GUIDANT CORPORATION and Subsidiaries
                   Notes to Consolidated Financial Statements

Note 4 - Acquisitions and Disposal - (Continued)

accounted for as a pooling of interests. Closure of the transaction is subject
to certain conditions, including approval by CTS shareholders. Upon closure of
the transaction, which is expected in the fourth quarter of 1999, Guidant will
record a one-time acquisition and transition-related charge.

On July 7, 1999, the Company reached a definitive agreement to sell the assets
related to its general surgery product line. The financial impact of the
disposal is not material to the consolidated financial statements and is
included in "other, net" in the income statement in the third quarter of 1999.
The loss on disposal of this product line includes certain costs incurred by
Guidant to exit the general surgery product line including termination of supply
agreements, contractual lease obligations, transition packages to transferring
employees, as well as general transaction costs. The sale does not include any
of the products for cardiac surgery applications, including the VASOVIEW UNIPORT
and the VASOVIEW UNIPORT Plus Systems, which are used for endoscopic saphenous
vein harvesting. Under the terms of the agreement, the Company has retained the
ability to apply certain of the technologies that are being transferred as part
of the transaction to cardiac & vascular surgery products that are either
currently in development or will be developed in the future.


Note 5 - Borrowings

As of September 30, 1999, the Company's outstanding borrowings consisted of:

<TABLE>
<CAPTION>


                    September 30,  December 31,
                        1999           1998
                    -------------  ------------
<S>                 <C>            <C>

Commercial paper           $445.0        $230.5
Bank borrowings             208.0         214.0
Long-term notes             346.5            --
                           ------        ------
                           $999.5        $444.5
                           ======        ======

</TABLE>

The acquisition of Intermedics was initially financed with commercial paper. On
February 11, 1999, the Company issued seven-year 6.15% notes with a $350 million
principal amount to replace a portion of the commercial paper. In order to
support the additional commercial paper, the Company increased its credit
facilities with certain banks. At September 30, 1999, the Company had a $400
million facility that permits borrowings through August 2003 and a $450 million
facility that permits borrowings through August 2000 that would be due and
payable one year from that date. There are currently no outstanding borrowings
under these arrangements which carry a variable market rate of interest.
Restrictive covenants in the borrowing agreements are unchanged from year-end.

Bank borrowings represent short-term uncommitted credit facilities with various
commercial banks. The Company expects that approximately $223 million in
commercial paper borrowings will remain outstanding throughout the next twelve
months and, accordingly, has classified that portion of commercial paper as
long-term debt at September 30, 1999. The weighted average interest rate on
borrowings outstanding at September 30, 1999 was 5.67% compared to 5.39% at
December 31, 1998.

                                       9
<PAGE>

                      GUIDANT CORPORATION and Subsidiaries
                   Notes to Consolidated Financial Statements

Note 6 - Earnings Per Share

The following table sets forth the computation of earnings (loss) per share:
<TABLE>
<CAPTION>
                                               Three Months Ended    Nine Months Ended
                                                  September 30,        September 30,
                                               -------------------  -------------------
                                                  1999      1998       1999      1998
                                                -------   -------    -------   -------
<S>                                            <C>       <C>        <C>        <C>
Income (loss) before cumulative effect of
accounting change............................   $  98.7   $(177.0)   $ 247.9   $ (43.0)

Cumulative effect of accounting change, net..        --        --       (3.3)       --
                                                -------   -------    -------   -------

Net income (loss)............................   $  98.7   $(177.0)   $ 244.6   $ (43.0)
                                                =======   =======    =======   =======

Weighted-average common shares outstanding...    295.31    294.66     295.24    294.60

Effect of employee stock options.............     10.23        --      10.39        --
                                                -------   -------    -------   -------

Weighted-average common shares outstanding,
assuming dilution............................    305.54    294.66     305.63    294.60
                                                =======   =======    =======   =======

Earnings (loss) per share:

Income (loss) before cumulative effect of
accounting change............................   $  0.33   $ (0.60)   $  0.84   $ (0.15)

Cumulative effect of accounting change, net..        --        --      (0.01)       --
                                                -------   -------    -------   -------

Earnings (loss) per share....................   $  0.33   $ (0.60)   $  0.83   $ (0.15)
                                                =======   =======    =======   =======
Earnings (loss) per share - assuming dilution:

Income (loss) before cumulative effect of
accounting change............................   $  0.32   $ (0.60)   $  0.81   $ (0.15)

Cumulative effect of accounting change, net..        --        --      (0.01)       --
                                                -------   -------    -------   -------
Earnings (loss) per share -
assuming dilution............................   $  0.32   $ (0.60)   $  0.80   $ (0.15)
                                                =======   =======    =======   =======
</TABLE>

                                       10
<PAGE>

                     GUIDANT CORPORATION and Subsidiaries
                  Notes to Consolidated Financial Statements

Note 7  - Comprehensive Income

Comprehensive income comprises net income adjusted for the changes in unrealized
gains or losses on available-for-sale securities and foreign currency
translation adjustments. For the third quarter of 1999 and 1998, comprehensive
income (loss) was $104.6 million and ($171.0) million, respectively.
Comprehensive income (loss) for the nine months ended September 30, 1999 and
1998 was $226.9 million and ($40.0) million, respectively.


Note 8 - New Accounting Pronouncements

Effective January 1, 1999, the Company adopted the American Institute of
Certified Public Accountants' Statement of Position (SOP) 98-5, Reporting on the
Costs of Start-Up Activities, which requires that all start-up costs, as defined
by the statement, be expensed as incurred. This change in accounting principle
resulted in a pretax cumulative effect adjustment (charge) of $5.3 million ($3.3
million after tax; $0.01 per share). Prior to January 1, 1999, these costs were
capitalized and depreciated over periods of up to five years.

In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standard (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities, which establishes accounting and reporting
standards for derivative financial instruments and hedging activities. This
pronouncement has been delayed by the FASB and is now required to be adopted in
fiscal years beginning after June 15, 2000. SFAS No. 133 will require, among
other things, the Company to recognize all derivatives as either assets or
liabilities on the balance sheet at fair value. Derivatives not qualifying as
hedges must be adjusted to fair value through income. If the derivative is a
hedge, changes in its fair value will either be offset against the change in
fair value of the hedged assets, liabilities, or firm commitments through income
or recognized in other comprehensive income. Hedge ineffectiveness, the amount
by which the change in the value of a hedge does not exactly offset the change
in the value of the hedged item, will be immediately recognized in earnings.
Management has not yet determined the effect SFAS No. 133 will have on the
Company or when the statement will be adopted.

                                       11
<PAGE>

                     GUIDANT CORPORATION and Subsidiaries
                  Notes to Consolidated Financial Statements

Note 9 - Segment Information
<TABLE>
<CAPTION>
                                                  Three Months Ended         Nine Months Ended
                                                    September 30,              September 30,
Geographic Information:                           1999        1998            1999       1998
                                                 -------     -------         -------   --------
<S>                                              <C>          <C>           <C>        <C>
Net Sales(1):
United States                                     $391.0      $320.3        $1,242.3   $1,048.3
International                                      169.9       125.1           512.2      355.2
                                                  ------      ------        --------   --------

                                                  $560.9      $445.4        $1,754.5   $1,403.5
                                                  ======      ======        ========   ========
</TABLE>

(1) Revenues are attributed to countries based on location of the customer.
<TABLE>
<CAPTION>
                                                     September 30,           December 31,
Long-lived Assets:                                       1999                    1998
                                                       --------                 ------
<S>                                                    <C>                       <C>
United States                                          $1,168.7                  $678.4
International                                              71.0                    53.8
                                                       --------                  ------
                                                       $1,239.7                  $732.2
                                                       ========                  ======
</TABLE>
<TABLE>
<CAPTION>
                                                Three Months Ended          Nine Months Ended
Net Sales of Classes                                September 30,              September 30,
of Similar Products:                             1999        1998           1999         1998
                                               -------      ------        --------     --------
<S>                                             <C>         <C>           <C>          <C>
Vascular intervention                           $290.1      $216.0        $  932.0     $  739.4
Cardiac rhythm management                        266.3       213.4           781.7        613.9
Cardiac & vascular surgery                         4.5        16.0            40.8         50.2
                                                ------      ------        --------     --------

                                                $560.9      $445.4        $1,754.5     $1,403.5
                                                ======      ======        ========     ========
</TABLE>
Note 10 - Foundation Contribution

In the third quarter of 1999, Guidant contributed an equity investment worth
$20.2 million to the Guidant Foundation, Inc.  A total of $16.6 million of non-
cash gains have been recognized on this equity investment in the nine months
ended September 30, 1999.  The gain on the equity investment is included in
"other, net" on the income statement.

Note 11 - Contingencies

The Company is a party to various legal actions which have arisen in the normal
course of business.

In a lawsuit originally filed against Advanced Cardiovascular Systems, Inc.
("ACS"), a wholly owned subsidiary of the Company, on May 31, 1994, in the
Northern District of California, SciMed Life Systems, Inc., ("SciMed") a
subsidiary of Boston Scientific Corporation, ("BSC") alleged that the ACS RX
ELIPSE Coronary Dilatation Catheter infringes certain patents owned by SciMed.
Subsequently, the complaint was amended to further allege infringement by the
ACS RX MULTI-LINK Coronary Stent System.  On June 15, 1999, the court entered

                                       12
<PAGE>

                     GUIDANT CORPORATION and Subsidiaries
                  Notes to Consolidated Financial Statements

Note 11 - Contingencies - (Continued)

an order granting a motion for summary judgment of non-infringement in favor of
ACS.  By granting ACS' motion, the court found that neither of the accused
products infringes the patents asserted by SciMed.  As a result, the court
entered judgment in favor of ACS and closed the case.  SciMed has filed a Notice
of Appeal.

On October 10, 1995, ACS filed suit against Medtronic in the Northern District
of California alleging that the Medtronic FALCON coronary dilatation catheter
infringes Yock U.S. Patent No. 5,451,233 (Civil Action No. C95-03577).  On
August 25, 1999, the Court granted ACS' motions for summary judgment of
infringement, validity, and enforceability of the patent.  A jury trial was held
from October 25, 1999 to November 3, 1999 on ACS' claim of willful infringement
and damages.  On November 3, 1999, the jury returned its verdict finding that
Medtronic had willfully infringed the patent and awarded ACS $5.4 million in
damages.  The Court has scheduled a hearing for December 15, 1999 on ACS'
requests for injunctive relief, enhanced damages, pre-judgment interest, costs,
and to declare the case exceptional.

On March 12, 1996, ACS filed suit against SciMed in the Northern District of
California alleging that SciMed's Trio/Bandit line of coronary dilatation
catheters infringes a patent of ACS'.  On June 22, 1999, the court granted ACS'
motions for summary judgment of validity and infringement of its patent, and
denied the parties' other summary judgment motions, including SciMed's motions
for summary judgment of invalidity and no willful infringement of the ACS patent
and ACS motion for summary judgment of enforceability.  In the lawsuit, ACS is
seeking injunctive relief and monetary damages.  Trial of the remaining issues
is currently scheduled to commence on February 7, 2000.

On May 3, 1996, Pacesetter, Inc., filed suit against Cardiac Pacemakers, Inc.
("CPI"), a wholly owned subsidiary of the Company, in the District Court for
Minnesota.  The complaint, as subsequently amended, alleged infringement of
certain Pacesetter patents by certain CPI pacemaker models and programmers for
pacemakers and defibrillators.  The lawsuit sought injunctive relief,
unspecified monetary damages, and an award of attorneys' fees.  On December 16,
1998, following a trial on the merits, the jury of the District Court of
Minnesota returned a verdict finding no liability by CPI on two of the three
patents asserted by Pacesetter, and infringement by software in CPI programmers
adapted for use with certain pacemakers and defibrillators of the third patent.
The jury awarded Pacesetter damages in the amount of $9.7 million, which the
Company has accrued.  The court is currently considering (1) Pacesetter's
request for an injunction, (2) Pacesetter's request to overturn the jury's
verdict of no liability on one patent, and (3) the Company's request that the
court overturn the jury's verdict of liability and declare Pacesetter's patent
not infringed and invalid.

On May 28, 1996, Origin Medsystems, Inc. ("Origin"), a wholly-owned subsidiary
of the Company, filed suit against General Surgical Innovations, Inc. ("GSI")
in the Northern District of California alleging that GSI's Spacemaker balloon
products infringe a patent of Origin.  In the lawsuit, Origin is seeking
injunctive relief and monetary damages.  On April 20, 1998 GSI's motion for
summary judgment that the Origin patent was obtained by inequitable conduct was
granted.  On November 2, 1998 the Court awarded GSI its attorneys' fees.  Origin
appealed both decisions.  On July 16, 1999 the Court of Appeals for the

                                      13
<PAGE>

                     GUIDANT CORPORATION and Subsidiaries
                  Notes to Consolidated Financial Statements

Note 11 - Contingencies - (Continued)

Federal Circuit vacated the summary judgment of inequitable conduct and remanded
the case to the district court for further proceedings.  On August 31, 1999, the
Federal Circuit vacated the award of attorneys' fees.

On June 4, 1996, GSI filed suit against Origin in the Northern District of
California alleging that Origin's VASOVIEW Balloon Dissection System,
Preperitoneal Distention Balloon (PDB) Systems and Extraview Balloon Systems
infringe a patent owned by GSI.  GSI's motion for summary judgement of
infringement was granted on October 29, 1998, and a trial was held on the
validity of the GSI patent, willful infringement and damages.  On February 8,
1999, the jury determined the patent to be valid and infringement to be willful,
and awarded GSI approximately $12.9 million in damages, which the Company has
accrued.  GSI filed post-trial motions seeking injunctive relief, enhancement of
damages and a declaration that the case was exceptional so as to provide a basis
for an award of attorneys' fees.  By an order and judgment entered on April 16,
1999, the court declined GSI's requests to increase damages and to declare the
case exceptional.  An injunction was issued enjoining sales of the accused
Origin products for use in the United States, but the implementation was stayed
until November 15, 1999, as to customers who were users of the products as of
February 8, 1999, subject to Origin paying to GSI a 30% royalty.  Origin has
appealed issues of infringement and willfulness, and GSI has appealed issues of
infringement, enhanced damages, and attorneys' fees.

On September 24, 1997, GSI filed a second suit against Origin in the Northern
District of California alleging that Origin's VASOVIEW Balloon Dissection System
infringes another patent owned by GSI.  GSI is seeking injunctive relief and
monetary damages.  On July 6, 1999, GSI amended its complaint to add an
additional patent and Origin's PDB and ExtraView Systems to the suit.  On July
19, 1999 the district court entered an order staying all proceedings pending the
outcome of the appeal in the first GSI case.

On October 3, 1997, Cordis Corporation ("Cordis"), a subsidiary of Johnson and
Johnson, filed suit against the Company and ACS in the District Court of
Delaware, alleging that the sale of the ACS MULTI-LINK Coronary Stent infringes
certain patents licensed to Cordis.  In addition, on October 8, 1997, Cordis
filed a motion for a preliminary injunction in this lawsuit seeking to prevent
the Company from selling the ACS MULTI-LINK Coronary Stent other than in certain
limited circumstances and subject to certain conditions.  On October 22, 1997,
Cordis amended its complaint to include Arterial Vascular Engineering, Inc.
("AVE") and BSC as co-defendants.  A hearing on the motion for a preliminary
injunction was held in February 1998 and in July 1998, the court denied Cordis'
motion for a preliminary injunction.  On October 27, 1998, one of the patents
asserted against the Company and ACS emerged from reexamination filed by Cordis.
On April 1, 1999, Cordis filed a motion to again amend its complaint to add
allegations of infringement of the reexamined patent and a new patent that was
issued on May 11, 1999, and to add the ACS MULTI-LINK DUET Coronary and MEGALINK
Peripheral Stents as well.  The motion was granted by the court on May 13, 1999.
In the lawsuit, Cordis is seeking injunctive relief and monetary damages.

On November 6, 1997, Medtronic, Inc., filed suit against ACS in the District
Court of Minnesota, alleging that the ACS RX MULTI-LINK Coronary Stent infringes
a patent owned by Medtronic.  On September 16, 1999, the court issued a Markman
ruling construing some of the claim terms.  A trial by jury began on October

                                       14
<PAGE>

                     GUIDANT CORPORATION and Subsidiaries
                  Notes to Consolidated Financial Statements

Note 11 - Contingencies - (Continued)

18, 1999. A jury verdict is expected in late November or early December 1999,
with a final judgement to follow. In the suit, Medtronic seeks an injunction
against further manufacture and sale of the product in the U.S. and monetary
damages. The damage claim presently asserted by Medtronic is for approximately
$300 million, and it is further alleged that damages should be trebled and
attorneys' fees awarded to Medtronic on the basis of its claim of willful
infringement. Medtronic has recently filed a new complaint in a separate suit to
add allegations of infringement of the same patent by the ACS MULTI-LINK DUET
and SOLO Coronary Stents and MEGALINK Peripheral Stent. Additionally, Medtronic
is seeking to amend the new complaint to include the ACS OTW MULTI-LINK Coronary
Stent. In this new complaint, Medtronic also seeks injunctive relief and
monetary damages.

On December 2, 1997, Cordis filed suit against Guidant and ACS in the District
Court of Delaware, alleging that the ACS RX ROCKET Coronary Dilatation Catheter
infringes patents owned by Cordis.  Cordis also filed a motion for a preliminary
injunction, which the court denied on September 10, 1999.  On September 17,
1999, the court dismissed Guidant for lack of personal jurisdiction, leaving ACS
as the sole defendant in the case.  In the lawsuit, Cordis is seeking injunctive
relief, monetary damages, and attorneys' fees.  A separate lawsuit was also
filed against the Company in December 1997 in the Netherlands alleging
infringement of the European equivalents of these patents.  In this separate
lawsuit, Cordis is seeking injunctive relief and monetary damages.

On February 18, 1998, AVE filed suit against ACS in the District Court of
Delaware alleging that the sale of the ACS MULTI-LINK Coronary Stent infringes
certain patents owned by AVE.  The lawsuit also alleges misappropriation of
trade secrets and breach of a confidentiality agreement by ACS.  In the lawsuit,
AVE is seeking injunctive relief, monetary damages, and to invalidate certain
ACS stent patents.

On August 12, 1998, ACS and Guidant Sales Corporation ("GSC") filed suit against
BSC and SciMed in the Southern District of Indiana alleging that SciMed's NIR
stent infringes certain patents of ACS.  In the lawsuit ACS is seeking
injunctive relief and monetary damages.  On October 15, 1999, the court entered
an order construing the claims.  The trial is scheduled to commence in February,
2000.

On December 29, 1998, SciMed filed suit against the Company in the Hague, the
Netherlands, alleging infringement of a European Patent owned by SciMed by the
ACS RX ELIPSE Coronary Dilatation Catheter and the ACS RX MULTI-LINK, ACS RX
MULTI-LINK HP, and ACS MULTI-LINK RX DUET Coronary Stent Systems.  SciMed is
seeking injunctive relief and monetary damages.  A hearing of the case was held
on November 5, 1999.  The Court is expected to render its decision on December
22, 1999.  ACS's opposition to the SciMed patent filed in the European Patent
Office has not yet been ruled on.

On January 13, 1999, SciMed filed suit against the Company, ACS, and GSC in the
Northern District of California alleging that ACS' RX MULTI-LINK, RX MULTI-LINK
HP, and MULTI-LINK RX DUET Coronary Stent Systems infringe certain SciMed
patents.  In the lawsuit, SciMed is seeking injunctive relief and monetary
damages.

                                       15
<PAGE>

                     GUIDANT CORPORATION and Subsidiaries
                  Notes to Consolidated Financial Statements

Note 11 - Contingencies - (Continued)

On February 1, 1999, Deborah Charms filed suit against the Company and CPI in
the United States District Court for the Western District of Texas alleging that
unspecified defibrillation products of CPI infringe a patent owned by Charms.
In the lawsuit, Charms is seeking injunctive relief and unspecified monetary
damages.

On March 31, 1999, Pacesetter, Inc. filed suit against GSC and CPI in the
Central District of California, alleging that rate responsive pacemakers or
defibrillators having rate responsive pacing (including, by name the VIGOR SR
and VIGOR DR pacemakers) infringe two patents owned by Pacesetter. In the
lawsuit, Pacesetter is seeking injunctive relief and monetary damages.

The Company believes that it has substantial and meritorious defenses against
the above infringement claims and intends to vigorously contest them.  The
Company has filed suit and has lawsuits and other legal actions currently
outstanding against most of the companies discussed above.  While it is not
possible to predict or determine the outcomes of the legal actions brought
against it, or to provide an estimate of any additional losses, if any, that may
arise, the Company believes the costs associated with all of these actions will
not have a material adverse effect on its consolidated financial position or
liquidity, but could possibly be material to the consolidated results of
operations of any one period.

Further, product liability claims may be asserted in the future relative to
events currently unknown to management.  Management believes that the Company's
risk-management practices, including insurance coverage, are reasonably adequate
to protect against potential product liability losses.

                                       16
<PAGE>

Item 2.  Management's Discussion and Analysis of Results of Operations and
         Financial Condition

Guidant Corporation (Guidant or the Company), is a global company that designs,
develops, manufactures, and markets a broad range of innovative, high-quality
therapeutic devices for use in: (i) vascular intervention (VI), (ii) cardiac
rhythm management (CRM), and (iii) cardiac and vascular surgery (C&VS).

Cardiovascular disease continues to be the leading cause of death in the United
States.  Guidant's business strategy is to design, develop, manufacture, and
market innovative, high-quality therapeutic products principally for use in
treating cardiovascular and vascular diseases which result in improved quality
of patient care and reduced treatment costs.  In implementing this strategy, the
Company focuses on the following three areas, which it believes are critical to
its future success:  (i) global product innovation, (ii) economic partnerships
with customers worldwide, and (iii) organizational excellence.

                                      17
<PAGE>

The following tables are summaries of the Company's net sales and major costs
and expenses excluding the impact of special items. For purposes of analysis and
discussion herein, the Company employs a concept of operating income, which is
defined as income before special items, and excludes the items under the
category, "other income (expenses)", as set forth on the consolidated statements
of income on page 2, and accounting changes.

<TABLE>
<CAPTION>
                                        Three Months Ended        Nine Months Ended
                                           September 30,             September 30,
                                        ------------------        ------------------
                                          1999       1998           1999       1998
                                        --------   -------        --------   -------
<S>                                     <C>        <C>             <C>       <C>
                                                       (Dollars in millions)
                                                            (unaudited)

Vascular intervention                   $  290.1   $  216.0       $  932.0   $  739.4
Cardiac rhythm management                  266.3      213.4          781.7      613.9
Cardiac & vascular surgery                   4.5       16.0           40.8       50.2
                                        --------   --------       --------   --------
 Total net sales                        $  560.9   $  445.4       $1,754.5   $1,403.5

Cost of products sold                      132.8       95.7          418.8      313.1
                                        --------   --------       --------   --------

 Gross profit                              428.1      349.7        1,335.7    1,090.4

Research and development                    73.3       70.0          233.8      197.8
Sales, marketing, and administrative       163.8      135.2          502.4      411.4
                                        --------   --------       --------   --------
                                           237.1      205.2          736.2      609.2

Operating income                        $191.0(1)  $144.5(2)      $599.5(1)  $481.2(3)
                                        ========   ========       ========   ========

                                                  As a Percent of Net Sales
                                       -----------------------------------------------
                                        Three Months Ended        Nine Months Ended
                                           September 30,             September 30,
                                        -------------------       --------------------
                                          1999       1998           1999       1998
                                        --------   --------       --------   ---------
                                        <C>        <C>             <C>        <C>
Vascular intervention                       51.7%      48.5%          53.1%        52.7%
Cardiac rhythm management                   47.5       47.9           44.6         43.7
Cardiac & vascular surgery                   0.8        3.6            2.3          3.6
                                        --------   --------       --------     --------
 Total net sales                           100.0%     100.0%         100.0%       100.0%

Cost of products sold                       23.7       21.5           23.9         22.3
                                        --------   --------       --------     --------

 Gross profit                               76.3       78.5           76.1         77.7

Research and development                    13.1       15.7           13.3         14.1
Sales, marketing, and administrative        29.1       30.4           28.6         29.3
                                        --------   --------       --------     --------
                                            42.2       46.1           41.9         43.4

Operating income                            34.1%(1)   32.4%(2)       34.2%(1)     34.3%(3)
                                        ========   ========       ========     ========
</TABLE>

/(1)/Excludes a contribution to the Guidant Foundation of $20.2 million in the
third quarter of 1999 and a purchased research and development charge of $49.0
million in the first quarter of 1999. Also excludes the impact of stay-pay and
the purchase accounting write-up of acquired Intermedics inventory sold for a
total of $9.8 million in the third quarter of 1999 and $31.1 million for the
nine months ended September 30, 1999. Therefore, the cost of products sold,
gross profit, research and development, and sales, marketing, and administrative
lines displayed above do not agree to the reported consolidated statement of
income presentation.

/(2)/Excludes purchased research and development charges of $90 million in 1998
related to the acquisition of InControl, Inc.

/(3)/Excludes purchased research and development charges of $118.7 million in
1998 which represents the appraised value of in-process research and development
recognized in conjunction with the asset acquisitions of InControl, Inc. and
NeoCardia, LLC.

                                       18
<PAGE>

Operating Results - Three and Nine Months Ended September 30, 1999

The Company had net sales of $560.9 million for the three months ended September
30, 1999, reflecting an increase of $115.5 million or 26% over the same period
in 1998. Significant growth in unit volume of 30% was partially offset by net
sales price declines of 4%, which includes the effect of changes in product mix.

The Company had worldwide net sales of $1,754.5 million for the nine months
ended September 30, 1999, reflecting an increase of $351.0 million or 25% over
the nine months ended September 30, 1998. Growth in unit volume of 30% was
partially offset by net sales price declines of 5%, including changes in
worldwide product mix. The impact of foreign currency exchange rate fluctuations
was not significant for the three and nine month periods ended September 30,
1999, as compared to the same periods ended September 30, 1998.

Net sales of VI products for the three months ended September 30, 1999, were
$290.1 million, an increase of $74.1 million or 34.3% from the same period in
1998. Net sales of VI products for the nine months ended September 30, 1999 were
$932.0 million, an increase of $192.6 million or 26.0% over the comparable
period in 1998. This sales growth was due to the continued enthusiastic customer
acceptance of the ACS MULTI-LINK DUET Coronary Stent System in the U.S., the ACS
MULTI-LINK in Japan, and, to a lesser extent, a selective release of the ACS
MULTI-LINK TRISTAR in various European countries during the third quarter of
1999. The MULTI-LINK TRISTAR Coronary Stent System was fully launched in Europe
during September 1999. It is Guidant's next generation stent featuring
improvements designed to increase ease of stent placement and reduce vessel
injury, which is believed to contribute to vessel reclosure.

Coronary stent sales experienced growth in all major markets. Worldwide coronary
stent sales during the third quarter of 1999 were $205.1 million, compared to
$138.6 million in the third quarter of 1998. Sales of these products during the
nine months ended September 30, 1999 were $679.1 million compared to $498.7
million during the same period in 1998. Sales of coronary stents in the United
States of $146.9 million increased 48.5% in the third quarter of 1999 compared
to the third quarter of last year. Sales of these products in the United States
during the nine months ended September 30, 1999, were $508.0 million compared to
$403.4 million during the same period in 1998. Sales of coronary stents in
international markets increased 46.9% in the third quarter to $58.3 million,
while sales of these products during the nine months

                                       19
<PAGE>

ended September 30, 1999 were $171.1 million compared to $95.4 million during
the same period in 1998. Although management believes stent sales in the fourth
quarter of 1999 will be consistent with sales in the fourth quarter of 1999,
they could decline relative to the third quarter of 1998 due to increased market
competition, particularly in the U.S.  Fourth quarter stent revenues will be
impacted by the timing of receipt of FDA approval to market the MULTI-LINK
TRISTAR Coronary Stent in the U.S.  Guidant filed for approval with the FDA in
June 1999.  There can be no assurance that the FDA will approve the ACS MULTI-
LINK TRISTAR Coronary Stent in the fourth quarter.

Total angioplasty sales, which include coronary balloon dilatation catheters,
increased 5.9% during the third quarter of 1999 to $79.2 million compared to the
third quarter of 1998.  Sales of such products during the nine months ended
September 30, 1999 of $238.3 million increased 2.3% compared to the same period
in 1998.  Management believes utilization of balloons in coronary stent
procedures is decreasing due to the current prevalence of delivery systems that
utilize high pressure for device placement.  As a result, post-stent dilatation
balloon units have declined.

Comparing the three and nine months ended September 30, 1999 to the three and
nine months ended September 30, 1998, the Company experienced pricing pressure
on VI products, including coronary balloon dilatation catheters and, to a lesser
extent, coronary stents.  The average sales price decline on a Guidant stent
from the second quarter of 1999 to the third quarter was 1% in the United
States.  The decline from the third quarter of 1998 was 5%.  The Company
believes that pricing pressures on VI products may continue.  Some of the price
decline on stents is influenced by usage mix shifts toward lower priced, shorter
length stents.

Sales of CRM products of $266.3 million during the third quarter of 1999
increased $52.9 million or 24.8% from the same period in 1998.  Net sales of CRM
products for the nine months ended September 30, 1999 were $781.7 million, an
increase of $167.8 million or 27.3% from the same period in 1998.  Pacemaker
products experienced substantial sales growth during 1999.  United States and
international sales of these products increased 74.1% and 126.5%, respectively,
for the third quarter of 1999 compared to the third quarter of 1998.  For the
nine months ended September 30, 1999, compared to the nine months ended
September 30, 1998, sales of these products increased 87.4% and 112.8% in the
United States and internationally, respectively.  This sales growth was driven

                                       20
<PAGE>

by the acquisition of Intermedics, the continuing popularity of the DISCOVERY
and MERIDIAN pacing devices launched in the U.S. and Europe in the first half of
1998, and the PULSAR and PULSAR MAX Dual-Sensor Pacemaker Systems launched in
the U.S. in June 1999. The PULSAR MAX system provides a sophisticated blended
dual sensor adaptive-rate therapy designed to match the pacing rate provided by
the pacemaker to individual patient needs.

AICD systems sales declined 7.3% and 3.2% for the three and nine month periods
ended September 30, 1999, as compared to the same periods in 1998 due to the
introduction of competitive devices, which reflect continued competition in the
U.S. market for dual chamber devices.  In addition, the third quarter of 1998
benefited from the March 1998 U.S. market release of the VENTAK AV II DR.  The
VENTAK AV II DR was the world's first implantable defibrillator system to
incorporate dual-chamber adaptive-rate pacing capability.  AICD systems sales
were $135.1 million in the third quarter and $414.2 million for the nine months
ended September 30, 1999.  Management anticipates that fourth quarter 1999 AICD
sales will be consistent with the fourth quarter of 1998.  The VENTAK VR was
released in the United States in May 1999.  This device offers single-chamber,
adaptive-rate pacing capability combined with cardioversion and defibrillation
therapies.  Also in May 1999, the results of the Multicenter Unsustained
Tachycardia Trial (MUSTT) were presented.  This trial showed a 74% reduction in
sudden cardiac death for certain patients with coronary heart disease who
received an implantable cardioverter defibrillator compared to patients treated
with conventional antiarrhythmic drugs.

Net sales of C&VS products in the third quarter of 1999 were $4.5 million, which
decreased from $16.0 million in the same period in 1998 due to the sale of the
product line referred to below.  Net sales of C&VS products for the nine months
ended September 30, 1999 were $40.8 million, a decrease of $9.4 million or 18.7%
over the comparable period in 1998. On July 7, 1999, the Company reached a
definitive agreement to sell its general surgery product line.  The financial
impact of the disposal of this product line was recorded in the third quarter of
1999 and was not material to Guidant's consolidated financial results.  The sale
of the general surgery product line decreased Guidant's third quarter sales
growth by four percentage points.

Guidant received FDA approval to market the ANCURE System for minimally invasive
treatment of abdominal aortic aneurysm (AAA) in the U.S. in late September 1999.
AAA is an enlargement of the aorta resulting from a weakening

                                       21
<PAGE>

of the vessel wall. The ANCURE, which offers an alternative to open surgery for
repair of certain AAA's, has precisely positioned hooks and a one-piece
polyester body that allows the implant to adapt to changes that occur over time
within the aorta, while maintaining the implant's original position. Commercial
shipments and implants began in early October 1999. The Company has filled 100%
of its training capacity for hospitals and physician teams for the rest of the
year and will have over 100 hospitals trained by the end of 1999. The Company
expects to have an additional 500 hospitals trained during 2000.

The Company experienced sales growth both in the United States and international
markets during the third quarter of 1999 over the third quarter of 1998.  During
the third quarter of 1999, net sales in the United States of $391.0 million
increased 22.1%, while international net sales of $169.9 million increased 35.8%
compared to the third quarter of 1998.  For the nine months ended September 30,
1999, U.S. net sales increased 18.5% to $1,242.3 million and international net
sales increased 44.2% to $512.2 million, as compared to the same period in 1998.
U.S. net sales growth was primarily due to sales of the ACS MULTI-LINK DUET
Coronary Stent System, incremental sales due to the Intermedics acquisition, and
sales of pacemaker systems such as DISCOVERY and MERIDIAN and the PULSAR MAX.
International net sales growth was primarily driven by the ACS MULTI-LINK
TRISTAR in Europe for the third quarter of 1999 and the MULTI-LINK RX DUET for
the nine months ended September 30, 1999 in Europe, ACS RX MULTI-LINK in Japan,
ACS RX GEMINI coronary dilatation catheter primarily in European markets, and
the incremental sales due to the Intermedics acquisition in all international
markets.

For the three and nine month periods ended September 30, 1999, cost of products
sold includes the impact of purchase accounting adjustments related to the
write-up of acquired Intermedics inventory sold and the impact of stay-pay for
Intermedics manufacturing personnel.  The impact of these two items was $8.3
million and $26.2 million for the three and nine month periods ended September
30, 1999, respectively.  Excluding these charges, costs of products sold
represented 23.7% and 23.9%, respectively, of net sales for the three and nine
months ended September 30, 1999, compared to 21.5% and 22.3% for the same
periods in 1998.  The increase in adjusted cost of products sold as a percent of
sales over 1998 primarily reflects the impact of the sale of Intermedics
products, which have lower gross margins, start up costs for new products, and
costs associated with Guidant's new Ireland manufacturing facility.  Adjusted
gross profit as a percent of sales for the third quarter of 1999 of 76.3%

                                       22
<PAGE>

represents an improvement of 60 basis points over the second quarter of 1999.
This improvement primarily relates to less unfavorable CRM absorption and CRM
product mix.

The Company continued its commitment to achieving long-term growth by investing
significant resources in research and development.  Excluding stay-pay in 1999,
research and development spending as a percent of net sales was 13.1% and 15.7%
in the third quarters of 1999 and 1998, respectively, and 13.3% and 14.1% for
the nine months ended September 30, 1999 and 1998, respectively.  Adjusted
research and development expenses of $73.3 million increased $3.3 million or
4.7% during the third quarter of 1999 compared to the same period in 1998.  For
the nine months ended September 30, 1999, adjusted research and development
expenses increased $36.0 million or 18.2% over the comparable period in 1998.
These spending increases resulted primarily from: (i) new product development
costs related to future generations of AICDs, pacemakers, coronary stents, and
dilatation catheters; (ii) the acquisition of Intermedics and its related
incremental spending; (iii) development of radiation therapy devices for
coronary restenosis; (iv) development of stent technology for other parts of the
vascular anatomy, such as peripheral and carotid arteries; (v) development of
treatments for atrial arrhythmias; and (vi) clinical evaluation of implantable
device systems for treatment of heart failure.  The Company intends to maintain
its commitment to bring new technologies to the market and provide cost-
effective therapies to people who suffer from cardiovascular diseases.  As a
result, the Company believes adjusted research and development spending will be
approximately 14% of net sales in 1999.

On February 1, 1999, the Company completed the acquisition of Intermedics, a
leading designer, manufacturer, and marketer of cardiac rhythm management
products.  Intermedics' products include bradycardia pacemakers, leads, and
programmers.  The aggregate purchase price of the Intermedics acquisition of
$772 million has been allocated on a preliminary basis to the assets acquired
and liabilities assumed based on their estimated fair values at the date of
acquisition and a settlement of litigation.  Intangible assets acquired will be
amortized over their estimated useful lives.  Developed technology will be
amortized over ten years, while the sales network, assembled work force, and the
excess of cost over net assets acquired will be amortized over twenty years.

                                       23
<PAGE>

The valuation of purchased research and development represents the estimated
fair value related to incomplete projects.  The in-process technology acquired
in the Intermedics acquisition consists of bradycardia research and development
projects which will be integrated into existing Guidant products.  This
technology relates to increased longevity, expanded diagnostics, connector
technology, and pacing technology.  Management anticipates that these
technologies will be on the market in late 2000 and will cost approximately $20
- $30 million to complete.  In addition, Guidant acquired the THINLINE pacing
lead family from Intermedics.  This product, which will be available in silicone
or polyurethane, is presently in clinical trials and will have lower profile and
improved radiopacity.  Management anticipates that this product will also be on
the market in late 2000 and will cost approximately $8 - $10 million to
complete.  At the acquisition date, the technological feasibility of the new
THINLINE products and the new bradycardia technologies had not been established,
and the in-process technology had no alternative uses.  A 20% discount rate was
used in calculating the net present value of cash flows.  As a result of this
analysis, the Company recognized a pre-tax charge of $49 million in the first
quarter of 1999 related to the appraised value of in-process research and
developed technology.

Adjusted sales, marketing, and administrative expenses in the third quarter of
1999 increased $28.6 million or 21.2%, compared to the third quarter of 1998,
and $91.0 million or 22.1% for the nine months ended September 30, 1999, versus
the comparable period in 1998.  For both periods, these expenses increased at a
rate less than sales growth.  This increase in spending was due to: (i) costs
related to the implementation of direct operations in certain international
markets; (ii) incremental expenses associated with the inclusion of Intermedics
results; and (iii) increased investment in the United States field-sales force.
Total adjusted operating expenses for the third quarter were 42.2% of sales
compared to 46.1% of sales for the third quarter of 1998.

Operating income, as previously defined, was $191.0 million in the third quarter
of 1999, or 34.1% of net sales, compared to $144.5 million or 32.4% of net sales
for the three months ended September 30, 1998.  Growth of 32.2% in operating
income was driven by net sales growth of 25.9%.  Operating income for the nine
months ended September 30, 1999 and 1998, was $599.5 million and $481.2 million,
respectively, representing growth of 24.6%, which is less than the growth rate
in sales due to the aforementioned increase of cost of products sold, offset
somewhat by controlled growth in adjusted operating expenses.

                                       24
<PAGE>

For the three months ended September 30, 1999, the Company had adjusted net
other expenses of $32.5 million compared to $19.0 million, excluding a $200.0
million charge relating to settlement of the Company's litigation with
Intermedics, Inc., for the third quarter in the prior year.  Adjusted expenses
for the third quarter of 1999 exclude the loss on the disposal of the general
surgery product line and a non-cash gain on an equity investment.  This increase
in adjusted expense is primarily due to increased interest and amortization
expense related to the Intermedics acquisition.  Net other adjusted expenses for
the nine months ended September 30, 1999, were $113.7 million, excluding non-
cash gains on an equity investment and the loss on the sale of the general
surgery product line. Adjusted net other expenses for the nine months ended
September 30, 1998 were $59.8 million.  These expenses exclude a $60 million
charge related to an agreement with C.R. Bard, Inc., that settled two patent
infringement lawsuits and granted the Company paid-up licenses to certain
patents, and a $200.0 million charge related to settlement of the Company's
litigation with Intermedics, Inc.  The increase in adjusted other expenses of
$53.9 million in the first nine months of 1999 is due to the same factors
mentioned above for third quarter of 1999.

Excluding the impact of special items, the effective income tax rate for the
three and nine months ended September 30, 1999, was 36.9%.  The Company's
effective income tax rate for the three and nine month periods ended September
30, 1998, excluding special charges, was 35.3%.  This increase in the adjusted
effective tax rate relates to the non-deductible goodwill amortization expense
related to the acquisition of Intermedics.  Reported income taxes in the third
quarter of 1999 include an adjustment related to a recently published Internal
Revenue Code regulation which will accelerate the utilization of pre-acquisition
net operating loss carryovers from Guidant's acquisition of EndoVascular
Technologies, Inc. in 1997.  In addition, reported income taxes in the third
quarter of 1999 reflect an adjustment for the tax treatment of equity securities
donated to the Guidant Foundation and a refinement to the tax provision for
Intermedics' acquisition accounting adjustments.  These three items reduced
reported income tax expense by $17.3 million in the third quarter of 1999.

Earnings before interest, taxes, depreciation, and amortization (EBITDA),
exclusive of special items in both years, was $203.8 million for the three
months ended September 30, 1999, and $617.2 million for the nine months ended

                                       25
<PAGE>

September 30, 1999.  EBITDA was $147.1 million for the three months ended
September 30, 1998, and $482.8 million for the nine months ended September 30,
1998.  These improvements in EBITDA are primarily driven by sales growth.

Excluding the special items in the third quarters of 1999 and 1998, net income
would have been $100.0 million and $81.2 million, respectively.  This 23.2%
growth in adjusted net income is less than operating income growth due to the
increase in other expenses and the effective income tax rate in 1999.  Earnings
per share-assuming dilution, exclusive of the above special items, was $0.33 for
the three months ended September 30, 1999, and $0.27 for the three months ended
September 30, 1998.

For the nine months ended September 30, 1999, net income would have been $306.5
million and earnings per share-assuming dilution would have been $1.00 without
the special charges.  Reported net income for the nine months ended September
30, 1999 also includes the net impact of $3.3 million for the cumulative effect
of a change in accounting principle, net of income taxes, in the first quarter
of 1999.  Net income for the nine months ended September 30, 1998, excluding the
impact of the special charges, would have been $272.6 million and $0.90 per
share-assuming dilution.  Reported net income for the three and nine month
periods ended September 30, 1999, was $98.7 million and $244.6 million,
respectively.

Liquidity and Financial Condition

The Company continued to generate cash flows which were more than sufficient to
fund operations during the nine months ended September 30, 1999.  Cash and cash
equivalents increased to $25.5 million at September 30, 1999, from $15.6 million
at December 31, 1998.

Working capital of $92.8 million at September 30, 1999 decreased by $83.5
million from the prior year-end level.  Acquired Intermedics' assets increased
working capital approximately $38 million.  This increase is more than offset by
the increased current portion of long-term debt.  The current ratio at September
30, 1999 was 1.1:1 compared to 1.3:1 at December 31, 1998.  The Company believes
its cash from operations is sufficient to fund essentially all future working
capital needs and discretionary operating spending requirements.

                                       26
<PAGE>

Net cash used for investing activities totaled $702.5 million for the nine
months ended September 30, 1999, compared to $302.0 million for the same period
in 1998.  The acquisition of Intermedics, net of cash acquired and the net cash
impact of the disposal of the general surgery product line, was a $539.2 million
use of cash in 1999.  The payment of the Intermedics settlement of $200 million
is included in operating activities.  Net additions of property and equipment of
$128.0 million for the nine months ended September 30, 1999, compared to $76.6
million for the same period in 1998, were also a significant use of cash for
investing activities during both periods.  This increase is due in part to the
Company's announced investment in a manufacturing facility in Ireland and
expansion of certain facilities, including equipment purchases, in both
California and Minnesota.

Net cash provided by financing activities totaled $440.8 million for the nine
months ended September 30, 1999.  Net proceeds of $346.4 million were received
from the issuance of seven year, 6.15% long-term notes.  In addition, commercial
paper was issued to finance the acquisition of Intermedics on February 1, 1999.
In the first nine months of 1998, financing activities increased cash by $17.1
million.

At September 30, 1999, the Company had outstanding borrowings of $999.5 million
through the issuance of commercial paper, bank borrowings, and long-term notes
due in 2006.  Bank borrowings represent short-term uncommitted credit facilities
with various commercial banks.  The commercial paper borrowings are supported by
two credit facilities aggregating $850 million. There are currently no
outstanding borrowings under these facilities.  The Company expects that
approximately $223 million of commercial paper borrowings will remain
outstanding for the next twelve months and, as a result, has classified this
amount as long-term at September 30, 1999.

The Company expects its cash from operations to be adequate to meet its
obligations to make interest payments on its debt and other anticipated
operating cash needs, including planned capital expenditures.  Capital
expenditures are expected to be approximately $200 million in 1999, primarily
due to continued investment in the Company's new manufacturing facility in
Ireland and expansion of U.S. development, manufacturing and support facilities.
The Company believes that amounts available through existing commercial paper
programs should be adequate to fund maturities of short-term borrowings.

                                       27
<PAGE>

The Company has recognized net deferred tax assets aggregating $160.7 million at
September 30, 1999, compared to $157.1 million at December 31, 1998. In view of
the consistent profitability of its past operations, the Company believes that
all these assets will be substantially recovered and that no significant
additional valuation allowances are necessary.

Year 2000

Guidant has taken and will continue to take reasonable steps necessary to
confirm that its business systems, software, and equipment that consider and
process date-related information will continue to function properly after
December 31, 1999. In doing so, Guidant is paying particular attention to
assuring compliance with all regulatory guidelines regarding Year 2000 issues.
Guidant's implantable devices do not contain real-time clocks. As a result,
these devices present no Year 2000 issues. The Company's other products have
been assessed and found to be Year 2000 ready with the exception of a few minor
adjustments to the external, stand-alone implantable device control units
(Programmers). These adjustments relate to minor date limitations that present
no adverse health impact to the patient.

Guidant, as a corporation formed in 1994, has many relatively new systems,
including an enterprise-wide operational support system, which has been
certified Year 2000 ready by its developer and extensively tested by Guidant. As
such, management's focus has been on assessing and readying manufacturing
equipment, facilities infrastructure, other computer systems, and business
partners. Guidant believes it has completed any necessary remediation of
business critical equipment, other computer systems, and infrastructure. This
has allowed for development of contingency arrangements, internal auditing and
testing, as well as any further remediation, when necessary, of these systems to
take place during the second half of 1999. Efforts to continuously monitor and
confirm the readiness of various business partners will continue up to and
through, January 1, 2000.

The Company has also performed an assessment of two recent acquisitions,
Intermedics, Inc., and InControl, Inc. Like Guidant, the implantable devices
produced by these companies do not contain real-time clocks, and therefore are
not susceptible to Year 2000 issues. Assessments of other business operations
from these acquisitions did not reveal any major deficiencies. Guidant


                                       28
<PAGE>

believes, therefore, that the integration of these enterprises will not
adversely impact Guidant's Year 2000 project schedule.

The Company has devoted and will continue to devote, to the extent necessary,
the necessary resources to resolve all significant issues in a timely manner.
The costs associated with the Year 2000 assessment and remediation of problems
noted are expensed as incurred or capitalized if the expenditures relate to
hardware or software that will benefit future periods. Based upon current
assessments, management believes that the cost of such actions will not have a
material effect on Guidant's operating results or financial condition. The
Company currently expects that its total out-of-pocket costs related to
addressing its Year 2000 issues will be less than $15 million, $12.5 million of
which has been incurred to date. Approximately $4 million of the total will be
capital expenditures, which will be depreciated over the assets' estimated
useful lives.

Recognizing that there are external forces beyond its control, Guidant has
developed contingency plans to address any situations that might occur. The
Guidant Year 2000 Contingency Plan Process is an extension of Guidant's business
continuation planning process. These plans lay out what each reporting unit will
do if, despite best efforts, elements crucial to business are not available or
cease to function properly due to Year 2000 processing problems. Considerations
include: adjusting inventory levels, identifying alternative sources of supply
and services, understanding and anticipating supply and demand chain readiness,
establishing crisis response processes to address unexpected problems, and
defining alternative ways to stabilize business operations quickly and get the
business critical jobs done if a Year 2000 problem arises.

The Year 2000 issue is expected to affect the systems of other external entities
with which the Company interacts. However, the Company cannot reasonably
estimate the potential impact on its financial condition and operations if
critical third parties do not become Year 2000-ready on a timely basis. The
Company has worked through various trade associations as well as communicated
directly with its significant suppliers and customers and will continue to do
so, as necessary, to determine their Year 2000 readiness. In addition, the
Company has developed contingency plans to handle disruptions with utility
providers including electrical and telecommunications suppliers.

                                       29
<PAGE>

While Guidant has developed contingency plans, there can be no guarantee that
these efforts will prevent an event that will have a materially adverse effect
on the Company's financial condition or operations due to the failure of third
parties to become Year 2000-ready.

Private Securities Litigation Reform Act of 1995

Under the safe harbor provisions of the Private Securities Litigation Reform Act
of 1995, the Company cautions investors that any forward-looking statements or
projections made by the Company, including those made in this document, are
subject to risks and uncertainties which may cause actual results to differ
materially from those projected. Economic, competitive, governmental,
technological, and other factors which may affect the Company's operations are
discussed in Exhibit 99.1 filed herewith.


                                       30
<PAGE>

                                    PART II

                               OTHER INFORMATION

Item 1.  Legal Proceedings

On November 6, 1997, Medtronic, Inc., filed suit against Guidant's subsidiary
Advanced Cardiovascular Systems, Inc.("ACS") in the District Court of Minnesota,
alleging that the ACS RX MULTI-LINK Coronary Stent infringes a patent owned by
Medtronic. On September 16, 1999, the court issued a Markman ruling construing
some of the claim terms. A trial by jury began on October 18, 1999. A jury
verdict is expected in early December 1999, with a final judgement to follow. In
the suit, Medtronic seeks an injunction against further manufacture and sale of
the product in the U.S. and monetary damages. The damage claim presently
asserted by Medtronic is for approximately $300 million and it is further
alleged that damages should be trebled and attorneys' fees awarded to Medtronic
on the basis of its claim of willful infringement. Medtronic has recently filed
a new complaint in a separate suit to add allegations of infringement of the
same patent by the ACS MULTI-LINK DUET and SOLO Coronary Stents and MEGALINK
Peripheral Stent. Additionally, Medtronic is seeking to amend the new complaint
to include the ACS OTW MULTI-LINK Coronary Stent. In this new complaint,
Medtronic also seeks injunctive relief and monetary damages.

On October 10, 1995, ACS filed suit against Medtronic in the Northern District
of California alleging that the Medtronic FALCON coronary dilatation catheter
infringes Yock U.S. Patent No. 5,451,233 (Civil Action No. C95-03577). On August
25, 1999, the Court granted ACS's motions for summary judgment of infringement,
validity, and enforceability of the patent. A jury trial was held from October
25, 1999 to November 3, 1999 on ACS's claim of willful infringement and damages.
On November 3, 1999, the jury returned its verdict finding that Medtronic had
willfully infringed the patent and awarded ACS $5.4 million in damages. The
Court has scheduled a hearing for December 15, 1999 on ACS' requests for
injunctive relief, enhanced damages, pre-judgment interest, costs, and to
declare the case exceptional.

On August 12, 1998, ACS and Guidant Sales Corporation ("GSC") filed suit against
BSC and SciMed in the Southern District of Indiana alleging that SciMed's NIR
stent infringes certain patents of ACS. In the lawsuit ACS is seeking injunctive
relief and monetary damages. On October 15, 1999, the court

                                       31
<PAGE>

entered an order construing the claims. The trial is scheduled to commence in
February, 2000.

On March 12, 1996, ACS filed suit against SciMed in the Northern District of
California alleging that SciMed's Trio/Bandit line of coronary dilatation
catheters infringes a patent of ACS. On June 22, 1999 the court granted ACS'
motions for summary judgment of validity and infringement of its patent, and
denied the parties' other summary judgment motions, including SciMed's motions
for summary judgment of invalidity and no willful infringement of the ACS patent
and ACS motion for summary judgment of enforceability. In the lawsuit, ACS is
seeking injunctive relief and monetary damages. Trial of the remaining issues is
currently scheduled to commence on February 7, 2000.

On May 28, 1996, Origin Medsystems, Inc. ("Origin"), a wholly-owned subsidiary
of the Company, filed suit against General Surgical Innovations, Inc. ("GSI") in
the Northern District of California alleging that GSI's Spacemaker balloon
products infringe a patent of Origin. In the lawsuit, Origin is seeking
injunctive relief and monetary damages. On April 20, 1998 the court granted
GSI's motion for summary judgment that the Origin patent was obtained by
inequitable conduct. On November 2, 1998 the Court awarded GSI its attorney
fees. Origin appealed both decisions. On July 16, 1999 the Court of Appeals for
the Federal Circuit vacated the summary judgment of inequitable conduct and
remanded the case to the district court for further proceedings. On August 31,
1999 the Federal Circuit vacated the award of attorney fees.

On September 24, 1997, GSI filed a second suit against Origin in the Northern
District of California alleging that Origin's VASOVIEW Balloon Dissection System
infringes another patent owned by GSI. GSI is seeking injunctive relief and
monetary damages. On July 6, 1999, GSI amended its complaint to add an
additional patent and Origin's PDB and ExtraView Systems to the suit. On July
19, 1999 the district court entered an order staying all proceedings pending the
outcome of the appeal in the first GSI case.

On December 2, 1997, Cordis filed suit against Guidant and ACS in the District
Court of Delaware, alleging that the ACS RX ROCKET Coronary Dilatation Catheter
infringes patents owned by Cordis. Cordis filed a motion for a preliminary
injunction, which the court denied on September 10, 1999. On September 17, 1999,
the court dismissed Guidant for lack of personal jurisdiction, leaving ACS as
the sole defendant in the case. In the lawsuit, Cordis is seeking injunctive

                                       32
<PAGE>

relief, monetary damages, and attorney fees. Cordis also filed a separate
lawsuit against the Company in December 1997 in the Netherlands alleging
infringement of the European equivalents of these patents. In this separate
lawsuit, Cordis is seeking injunctive relief and monetary damages.

On December 29, 1998, SciMed filed suit against the Company in the Hague, the
Netherlands, alleging infringement of a European Patent owned by SciMed by the
ACS RX ELIPSE Coronary Dilatation Catheter and the ACS RX MULTI-LINK, ACS RX
MULTI-LINK HP, and ACS MULTI-LINK RX DUET Coronary Stent Systems. SciMed is
seeking injunctive relief and monetary damages. A hearing of the case was held
on November 5, 1999. The Court is expected to render its decision on December
22, 1999. ACS's opposition to the SciMed patent filed in the European Patent
Office has not yet been ruled on.

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

(a)  Exhibits.  The following documents are filed as exhibits to this report:
                27.1  Financial Data Schedule
                99.1  Factors Possibly Affecting
                      Future Operating Results.

(b)  Reports on Form 8-K. During the quarter for which this Report on Form 10-Q
     is filed, the registrant filed the following current report on Form 8-K:

        Item 2       September 23, 1999       Supplement 8-K filed
                                              February 4, 1999, to
                                              include the Sulzer
                                              Electrophysiology
                                              Combined Financial
                                              Statements as of
                                              December 31, 1998.

                                       33
<PAGE>

                                   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.



                              GUIDANT CORPORATION
                              -------------------
                              (Registrant)



Date  November 12, 1999       /s/ Keith E. Brauer
                              -------------------
                              Keith E. Brauer
                              Vice President, Finance and
                              Chief Financial Officer



Date  November 12, 1999       /s/ Cynthia L. Lucchese
                              -----------------------
                              Cynthia L. Lucchese
                              Corporate Controller and
                              Chief Accounting Officer

                                       34
<PAGE>

                                  Exhibit List

                3.1  Amended Articles of Incorporation
               27.1  Financial Data Schedule
               99.1  Factors Possibly Affecting
                     Future Operating Results.

                                       35