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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2005

Commission File Number 1-13388

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

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

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

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

Yes  X     No ___

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

Yes  X     No ___

The number of shares of common stock outstanding as of May 5, 2005:

PART I
FINANCIAL INFORMATION

Item 1. Financial Statements

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

See Notes to Consolidated Financial Statements

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

     See Notes to Consolidated Financial Statements

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

See Notes to Consolidated Financial Statements

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

See Notes to Consolidated Financial Statements

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

Note 1 – Basis of Presentation

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

For further information, including the Company’s significant accounting policies, refer to the consolidated financial statements and notes thereto included in the Company’s Form 10-K for the year ended December 31, 2004. As used herein, the terms “the Company” and “Guidant” mean Guidant Corporation and its consolidated subsidiaries.

Note 2 – Merger Update

As previously announced on December 15, 2004, Guidant and Johnson & Johnson (J&J) entered into a definitive agreement whereby J&J will acquire Guidant for $76 per share or approximately $25.4 billion in fully diluted equity value. The announced acquisition price of $76 per share reflects $30.40 in cash and $45.60 in J&J common stock per share, provided the volume weighted average trading price of J&J common stock price is between $55.45 and $67.09 during the 15-day trading period ending three days prior to the transaction closing.  Outside this range, each Guidant share exchanged will be converted into a fixed number of shares of J&J common stock equal to .8224 shares (at $55.45 or below) or .6797 shares (at $67.09 or above), plus $30.40 in cash.

Merger-related milestones thus far in 2005 included US and European regulatory filings, entering the second phase of European Commission review of the transaction and working towards a response to the second request from the Federal Trade Commission. In addition, a special meeting of Guidant shareholders was held on April 27, 2005, at which a majority of the shares of Company common stock were voted to approve the merger. For purposes of the Company’s stock plans, shareholder approval constituted a change of control. As a result of this change of control, each outstanding unvested stock option and restricted stock award granted prior to December 15, 2004 (date of the merger agreement) automatically vested. The effect of this change of control, specifically the vesting of restricted stock awards, resulted in additional compensation expense, including related payroll taxes, of $33.0 million to $35.0 million and will be recorded in the second quarter of 2005. The transaction remains subject to completion of regulatory reviews as well as other customary closing conditions.

Note 3 – Stock-Based Compensation

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

Note 3 – Stock-Based Compensation (continued)

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

In December 2004, the Financial Accounting Standards Board issued SFAS 123(R), Share-Based Payment. This Statement is a revision to SFAS 123 and supersedes APB Opinion No. 25. SFAS 123(R) requires the measurement of the cost of employee services in exchange for an award of equity instruments based on the grant-date fair value of the award. On April 15, 2005, the Securities Exchange Commission delayed the effective date of SFAS 123(R) to fiscal years beginning on or after June 15, 2005. As a result, the Company expects to adopt SFAS 123(R) on January 1, 2006 and recognize the fair value of the award to compensation expense over the period during which an employee is required to provide service in exchange for the award. No compensation cost is recognized for equity instruments for which employees do not render service. As a result of the Company’s shareholders approving the plan of merger with J&J (See Note 2) on April 27, 2005, there are substantially no unvested stock options outstanding as of that date. The impact to the Company’s financial statements of adopting SFAS 123(R) would depend upon future stock option grant activity.

Note 4 – Inventories

Inventories consisted of the following:

Note 5 – Product Warranties

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

Note 6 – Impairment Charge

In accordance with SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets, management reassessed the expected future financial performance of the FX miniRAIL® Dilatation Catheter, acquired from X Technologies, Inc., noting that the value of the expected future cash flows is less than the carrying value of the related intangible asset. Among other reasons, this was the result of (a) a decrease in demand for the product for use in treating in-stent restenosis as drug eluting stents have reduced the incidence of this condition, and (b) demand for the product for use in pre-dilating vessels in advance of implanting drug eluting stents not developing as anticipated. Based on this evaluation, the Company determined $60.0 million of this intangible asset was no longer recoverable and was permanently impaired, resulting in a write down to the estimated fair value of $6.1 million as of March 31, 2005. The effect of the asset revaluation did not impact the remaining life of the intangible, but will reduce its future amortization expense from $3.2 million to $0.3 million each quarter through the second quarter of 2010.

Note 7 – Earnings Per Share

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

Note 8 – Comprehensive Income

The components of comprehensive income are as follows:

Note 9 – Segment Information

Geographic Information:

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