Jan 28, 1999
Guidant 1998 Sales Grow 43 Percent to Record $1.9 Billion; Fourth Quarter Earnings of $0.29 per Share Increase 12 Percent over 1997

Indianapolis, IN - Guidant Corporation (NYSE and PCX: GDT) today announced fourth quarter sales of $493.5 million, bringing total sales for the company to a record $1.897 billion for 1998. Compared to the fourth quarter of 1997, the company''s highest sales quarter in its history due to its highly successful entry into the U.S. stent market, fourth quarter 1998 sales were essentially level. Excluding acquisition-related and other special charges in 1997*, fourth quarter net income of $86.8 million grew 13 percent over last year. After the two-for-one stock split distributed January 27, 1999, earnings per share of $0.29 in the fourth quarter represented growth of 12 percent over 1997.

Three Months Ended December 31, 1998

"Guidant increased its sales momentum substantially in the fourth quarter, with sequential top-line growth of 11 percent from the third quarter of this year," said Ronald W. Dollens, Guidant President and Chief Executive Officer. "For example, in Vascular Intervention, the ACS MULTI-LINK DUET(tm) Coronary Stent System quickly became the most widely-used stent in the U.S. market, even though its launch occurred only during the last few weeks of the fourth quarter. Exceeding its considerable success in the European market, the DUET has positioned Guidant as the leading manufacturer of coronary stents worldwide exiting 1998. This quarter''s revenue performance was also driven by another fine showing for Cardiac Rhythm Management products, particularly in U.S. pacing. With 47 percent growth in our domestic pacemaker sales, our CRM sales force built upon their third quarter success and again dramatically outperformed the growth of the market," continued Dollens. "With availability of our VENTAK AV III DR(tm) dual chamber implantable pacemaker/defibrillator increasing throughout the quarter to meet demand in all geographies, and the December U.S. FDA approval of the VENTAK MINI IV(tm) implantable defibrillator, our leading technological position in the defibrillator business continues. These developments, coupled with our near-term acquisition of Intermedics, continue to strengthen our total CRM position as we enter 1999."

Fourth quarter sales of Cardiac Rhythm Management products reached $210.7 million, an increase of 15 percent over the same period last year. Sales of the VENTAK MINI III(tm) and newly-launched MINI IV(tm) implantable defibrillator, the VENTAK AVIII(tm) DR rate responsive dual chamber pacemaker/defibrillator and the DISCOVERY(tm) and MERIDIAN(tm) pacing product lines drove revenue growth. On a worldwide basis, implantable defibrillator revenues increased 5 percent over the fourth quarter of 1997, while pacemaker sales grew 39 percent over last year.

Sales of Vascular Intervention products of $262.8 million decreased 11 percent in the fourth quarter compared to the same period in 1997, which featured the U.S. launch of the ACS RX MULTI-LINK(tm) Coronary Stent System. Worldwide coronary stent sales totaled $181.6 million in the quarter**. U.S. revenues in coronary stents totaled $128.3 million, and were aided by the highly successful launch of the ACS MULTI-LINK DUET Coronary Stent System in mid-November. International coronary stent revenues of $53.2 million in the quarter were again driven by sales of the ACS MULTI-LINK DUET Coronary Stent System in Europe and a strong performance by the ACS MULTI-LINK Coronary Stent System in Japan.

Fourth quarter sales of Guidant''s Cardiac & Vascular Surgery products grew by 6 percent over last year to $20.0 million. The VASOVIEW UNIPORT(tm) system for less-invasive saphenous vein harvesting associated with coronary artery bypass procedures helped drive growth in the quarter.

Gross profit of $384.6 million in the quarter improved slightly to 77.9 percent of sales compared to 77.7 percent in the fourth quarter of 1997 due to increased manufacturing volume and continued progress in manufacturing efficiencies.

Operating expenses for the fourth quarter declined by 5 percent, excluding special charges in 1997. Sales, marketing and administrative expenses declined primarily due to lower selling costs, particularly for Vascular Intervention products, and declines in administrative spending. Total spending in research and development during the quarter rose to,record levels, representing 15.9 percent of sales and growing 18 percent over the fourth quarter of 1997 as the company continues its investment in current and future technology platforms.

Overall, excluding special charges in 1997, the company recorded an increase in net income during the quarter of 13 percent to $86.8 million, and growth in earnings per share of 12 percent to $0.29 on a post-stock split basis.

Year Ended December 31, 1998

For the year 1998, sales of $1.897 billion increased 43 percent compared to 1997, driven by the performance of new products in all geographies and markets. Favorable sales mix impact as well as continued realization of manufacturing efficiencies and increased production volume led to a 46 percent increase in gross profit over 1997 results. Adjusted 1998 operating expenses rose 29 percent over adjusted 1997 results, and continued to reflect significant investment in R&D and product distribution capabilities as a foundation for long-term growth. On a reported basis, the company had net income of $43.8 million or $0.14 per share. With special charges excluded from both current and prior year results***, net income grew to $359.4 million or $1.19 per share in 1998, representing an increase of 82 percent in net income and 81 percent in earnings per share over the prior year.

Jim Cornelius, Chairman of the Board of Directors, commented, "1998 was our most successful year in the short history of Guidant Corporation, due largely to the dedicated efforts of our 6,000 global employee-owners. In addition, we added to our market-leading CRM technology base with the acquisition of InControl, Inc. and expanded our presence in the pacemaker market with the pending acquisition of the Intermedics pacemaker division of Sulzer Medica. We are entering 1999 on an even higher trajectory toward future success."

A global leader in the medical device industry, Guidant provides innovative, minimally invasive and cost-effective products and services for the treatment of cardiovascular and vascular disease. For more information about Guidant''s products and services, visit the company''s Web site at http://www.guidant.com.

* In the fourth quarter of 1997, Guidant recorded special charges with a cumulative net income effect of $(14.9) million. These charges to operating expense consisted of $11.1 million associated with the December 1997 merger with EndoVascular Technologies, Inc., an $11.5 million contribution to the Guidant Foundation, and other income and expense items of $11.5 million in corporate legal accruals, a gain of $23.2 million on the sale of securities, as well as a $4.7 million after tax charge due to a change in accounting principle.

** Guidant''s coronary stents are largely sold through broad customer contracts and capitated agreements involving a wide variety of the company''s interventional cardiology products. As "interventional system" sales and pricing have grown in popularity, individual product line sales figures are becoming less accurate and relevant. Therefore, the company may choose alternate methods for reporting these sales in the future.

*** In the first quarter of 1998, Guidant recorded a charge of $60 million related to an April 6, 1998 agreement with C.R. Bard, Inc. that settled two patent infringement lawsuits. The company also recorded purchased research and development expense of $28.7 million in the second quarter of 1998 related to its acquisition of NeoCardia, LLC. in May 1997. In the third quarter of 1998, the company recorded $90 million of purchased research and development expense associated with the acquisition of InControl, Inc., and $200 million in charges for the settlement of litigation with Sulzer Intermedics. The after-tax impact of special charges in 1998 was $315.6 million. In addition to the fourth quarter charges noted in * above, Guidant''s acquisition of NeoCardia, LLC. in the second quarter of 1997 resulted in a pre-tax special charge of $57.4 million.