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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 10-Q


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

For the quarterly period ended: September 30, 2002


Commission file number: 1-11083



BOSTON SCIENTIFIC CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)



DELAWARE 04-2695240
---------------------------- ----------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)


One Boston Scientific Place, Natick, Massachusetts 01760-1537
- -------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)


Registrant's telephone number, including area code: (508) 650-8000
--------------


---------------------------------------------------
Former name, former address and former fiscal year,
if changed since last report.

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 [ ]

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the last practicable date.

Shares Outstanding as
Class of September 30, 2002
- ---------------------------- ---------------------
Common Stock, $.01 Par Value 407,841,321

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Page 1 of 41
Exhibit Index on Page 38


TABLE OF CONTENTS



PART I FINANCIAL INFORMATION Page No.

ITEM 1. Condensed Consolidated Financial Statements ................... 3

Condensed Consolidated Balance Sheets ......................... 3

Condensed Consolidated Statements of Operations ............... 5

Condensed Consolidated Statements of Cash Flows ............... 6

Notes to Condensed Consolidated Financial Statements .......... 7

ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ........................... 22

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk .... 37

ITEM 4. Controls and Procedures ....................................... 37


PART II OTHER INFORMATION ............................................. 38

ITEM 1. Legal Proceedings ............................................. 38

ITEM 6. Exhibits and Reports on Form 8-K .............................. 38



SIGNATURE ................................................................ 39


CERTIFICATIONS ........................................................... 40


2

PART I
FINANCIAL INFORMATION


ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

BOSTON SCIENTIFIC CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
September 30, December 31,
In millions, except share and per share data 2002 2001
- -------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 259 $ 180
Short-term investments 5
Trade accounts receivable, net 399 370
Inventories 257 303
Other current assets 259 248
------------ ------------
Total current assets 1,174 1,106

Property, plant and equipment 1,112 1,045
Less: accumulated depreciation 485 453
------------ ------------
627 592

Excess of cost over net assets acquired 971 928
Technology - core, net 554 541
Technology - developed, net 226 221
Patents, net 314 264
Trademarks and other intangibles, net 108 110
Other assets 293 212
------------ ------------
$ 4,267 $ 3,974
============ ============



See notes to unaudited condensed consolidated financial statements.

3

BOSTON SCIENTIFIC CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (continued)
(Unaudited)


September 30, December 31,
In millions, except share and per share data 2002 2001
- ---------------------------------------------------------------------------------------------------------------

Liabilities and Stockholders' Equity
Current liabilities:
Commercial paper $ 99
Bank obligations $ 268 132
Accounts payable and accrued expenses 528 475
Other current liabilities 238 125
------------ ------------
Total current liabilities 1,034 831

Long-term debt 840 973
Other long-term liabilities 107 155

Commitments and contingencies

Stockholders' equity:
Preferred stock, $ .01 par value - authorized 50,000,000 shares,
none issued and outstanding
Common stock, $ .01 par value - authorized 600,000,000 shares,
414,922,050 shares issued at September 30, 2002 and
December 31, 2001 4 4
Additional paid-in capital 1,222 1,225
Treasury stock, at cost - 7,080,729 shares at September 30, 2002 and
9,668,427 shares at December 31, 2001 (114) (173)
Deferred compensation (2) (10)
Retained earnings 1,290 1,031
Accumulated other comprehensive loss (114) (62)
------------ ------------
Total stockholders' equity 2,286 2,015
------------ ------------
$ 4,267 $ 3,974
============ ============




See notes to unaudited condensed consolidated financial statements.

4

BOSTON SCIENTIFIC CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)



Three Months Ended Nine Months Ended
September 30, September 30,
In millions, except per share data 2002 2001 2002 2001
- ---------------------------------------------------------------------------------------------------------------

Net sales $ 722 $ 670 $ 2,105 $ 1,996
Cost of products sold 211 214 643 704
------------ ------------ ------------ ------------
Gross profit 511 456 1,462 1,292

Selling, general and administrative expenses 249 232 736 687
Amortization expense 19 30 53 105
Royalties 9 10 26 28
Research and development expenses 87 72 248 199
Purchased research and development 10 45 277
Litigation settlements, net (99) (99)
Restructuring-related charges 4
------------ ------------ ------------ ------------
265 354 1,009 1,300
------------ ------------ ------------ ------------
Operating income (loss) 246 102 453 (8)

Other income (expense):
Interest expense (10) (16) (32) (46)
Other, net (1) 1 (15) 2
------------ ------------ ------------ ------------

Income (loss) before income taxes 235 87 406 (52)
Income taxes 74 29 138 67
------------ ------------ ------------ ------------
Net income (loss) $ 161 $ 58 $ 268 $ (119)
============ ============ ============ ============

Net income (loss) per common share - basic $ 0.40 $ 0.14 $ 0.66 $ (0.30)
============ ============ ============ ============
Net income (loss) per common share -
assuming dilution $ 0.39 $ 0.14 $ 0.65 $ (0.30)
============ ============ ============ ============


See notes to unaudited condensed consolidated financial statements.

5

BOSTON SCIENTIFIC CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)

Nine Months Ended
September 30,
In millions 2002 2001
- ---------------------------------------------------------------------------------------------------------------

Cash provided by operating activities $ 540 $ 328

Investing activities:
Purchases of property, plant and equipment, net (87) (94)
Acquisitions of businesses, net of cash acquired (136) (548)
Payments for acquisitions of and/or investments in certain technologies, net (175) (65)
Sales of available for sale securities 20 20
------------ ------------
Cash used for investing activities (378) (687)

Financing activities:
Net increase in commercial paper 188 18
Net (payments on) proceeds from revolving borrowings (263) 363
Proceeds from notes payable and long-term debt 3
Payments on notes payable, capital leases and long-term borrowings (54) (8)
Proceeds from issuances of shares of common stock 43 28
------------ ------------
Cash (used for) provided by financing activities (86) 404
Effect of foreign exchange rates on cash 3
------------ ------------
Net increase in cash and cash equivalents 79 45
Cash and cash equivalents at beginning of period 180 54
------------ ------------
Cash and cash equivalents at end of period $ 259 $ 99
============ ============




See notes to unaudited condensed consolidated financial statements.

6

Note A - Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Boston
Scientific Corporation (Boston Scientific or the Company) 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 required by accounting principles generally accepted
in the United States for complete financial statements. In the opinion of
management, all adjustments (consisting only of normal recurring adjustments)
considered necessary for a fair presentation have been included. Operating
results for the three and nine months ended September 30, 2002 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2002. For further information, refer to the consolidated financial
statements and footnotes thereto incorporated by reference in Boston
Scientific's Annual Report on Form 10-K for the year ended December 31, 2001.

Investments in companies over which Boston Scientific has the ability to
exercise significant influence are accounted for under the equity method if
Boston Scientific holds 50 percent or less of the voting stock. During the third
quarter of 2002, Boston Scientific changed to the cost method of accounting for
its investment in Medinol Ltd. (Medinol) from the equity method. Due to the
ongoing litigation between Medinol and the Company, and the lack of available
financial information, the Company believes that it no longer has the ability to
exercise significant influence over Medinol's operating and financial policies.
This change had no material impact on the Company's financial statements. At
September 30, 2002, the Company had a 22 percent ownership interest in Medinol
at a carrying value of approximately $25 million. The Company regularly reviews
its investments to determine whether these investments are impaired. If so, the
carrying value is written down to fair value in the period identified.

Note B - Comprehensive Income/Loss

For the three months ended September 30, 2002 and 2001, the Company reported
comprehensive income of $167 million and $51 million, respectively. For the nine
months ended September 30, 2002 and 2001, the Company reported comprehensive
income of $216 million and a comprehensive loss of $124 million, respectively.
The increase in comprehensive income for the nine months ended September 30,
2002 is primarily a result of net gains recognized in 2002 from litigation
settlements, and decreases in purchased research and development and other
non-recurring charges. Comprehensive income for the three and nine months ended
September 30, 2002 was reduced relative to reported net income due to decreases
in the Company's unrealized gains on derivative financial instruments.

7

Note C - Earnings Per Share

The following table sets forth the computations of basic and diluted earnings
per share:

Three Months Nine Months
Ended September 30, Ended September 30,
(In millions, except share and per share data) 2002 2001 2002 2001
- -------------------------------------------------------------------------------------------------------------------------

Basic:
Net income (loss) $ 161 $ 58 $ 268 $ (119)
Weighted average shares outstanding (in thousands) 407,213 402,507 406,174 400,711
Net income (loss) per common share $ 0.40 $ 0.14 $ 0.66 $ (0.30)
========== ========== ========== ==========

Assuming dilution:
Net income (loss) $ 161 $ 58 $ 268 $ (119)
Weighted average shares outstanding (in thousands) 407,213 402,507 406,174 400,711
Net effect of dilutive stock-based compensation
(in thousands) 7,695 4,215 6,816
---------- ---------- ---------- ----------
Total (in thousands) 414,908 406,722 412,990 400,711
Net income (loss) per common share $ 0.39 $ 0.14 $ 0.65 $ (0.30)
========== ========== ========== ==========


For the nine months ended September 30, 2001, approximately 4 million potential
common shares were not included in the computation of earnings per share,
assuming dilution, as they would have been anti-dilutive.

Note D - Change in Estimated Effective Tax Rate

The Company changed its estimate of its 2002 effective tax rate, excluding the
impact of after-tax special charges and credits, to 29 percent from 30 percent
in the third quarter of 2002. The decrease is primarily attributable to
geographic changes in the manufacturing of the Company's products. The
cumulative effect of this reduction resulted in an increase in the Company's net
income for the nine months ended September 30, 2002 of $4 million, or $0.01 per
share (diluted), of which approximately $3 million represents the impact for the
first half of 2002.

Note E - Business Combinations

On June 13, 2002, the Company completed its acquisition of the 93 percent of the
outstanding shares of Enteric Medical Technologies, Inc. (EMT) not previously
owned by the Company in an all-cash transaction for an initial payment of
approximately $50 million, plus contingent payments upon achievement of certain
milestones. EMT designs, manufactures and markets Enteryx(TM), a liquid polymer
technology for the treatment of gastroesophageal reflux disease (GERD). The
acquisition is intended to expand the Company's Endosurgery product offerings in
the GERD market.

On June 27, 2002, the Company completed its tender offer relating to its
acquisition of the outstanding shares of BEI Medical Systems Company, Inc. (BEI)
in an all-cash transaction for approximately $95 million. BEI designs,
manufactures and markets less-invasive technology used by gynecologists to treat
excessive uterine bleeding due to benign causes. The acquisition is intended to
expand the Company's product offerings in the area of women's health and will
become part of the Company's Endosurgery group.

8

On December 13, 2001, the Company announced that it had exercised a pre-existing
option to acquire Smart Therapeutics, Inc. (Smart). Smart is a development
company that focuses on self-expanding technologies for intracranial therapies.
The Company anticipates this acquisition will be completed in the fourth quarter
of 2002 for an initial payment of $50 million, plus contingent payments upon
achievement of certain milestones.

The Company's acquisitions were accounted for using the purchase method of
accounting. The condensed consolidated financial statements include the
operating results for each acquired entity from its respective date of
acquisition. Pro forma information is not presented, as the acquired companies'
results of operations prior to their date of acquisition are not material,
individually or in the aggregate, to the Company. The EMT acquisition involves
potential earn-out payments based on EMT reaching certain milestones. These
payments would be allocated to specific intangible asset categories with the
remainder assigned to excess of cost over net assets acquired as if the
consideration had been paid as of the date of acquisition.

The aggregate purchase price for each acquisition has been allocated to the
assets acquired and liabilities assumed based on their fair values at the date
of acquisition. The estimated excess of purchase price over the fair value of
the net tangible assets acquired was allocated to identifiable intangible
assets, as valued by an independent appraiser using information and assumptions
provided by management. Based upon these valuations, the Company recorded a
charge of approximately $45 million to account for purchased research and
development related to EMT. The valuation of purchased research and development,
for which management is primarily responsible, represents the estimated fair
value at the date of acquisition related to in-process projects. As of the date
of acquisition, the in-process projects had not yet reached technological
feasibility and had no alternative future uses. The primary basis for
determining the technological feasibility of these projects is obtaining
regulatory approval to market the product. Accordingly, the value attributable
to these projects, which had not yet obtained regulatory approval, was expensed
in conjunction with the acquisition. If the projects are not successful or
completed in a timely manner, the Company may not realize the financial benefits
expected for these projects. Other intangible assets subject to amortization
recorded in connection with the EMT and BEI acquisitions are being amortized on
a straight-line basis ranging from 9 to 25 years.

The income approach was used to establish the fair values of purchased research
and development. This approach establishes fair value by estimating the
after-tax cash flows attributable to the in-process project over its useful life
and then discounting these after-tax cash flows back to a present value. Revenue
estimates were based on estimates of relevant market sizes, expected market
growth rates, expected trends in technology and expected product introductions
by competitors. In arriving at the value of the in-process research and
development projects, the Company considered, among other factors, the
in-process project's stage of completion, the complexity of the work completed
as of the acquisition date, the costs already incurred, the projected costs to
complete, the contribution of core technologies and other acquired assets, the
expected introduction date and the estimated useful life of the technology. The
discount rate used to arrive at a present value as of the date of acquisition
was based on the time value of money and medical technology investment risk
factors. For the purchased research and development programs acquired in
connection with the EMT acquisition, risk-adjusted discount rates ranging from
18 percent to 26 percent were utilized to discount the projected cash flows. The
Company believes that the estimated purchased research and development amounts
so determined represent the fair value at the date of acquisition and do not
exceed the amount a third party would pay for the projects.

9

The most significant project, relative to the purchased research and development
charge recorded in connection with the EMT acquisition, is the Enteryx(TM)
technology for the treatment of GERD, which represents approximately 87 percent
of the in-process value. Enteryx is a patented liquid polymer for the treatment
of GERD. As of the date of acquisition, the project was expected to be completed
and the product to be commercially available within one to two years, with an
estimated cost to complete of approximately $2 million.

The Company's research and development projects acquired in connection with its
2001 business combinations are generally progressing in line with the estimates
set forth in the Company's 2001 Annual Report on Form 10-K, with the exception
of the Interventional Technologies, Inc. (IVT) next-generation Infiltrator(R)
transluminal drug-delivery catheter project. Due to alternative drug-delivery
products available to the Company, the Company has reduced its future revenue
projections for this product. The Company expects to continue to pursue this and
other research and development projects acquired in connection with its 2001
business combinations and believes it has a reasonable chance of completing the
projects.

Note F - Global Operations Strategy

During the second quarter of 2002, the Company substantially completed the plant
optimization initiative. The plant optimization initiative has created a better
allocation of the Company's resources by forming a more effective network of
manufacturing and research and development facilities. The Company's plan
resulted in the consolidation of manufacturing operations along product lines
and the shifting of significant amounts of production to the Company's
facilities in Miami and Ireland and to contract manufacturing. The Company's
plan included the discontinuation of manufacturing activities at three
facilities in the U.S., and included the planned displacement of approximately
1,700 manufacturing, manufacturing support and management employees. In
addition, during the second quarter of 2002, the Company recorded a $6 million
pre-tax charge to cost of sales for severance and related costs associated with
its global operations strategy. The approximately 250 affected employees include
manufacturing, manufacturing support and management personnel. The reductions
result from the Company's continued achievement of operational efficiencies
within its plant network and its continued effort to reduce costs. At September
30, 2002, the Company had approximately $9 million of accrued severance and
related costs remaining associated with its global operations strategy. As of
September 30, 2002, approximately $55 million had been charged against the
restructuring accrual since the inception of the global operations strategy for
employees terminated as a part of the Company's global operations strategy.

Note G - Borrowings and Credit Arrangements

In August 2002, the Company entered into a revolving credit and security
facility providing for up to $200 million of additional borrowing capacity
secured by the Company's domestic trade accounts receivable. The maximum amount
available for borrowing under this facility changes based upon the amount of
eligible receivables, concentration of eligible receivables and other factors.
At September 30, 2002, $159 million was outstanding under this facility and bore
interest at asset-backed commercial paper rates plus 0.35 percent, or
approximately 2.2 percent

10

at September 30, 2002. Certain significant changes in the quality of the
Company's receivables may cause an amortization event under this facility. An
amortization event may require the Company to immediately repay borrowings under
the facility. The financing structure required the Company to create a wholly
owned special purpose entity, which is consolidated by the Company. This entity
purchases receivables from the Company and then borrows from two third-party
financial institutions using U.S. trade accounts receivable as collateral. The
transactions remain on the Company's balance sheet because the Company has the
right to prepay any borrowings outstanding, allowing the Company to retain
effective control over the receivables. Accordingly, pledged receivables and the
corresponding borrowings are included as trade-accounts receivable, net and bank
obligations, respectively, on the accompanying condensed consolidated balance
sheets.

The Company had approximately $286 million and $99 million of commercial paper
outstanding at September 30, 2002 and December 31, 2001, respectively. In
addition, the Company had approximately $125 million and $547 million in
unsecured revolving credit facility borrowings outstanding at September 30, 2002
and December 31, 2001, respectively. At September 30, 2002, the revolving credit
facilities totaled approximately $1.6 billion, consisting of a $1 billion credit
facility that terminates in May 2003 and a $600 million credit facility that
terminates in August 2006.

The Company has the ability to refinance a portion of its short-term debt on a
long-term basis through its revolving credit facilities. The Company expects a
minimum of $306 million of its short-term borrowings, including $286 million of
commercial paper and $20 million of bank obligations, will remain outstanding
beyond the next twelve months and, accordingly, has classified this portion as
long-term borrowings at September 30, 2002, compared to $471 million of bank
obligations classified as long-term at December 31, 2001.

During the first quarter of 2002, the Company repaid 6 billion Japanese yen
(translated to approximately $45 million at the date of repayment and $46
million at December 31, 2001) of borrowings outstanding with a syndicate of
Japanese banks.

Note H - Inventories

The components of inventory consist of the following:

September 30, December 31,
(In millions) 2002 2001
- ----------------------------------------------------------
Finished goods $154 $146
Work-in-process 51 69
Raw materials 52 88
---- ----
$257 $303
==== ====

The Company had approximately $11 million and $34 million of net NIR(R) coronary
stent inventory on hand at September 30, 2002 and December 31, 2001,
respectively.

11

Note I - Goodwill and Other Intangible Assets

Effective January 1, 2002, the Company fully adopted the provisions of Statement
of Financial Accounting Standards No. 142, "Goodwill and Other Intangible
Assets." Statement No. 142 requires that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead be tested for
impairment at least annually. As a result of adoption, the Company realized a
pre-tax benefit of approximately $12 million and $35 million of amortization
reductions for goodwill and indefinite-lived intangible assets in the third
quarter and nine months ended September 30, 2002, respectively. This benefit was
partially offset by amortization of intangible assets related to businesses
acquired in 2001 and 2002. During the second quarter of 2002, the Company
completed the initial impairment review required by Statement No. 142; the
Company did not recognize any impairment losses as a result of this review.

The following table provides comparative earnings and earnings per share had the
non-amortization provisions of Statement No. 142 been adopted for all periods
presented:


Three Months Nine Months
Ended September 30, Ended September 30,
(In millions, except share and per share data) 2002 2001 2002 2001
- -----------------------------------------------------------------------------------------------------------------

Reported net income (loss) $ 161 $ 58 $ 268 $ (119)
Add back: amortization of goodwill, net of tax 5 15
Add back: amortization of indefinite-lived
trademarks and technology-core, net of tax 2 8
--------- --------- --------- ---------
Adjusted net income (loss) $ 161 $ 65 $ 268 $ (96)
========= ========= ========= =========
Basic:
Weighted average shares outstanding
(in thousands) 407,213 402,507 406,174 400,711
Net income (loss) per common share:
Reported $ 0.40 $ 0.14 $ 0.66 $ (0.30)
Adjusted $ 0.16 $ (0.24)
========= ========= ========= =========
Assuming dilution:
Weighted average shares outstanding
(in thousands) 407,213 402,507 406,174 400,711
Net effect of dilutive
stock-based compensation 7,695 4,215 6,816
(in thousands)
--------- --------- --------- ---------
Total (in thousands) 414,908 406,722 412,990 400,711
Net income (loss) per common share:
Reported $ 0.39 $ 0.14 $ 0.65 $ (0.30)
Adjusted $ 0.16 $ (0.24)
========= ========= ========= =========



12

The following table provides the gross carrying amount of all intangible assets
and the related accumulated amortization for intangible assets subject to
amortization at September 30, 2002.

Gross Carrying Accumulated
(In millions) Amount Amortization
- --------------------------------------------------------------------------------
Amortized intangible assets:
Technology- core 209 11
Technology- developed 345 119
Patents 418 104
Other intangibles 166 74
----- -----
Total 1,138 308
===== =====

Unamortized intangible assets:
Excess of cost over net assets acquired 971
Technology- core 356
Trademarks 16
-----
Total 1,343
=====

Total amortization expense for the three months ended September 30, 2002 was $19
million as compared to $30 million for the three months ended September 30,
2001. Total amortization expense for the nine months ended September 30, 2002
was $53 million as compared to $105 million for the nine months ended September
30, 2001. During the second quarter of 2001, the Company recorded a $24 million
pre-tax write-down of intangible assets.

The following table provides estimated amortization expense for each of the five
succeeding fiscal years based upon the Company's intangible asset portfolio at
September 30, 2002.
Estimated
Amortization Expense
Fiscal Year (In millions)
----------- --------------------
2002 72
2003 76
2004 74
2005 74
2006 74


13

The following table provides changes in the carrying amount of goodwill by
segment for the nine months ended September 30, 2002.


United Inter-
(In millions) States Europe Japan Continental
- --------------------------------------------------------------------------------
Balance as of December 31, 2001 759 95 41 33
Purchase price adjustments (22) (1) (3)
Goodwill acquired 64 3
Foreign currency translation 2
---- ---- ---- ----
Balance as of September 30, 2002 801 99 38 33
==== ==== ==== ====

The purchase price adjustments relate primarily to adjustments to properly
reflect the fair value of deferred tax assets and liabilities acquired in
connection with the 2001 acquisitions.

Note J - New Accounting Standard

In June 2002, the Financial Accounting Standards Board issued Statement No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities", which is
effective for exit or disposal activities that are initiated after December 31,
2002. Statement No. 146 addresses financial accounting and reporting for costs
associated with exit or disposal activities and nullifies Emerging Issues Task
Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring)." Statement No. 146 requires that a liability for a cost
associated with an exit or disposal activity be recognized and measured
initially at fair value only when the liability is incurred. The Company does
not believe that Statement No. 146 will have a material impact on its financial
statements and related disclosures. The Company will adopt the provisions of
Statement No. 146 effective January 1, 2003.

Note K - Commitments and Contingencies

The Company is involved in various legal proceedings, including patent
infringement and product liability suits, from time to time in the normal course
of business. In management's opinion, the Company is not currently involved in
any legal proceeding other than those specifically identified below, in Note J
to the Company's quarterly report on Form 10-Q for the quarter ended June 30,
2002, Note H to the Company's quarterly report on Form 10-Q for the quarter
ended March 31, 2002 and in the consolidated financial statements contained in
the Company's 2001 Annual Report on Form 10-K which, individually or in the
aggregate, could have a material effect on the financial condition, operations
and/or cash flows of the Company. Additionally, legal costs associated with
asserting the Company's patent portfolio and defending against claims that the
Company's products infringe the intellectual property of others are significant,
and legal costs associated with non-patent litigation and compliance activities
are rising. Depending on the prevalence, significance and complexity of these
matters, the Company's legal provision could be adversely affected in the
future. As of September 30, 2002, the range of loss for reasonably possible
contingencies that can be estimated is not material.

14

LITIGATION WITH JOHNSON & JOHNSON

On October 22, 1997, Cordis Corporation (Cordis), a subsidiary of Johnson &
Johnson filed a suit for patent infringement against the Company and Scimed Life
Systems, Inc. (SCIMED), a subsidiary of the Company, alleging that the
importation and use of the NIR(R) stent infringes two patents owned by Cordis.
On April 13, 1998, Cordis filed a suit for patent infringement against the
Company and SCIMED alleging that the Company's NIR(R) stent infringes two
additional patents owned by Cordis. The suits were filed in the U.S. District
Court for the District of Delaware seeking monetary damages, injunctive relief
and that the patents be adjudged valid, enforceable and infringed. A trial on
both actions was held in late November through early December 2000. A jury found
that the NIR(R) stent does not infringe three Cordis patents, but does infringe
one claim of one Cordis patent and awarded damages of approximately $324 million
to Cordis. On March 28, 2002, the Court set aside the damage award, but upheld
the remainder of the verdict, and held that two of the four patents had been
obtained through inequitable conduct in the U.S. Patent and Trademark Office. On
May 16, 2002, in response to the Company's motion for reconsideration of the
liability verdict, the Court also set aside the verdict of infringement,
requiring a new trial. The case has been stayed pending the outcome of a related
case.

On March 13, 1997, the Company (through its subsidiaries) filed suits against
Johnson & Johnson (through its subsidiaries) in The Netherlands and Belgium, and
on March 17, 1997 filed suit in France, seeking a declaration of noninfringement
for the NIR(R) stent relative to two European patents licensed to Ethicon, Inc.
(Ethicon), a Johnson & Johnson subsidiary, as well as a declaration of
invalidity with respect to those patents. On October 28, 1998, the Company's
motion for a declaration of noninfringement in France was dismissed for failure
to satisfy statutory requirements; the French invalidity suits were not
affected. A hearing related to the French invalidity suits was held on November
19, 2001. On January 16, 2002, the French Court found one of the patents to be
valid and the other to be invalid. The Company filed an appeal on November 4,
2002.

On April 14, 2000, the Company (through its subsidiaries) and Medinol Ltd.
(Medinol) filed suit for patent infringement against Johnson & Johnson, Cordis
and a subsidiary of Cordis alleging that a patent owned by Medinol and
exclusively licensed to the Company is infringed by Cordis' BX Velocity(TM)
stent delivery system. The complaint was filed in the U.S. District Court for
the District of Delaware seeking monetary and injunctive relief. On June 7,
1999, the Company, SCIMED, and Medinol filed suit for patent infringement
against Johnson & Johnson, Johnson & Johnson Interventional Systems and Cordis,
alleging two U.S. patents owned by Medinol and exclusively licensed to the
Company are infringed by Cordis' Crown(TM), MINICrown(TM) and CORINTHIAN(TM)
stents. The suit was filed in the U.S. District Court for the District of
Minnesota seeking injunctive and monetary relief. The Minnesota action was
transferred to the U.S. District Court for the District of Delaware and
consolidated with the Delaware action filed by the Company. A trial was held in
August 2001 on both actions. On September 7, 2001, a jury found that Cordis' BX
Velocity, Crown, and MINICrown stents do not infringe the patents, and that the
asserted claims of those patents are invalid. The jury also found that Cordis'
CORINTHIAN stent infringes a valid Medinol patent claim and awarded the Company
and Medinol $8.3 million in damages. On January 25, 2002, the Court entered
final judgment on the Corinthian stent in favor of the Company. On September 27,
2002, final judgment was entered in favor of Cordis on the BX Velocity, Crown
and MINICrown stents, and the Company's motion for a new trial was denied. The
Company has filed a motion for reconsideration.

On March 30, 2000, the Company (through its subsidiary) filed suit for patent
infringement against two subsidiaries of Cordis alleging that Cordis' BX
Velocity stent delivery system infringes a published utility model owned by
Medinol and exclusively licensed to the Company. The complaint was filed in the
District Court of Dusseldorf, Germany seeking monetary and injunctive relief. A
hearing was held on March 15, 2001, and on June 6, 2001, the Court issued a
written decision that Cordis' BX Velocity stent delivery system infringes the
Medinol published utility model. Cordis appealed the decision of the German
court. A hearing on the appeal has been scheduled for April 3, 2003.


15

On March 26, 2002, the Company and Target Therapeutics, Inc. (Target), a wholly
owned subsidiary of the Company, filed suit for patent infringement against
Cordis alleging certain detachable coil delivery systems and/or pushable coil
vascular occlusion systems (coil delivery systems) infringe three U.S. patents,
owned by or exclusively licensed to Target. The complaint was filed in the U.S.
District Court for the Northern District of California seeking monetary and
injunctive relief. Trial is scheduled to begin in June 2004.

LITIGATION WITH MEDTRONIC, INC.

On September 18, 2002, the Company and Medtronic, Inc. (Medtronic) entered into
an agreement to settle several pending patent infringement lawsuits between the
companies and their affiliates. As part of the settlement, the companies agreed
to cross-license certain patents in the fields of abdominal aortic aneurysm
repair, embolic protection, nitinol technology and catheter manufacture.
Medtronic also agreed to pay $175 million to the Company in settlement of the
April 2001 arbitration award which found that certain Medtronic products
infringed the Company's rapid exchange technology.

On March 28, 2000, the Company and certain subsidiaries filed suit for patent
infringement against Medtronic AVE, Inc. (Medtronic AVE), a subsidiary of
Medtronic, alleging that Medtronic AVE's S670(TM) rapid exchange coronary stent
system infringes a patent exclusively licensed to the Company. The suit was
filed in the U.S. District Court for the Northern District of California seeking
monetary and injunctive relief. In July 2000, this matter was sent to
arbitration. An arbitration hearing was held in April 2001 to determine whether
Medtronic AVE's S670 and S660(TM) rapid exchange coronary stent delivery systems
and the R1 rapid exchange catheter are licensed. On July 18, 2001, the
arbitration panel determined that the accused Medtronic AVE products sold in the
United States willfully infringe the patent exclusively licensed to the Company.
The Company was awarded $169 million in damages, as well as costs and attorneys'
fees, and a permanent injunction against Medtronic AVE's sales of its S670, S660
and BeStent 2(TM) stent delivery systems and R1S rapid exchange catheter. On
September 18, 2001, the U.S. District Court for the Northern District of
California confirmed the arbitration decision. On October 17, 2001, Medtronic
AVE appealed the confirmation of the award and on July 10, 2002, Medtronic AVE's
appeal was heard before the Court of Appeals for the Federal Circuit. The case
was dismissed pursuant to a Settlement Agreement between the parties dated
September 18, 2002.

On March 10, 1999, the Company (through its subsidiary Schneider (Europe) AG)
filed suit against Medtronic AVE alleging that Medtronic AVE's AVE GFX, AVE
GFX2, AVE LTX, CALYPSO RELY(TM), PRONTO SAMBA(TM) and SAMBA RELY(TM)
rapid-exchange catheters and stent delivery systems infringe one of the
Company's German patents. The suit was filed in the District Court of
Dusseldorf, Germany seeking injunctive and monetary relief. An expert's report
was submitted to the Court on November 6, 2001 and a hearing was held on May 2,
2002. On June 11, 2002, the Court ruled that the Medtronic products infringed
the Company's patents. Medtronic filed an appeal. Medtronic is obligated to
dismiss its appeal pursuant to a Settlement Agreement between the parties dated
September 18, 2002.


16

On July 7, 1999, Medtronic filed suit against the Company and SCIMED, alleging
that SCIMED's RADIUS(TM) stent infringes two patents owned by Medtronic. The
suit was filed in the U.S. District Court for the Fourth District Court of
Minnesota seeking injunctive and monetary relief. The Company answered, denying
allegations of the complaint. The case was dismissed pursuant to a Settlement
Agreement between the parties dated September 18, 2002.

On February 14, 2002, SCIMED filed suit for patent infringement against
Medtronic and Medtronic AVE alleging Medtronic AVE's Guardwire Plus(TM) product
infringes one U.S. patent owned by the Company. The complaint was filed in the
U.S. District Court for the District of Delaware seeking monetary and injunctive
relief. The case was dismissed pursuant to a Settlement Agreement between the
parties dated September 18, 2002.

On February 14, 2002, SCIMED and Corvita Corporation, a subsidiary of the
Company, filed suit for patent infringement against Medtronic and Medtronic AVE
alleging Medtronic's AneuRx(TM) product infringes seven U.S. patents owned by
the Company. The complaint was filed in the U.S. District Court for the District
of Delaware seeking monetary and injunctive relief. The case was dismissed
pursuant to a Settlement Agreement between the parties dated September 18, 2002.

On February 14, 2002, the Company and certain of its subsidiaries filed suit for
patent infringement against Medtronic, Medtronic AVE and Cordis alleging certain
balloon catheters, stent delivery systems and guide catheters sold by Medtronic
and Medtronic AVE infringe six U.S. patents owned by the Company and certain
balloon catheters, stent delivery systems and guide catheters sold by Johnson &
Johnson and Cordis infringe six U.S. patents owned by the Company. The complaint
was filed in the U.S. District Court for the Northern District of California
seeking monetary and injunctive relief. The Company dismissed its claims against
Medtronic and Medtronic AVE pursuant to the Settlement Agreement between the
parties dated September 18, 2002.

LITIGATION WITH GUIDANT CORPORATION

On October 15, 2002, Advanced Cardiovascular Systems, Inc. (ACS), a subsidiary
of Guidant Corporation (Guidant), filed suit for patent infringement against the
Company and SCIMED alleging the Company's Express(TM) stent infringes a U.S.
patent owned by ACS. The suit was filed in the U.S. District Court for the
Northern District of California seeking monetary damages and injunctive relief.
The Company has not yet answered, but intends to vigorously deny the allegations
of the complaint.

LITIGATION WITH COOK, INC.

On September 10, 2001, the Company delivered a Notice of Dispute to Cook, Inc.
(Cook) asserting that Cook breached the terms of a certain License Agreement
among Angiotech Pharmaceuticals, Inc. (Angiotech), Cook and the Company (the
Agreement). On October 10, 2001, pursuant to the terms of the Agreement, the
Company filed a demand for arbitration with the American Arbitration
Association. On October 11, 2001, Guidant and its subsidiary, ACS, and Cook
filed suit against the Company relating to the Agreement. The suit was filed in
the U.S. District Court for the Southern District of Indiana and sought
declaratory and injunctive relief. The parties subsequently negotiated an
agreement under which the dispute would be litigated on an expedited basis in
the Northern District of Illinois without Guidant or ACS as parties. On December
13, 2001, the Indiana case was dismissed and Cook filed a similar suit in the


17

U.S. District Court for the Northern District of Illinois seeking declaratory
and injunctive relief. The Company answered the complaint on December 26, 2001,
denying the allegations and filed counterclaims seeking declaratory and
injunctive relief. On February 28, 2002, the Court dismissed certain claims and
on June 27, 2002, found in favor of the Company, ruling that Cook breached the
Agreement. On July 15, 2002, the Company filed a motion seeking a permanent
injunction prohibiting any activities under the Agreement and to enjoin the use
of the clinical data and technologies developed by Cook or Guidant in violation
of the Agreement. On October 1, 2002, the Court granted the Company's request
for a permanent injunction. Cook has appealed the decision to the U.S. Court of
Appeals for the Seventh Circuit, and both Cook and Guidant have moved the
appellate court to stay all or part of the permanent injunction.

On July 30, 2002, Guidant and Cook Group Incorporated, the parent of Cook,
announced their agreement to merge Cook Group Incorporated into a wholly-owned
subsidiary of Guidant. On the same day, Guidant filed suit against the Company
seeking a declaratory judgment that upon completion of the merger, the license
under the Agreement may be assigned or sublicensed by Cook to ACS and that ACS
is entitled to use the information, data or technology generated or gathered for
the purposes of obtaining regulatory approval for a coronary stent utilizing the
Angiotech technology. The Company has answered the complaint and counterclaimed
for declaratory and injunctive relief alleging that Guidant is tortiously
interfering with Cook's performance under the Agreement.

On June 30, 1998, Cook filed suit in the Regional Court, Dusseldorf Division for
Patent Disputes, in Dusseldorf, Germany against the Company alleging that the
Company's Passager(TM) peripheral vascular stent graft and Vanguard(TM)
endovascular aortic graft products infringe the same Cook patent. A hearing was
held on July 22, 1999, and a decision was received in September 1999 finding
that the Company's products infringe the Cook patent. The Company appealed the
decision. A hearing originally scheduled for August 2001 has been postponed
pending the outcome of a nullity action filed by the Company against the patent.
A hearing is scheduled for March 27, 2003.

On August 2, 1999, the Company filed suit against Cook and a subsidiary of Cook
alleging that Cook's Zenith stent infringed a German utility model held by the
Company. The suit was filed in the District Court for Dusseldorf, Germany. On
May 5, 2000, judgment was rendered in favor of the Company and on June 20, 2000,
Cook appealed the decision. A hearing in the Dusseldorf Appeals Court is
scheduled for December 12, 2002.

OTHER PATENT LITIGATION

On July 28, 2000, Dr. Tassilo Bonzel filed a complaint naming certain of the
Company's Schneider Worldwide subsidiaries and Pfizer Inc. (Pfizer) and certain
of its affiliates as defendants, alleging that Pfizer failed to pay Dr. Bonzel
amounts owed under a license agreement involving Dr. Bonzel's patented
Monorail(TM) technology. The suit was filed in the District Court for the State
of Minnesota seeking monetary relief. On September 26, 2001, Dr. Bonzel and the
Company reached a contingent settlement involving all but one claim asserted in
the complaint. On December 17, 2001, the remaining claim was dismissed without
prejudice with leave to refile the suit in Germany. The contingency has been
satisfied and the settlement is now final.


18

On September 12, 2002, EV3 filed suit against The Regents of the University of
California and a subsidiary of the Company in the District Court of The Hague,
Netherlands, seeking a declaration that its EDC II and VDS embolic coil products
do not infringe three patents licensed by the Company from The Regents of the
University of California. A hearing has been scheduled for May 16, 2003.

On July 9, 2002, the Company and University of Kansas filed suit against RITA
Medical Systems, Inc. (RITA) alleging that certain of its products infringe a
patent owned by the University and licensed to the Company. The suit was filed
in the U.S. District Court for the Northern District of California seeking
monetary and injunctive relief.

On October 16, 2002, RadioTherapeutics Corporation (RTC), a subsidiary of the
Company, filed an appeal to the U.S. District Court for the Northern District of
California regarding a U.S. Patent and Trademark Office (USPTO) decision in an
earlier interference proceeding involving a patent owned by RITA. The USPTO had
found that neither RTC nor RITA was entitled to the contested claim.

LITIGATION WITH MEDINOL LTD.

On April 22, 2002, Medinol filed suit against Boston Scientific Medizintechnik
GmbH, a German subsidiary of the Company, alleging the Company's EXPRESS(TM)
stent infringes certain German patents and utility models owned by Medinol. The
suit was filed in Dusseldorf, Germany. On July 11, 2002, a default judgment was
entered against the subsidiary and on July 12, 2002, the subsidiary appealed the
judgment and requested that the case be heard on the merits. On August 1, 2002,
the Court agreed to hear the case. Hearings have been scheduled for May 15 and
27, 2003.

On September 10, 2002, the Company filed suit against Medinol alleging Medinol's
NIRFlex(TM) and NIRFlex(TM) Royal products infringe two patents owned by the
Company. The suit was filed in Dusseldorf, Germany seeking monetary and
injunctive relief.

On September 25, 2002, the Company filed suit against Medinol alleging Medinol's
NIRFlex(TM) and NIRFlex(TM) Royal products infringe a patent owned by the
Company. The suit was filed in the District Court of The Hague, Netherlands
seeking cross-border, monetary and injunctive relief.

OTHER PROCEEDINGS

In October 1998, the Company recalled its NIR ON(R) Ranger(TM) with Sox(TM)
coronary stent delivery system following reports of balloon leaks. In November
1998, the U.S. Department of Justice began a federal grand jury investigation
regarding the shipment and sale of the NIR ON(R) Ranger(TM) with Sox(TM) stent
delivery system and other aspects of the Company's relationship with Medinol,
the vendor of the stent. The Company and two senior officials have been advised
that they are targets of the investigation, but that no final decision has been
made with respect to any potential charges. The Department solicited
presentations from the Company and the officials, and both the Company and the
officials have had the opportunity to present in part their view of the facts
and law relevant to the investigation. The Company believes that it will
ultimately be demonstrated that the Company and its officials acted responsibly
and appropriately.


19

On January 10, 2002 and January 15, 2002, Alan Schuster and Antoinette Loeffler,
respectively, putatively initiated shareholder derivative lawsuits for and on
behalf of the Company in the U.S. District Court for the Southern District of
New York against the Company's then current directors and the Company as nominal
defendant. Both complaints allege, among other things, that with regard to the
Company's relationship with Medinol, the defendants breached their fiduciary
duties to the Company and its shareholders in the management and affairs of the
Company, and in the use and preservation of the Company's assets. The suits seek
a declaration of the directors' alleged breach, damages sustained by the Company
as a result of the alleged breach, monetary and injunctive relief. On October
18, 2002, the plaintiffs filed a consolidated amended complaint naming two
senior officials as defendants and the Company as nominal defendant. The Company
and other defendants have not yet answered the complaint.

On October 31, 2000, the Federal Trade Commission (FTC) filed suit against the
Company for alleged violations of a Consent Order dated May 5, 1995, pursuant to
which the Company had licensed certain intravascular ultrasound technology to
Hewlett-Packard Company (HP). The suit was filed in the U.S. District Court for
the District of Massachusetts seeking civil penalties and injunctive relief. The
Company filed a motion to dismiss the complaint and the FTC filed a motion for
summary judgment. On October 5, 2001, the Court dismissed three of the five
claims against the Company and granted summary judgment of liability in favor of
the FTC on the two remaining claims. A trial on a civil penalty, together with
post-trial briefing, has been completed. A decision has not yet been rendered.

Further, product liability claims against the Company may be asserted in the
future related to events not known to management at the present time. As a
result of current economic factors impacting the insurance industry, at the
beginning of the third quarter of 2002, the Company elected to become
substantially self-insured with respect to general and product liability claims.
Losses for claims in excess of the limits of purchased insurance would be
recorded at the time and to the extent they are probable and estimable.
Management believes that the Company's risk management practices, including
limited insurance coverage, are reasonably adequate to protect against
anticipated general and product liability losses. However, unanticipated
catastrophic losses could have a material adverse impact on the Company's
financial position, results of operations and liquidity.


20

Note L - Segment Reporting

Boston Scientific is a worldwide developer, manufacturer and marketer of medical
devices for less invasive procedures. The Company has four reportable operating
segments based on geographic regions: the United States, Europe, Japan and
Inter-Continental. Each of the Company's reportable segments generates revenue
from the sale of minimally invasive medical devices. The reportable segments
represent an aggregate of operating divisions.

Sales and operating results of reportable segments are based on internally
derived standard foreign exchange rates, which may differ from year to year and
do not include inter-segment profits. The segment information presented for 2001
has been restated based on the Company's standard foreign exchange rates used
for 2002. Because of the interdependence of the reportable segments, the
operating profit as presented may not be representative of the geographic
distribution that would occur if the segments were not interdependent.


United Inter-
(In millions) States Europe Japan Continental Total
- ------------------------------------------------------------------------------------------------------

Three months ended September 30, 2002
Net sales $ 431 $ 100 $ 120 $ 58 $ 709
Operating income excluding
special charges and credits 152 37 69 17 275

Three months ended September 30, 2001
Net sales $ 403 $ 85 $ 131 $ 48 $ 667
Operating income excluding
special charges 136 24 81 5 246

Nine months ended September 30, 2002
Net sales $1,256 $ 315 $ 364 $ 166 $2,101
Operating income excluding
special charges and credits 432 111 210 45 798

Nine months ended September 30, 2001
Net sales $1,197 $ 271 $ 381 $ 132 $1,981
Operating income excluding
special charges 424 76 227 7 734


A reconciliation of the totals reported for the reportable segments to the
applicable line items in the consolidated financial statements is as follows:

Three Months Ended Nine Months Ended
September 30, September 30,
(In millions) 2002 2001 2002 2001
- ----------------------------------------------------------------------------------------------------------------

Net sales:
Total net sales for reportable segments $ 709 $ 667 $ 2,101 $ 1,981
Foreign exchange 13 3 4 15
------- ------- ------- -------
$ 722 $ 670 $ 2,105 $ 1,996
======= ======= ======= =======
Income (loss) before income taxes:
Total operating income for reportable segments
excluding special charges and credits $ 275 $ 246 $ 798 $ 734
Manufacturing operations (43) (23) (135) (72)
Corporate expenses and foreign exchange (85) (111) (264) (389)
Purchased research and development (10) (45) (277)
Litigation settlements, net 99 99
Restructuring charges (4)
------- ------- ------- -------
246 102 453 (8)
Other expense, net (11) (15) (47) (44)
------- ------- ------- -------
$ 235 $ 87 $ 406 $ (52)
======= ======= ======= =======

21

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

OVERVIEW

Boston Scientific Corporation (the Company) is a worldwide developer,
manufacturer and marketer of medical devices that are used in a broad range of
interventional medical specialties. The Company's mission is to improve the
quality of patient care and the productivity of health care delivery through the
development and advocacy of less-invasive medical devices and procedures. This
is accomplished through the continuing refinement of existing products and
procedures and the investigation and development of new technologies that can
reduce risk, trauma, cost, procedure time and the need for aftercare. The
Company's approach to innovation combines internally developed products and
technologies with those obtained externally through strategic acquisitions and
alliances.

The Company's products are used in a broad range of interventional medical
specialties, including interventional cardiology, electrophysiology,
gastroenterology, neurovascular intervention, pulmonary medicine, interventional
radiology, oncology, urology, gynecology and vascular surgery.

RESULTS OF OPERATIONS

FINANCIAL SUMMARY

THREE MONTHS ENDED SEPTEMBER 30, 2002

Net sales for the third quarter of 2002 were $722 million as compared to $670
million in the third quarter of 2001, an increase of 8 percent. Excluding the
favorable impact of $10 million in foreign currency fluctuations, net sales were
$712 million, an increase of 6 percent. The reported net income for the quarter
ended September 30, 2002 was $161 million, or $0.39 per share (diluted), as
compared to $58 million, or $0.14 per share, in the third quarter of 2001. The
reported results for the third quarter of 2002 include an after-tax credit of
$62 million for net amounts received in connection with the previously announced
settlements of litigation related to rapid exchange catheter technology. The
reported results for the third quarter of 2001 include after-tax charges of $20
million, which include costs associated with the Company's global operations
plan and purchased research and development. Exclusive of these amounts, net
income for the third quarter of 2002 was $99 million, or $0.24 per share
(diluted), as compared to net income of $78 million, or $0.19 per share, in the
third quarter of 2001.


22

Three Months Ended
September 30, 2002 September 30, 2001
(In millions) Net Income EPS Net Income EPS
---------- ----- ---------- ------

As reported $161 $0.39 $58 $0.14
After-tax charges and credits:
Purchased research and development 10 0.02
Global operations plan costs 10 0.03
Litigation settlements, net (62) (0.15)
----------------- -----------------
Subtotal: After-tax charges and credits $(62) $(0.15) $20 $0.05

Excluding after-tax charges and credits $ 99 $ 0.24 $78 $0.19


NINE MONTHS ENDED SEPTEMBER 30, 2002

Net sales for the nine months ended September 30, 2002 were $2,105 million as
compared to $1,996 million for the nine months ended September 30, 2001, an
increase of 5 percent. Without the adverse impact of $11 million due to foreign
currency fluctuations, net sales for the nine months ended September 30, 2002
totaled $2,116 million, an increase of 6 percent. The reported net income for
the nine months ended September 30, 2002 was $268 million, or $0.65 per share
(diluted), as compared to a reported net loss of $119 million, or $0.30 per
share, for the nine months ended September 30, 2001. The reported results for
the nine months ended September, 30 2002 include net after-tax charges of $15
million, which include costs associated with the Company's global operations
plan, purchased research and development primarily associated with the
acquisition of Enteric Medical Technologies, Inc. (EMT), and an endowment to
fund a newly created philanthropic foundation. These charges were partially
offset by net amounts received in connection with the previously announced
settlements of litigation related to rapid exchange catheter technology. The
reported results for the nine months ended September, 30 2001 include after-tax
charges of $360 million, which include costs associated with the Company's
global operations plan, purchased research and development, a write-down of
intangible assets and a provision for excess NIR(R) coronary stent inventories.
Exclusive of these amounts, net income for the nine months ended September 30,
2002 was $283 million, or $0.69 per share (diluted), as compared to net income
of $241 million, or $0.60 per share, for the nine months ended September 30,
2001.


Nine Months Ended
September 30, 2002 September 30, 2001
(In millions) Net Income EPS Net Income EPS
---------- ----- ---------- ------
As reported $ 268 $0.65 $(119) $(0.30)
After-tax charges and credits:
Purchased research and development 45 0.11 277 0.70
Global operations plan costs 20 0.05 32 0.08
Foundation contribution 12 0.03
Litigation settlements, net (62) (0.15)
Provision for excess NIR(R) stent
inventories 34 0.08
Write-down of intangible assets 17 0.04
----------------- ------------------
Subtotal: After-tax charges and credits $ 15 $0.04 $360 $0.90

Excluding after-tax charges and credits $283 $0.69 $241 $0.60


23

NET SALES
During the third quarter of 2002, United States (U.S.) revenues increased
approximately 7 percent relative to the third quarter of 2001 to $431 million,
while international revenues increased approximately 9 percent relative to the
third quarter of 2001 to $291 million. During the nine months ended September
30, 2002, U.S. revenues increased approximately 5 percent to $1,256 million and
international revenues increased approximately 6 percent to $849 million
compared to the same period in the prior year. For the three and nine months
ended September 30, 2002, U.S. revenues increased primarily due to revenue
growth in the Company's Endosurgery product lines and increased sales of the
Cutting Balloon(TM) catheter, partially offset by decreases in NIR(R) coronary
stent sales. Third quarter U.S. sales were also impacted by the launch of the
Company's internally developed Express2(TM) coronary stent in the U.S., more
than offset by the decrease in NIR(R) coronary stent sales. Without coronary
stents, U.S. revenues grew 9 percent and 11 percent during the third quarter and
nine months ended September 30, 2002, respectively.

The increase in international revenues for the three and nine months ended
September 30, 2002 was primarily due to growth in the Company's Endoscopy
product lines and increased sales of coronary stents within the Company's Europe
and Inter-Continental operating segments, partially offset by decreases in
NIR(R) coronary stent sales and coronary balloon sales in Japan. Without
coronary stents, international revenues grew 8 percent and 13 percent on a
constant currency basis during the three and nine months ended September 30,
2002, respectively.

The following tables provide sales by region and relative change on an actual
and constant foreign currency basis for the three and nine months ended
September 30, 2002 and 2001, respectively.

Three Months Ended Change
September 30, At Actual At Constant
(In millions) 2002 2001 Currency Basis Currency Basis
---- ---- -------------- --------------
United States $ 431 $ 403 7% 7%
Europe 109 84 30% 17%
Japan 126 134 (6%) (8%)
Inter-Continental 56 49 14% 23%
------ ------ ----- -----
Worldwide $ 722 $ 670 8% 6%
====== ====== ===== =====


Nine Months Ended Change
September 30, At Actual At Constant
(In millions) 2002 2001 Currency Basis Currency Basis
---- ---- -------------- --------------
United States $1,256 $1,197 5% 5%
Europe 323 268 21% 16%
Japan 362 394 (8%) (4%)
Inter-Continental 164 137 20% 27%
------ ------ ----- -----
Worldwide $2,105 $1,996 5% 6%
====== ====== ===== =====


24

The following tables provide worldwide sales by division and relative change on
an actual and constant foreign currency basis for the three and nine months
ended September 30, 2002 and 2001, respectively.

Three Months Ended Change
September 30, At Actual At Constant
(In millions) 2002 2001 Currency Basis Currency Basis
---- ---- -------------- --------------
SCIMED $ 416 $ 402 3% 2%
EPT 26 21 24% 17%
Target 40 36 11% 6%
------ ------ ----- -----
CARDIOVASCULAR $ 482 $ 459 5% 3%

Medi-tech $ 58 $ 55 5% 6%
Endoscopy 130 113 15% 14%
Urology 52 43 21% 19%
------ ------ ----- -----
ENDOSURGERY $ 240 $ 211 14% 13%
------ ------ ----- -----
Worldwide $ 722 $ 670 8% 6%
====== ====== ===== =====


Nine Months Ended Change
September 30, At Actual At Constant
(In millions) 2002 2001 Currency Basis Currency Basis
---- ---- -------------- --------------
SCIMED $1,218 $1,206 1% 2%
EPT 74 59 25% 24%
Target 123 113 9% 9%
------ ------ ----- -----
CARDIOVASCULAR $1,415 $1,378 3% 3%

Medi-tech $ 170 $ 160 6% 9%
Endoscopy 378 334 13% 13%
Urology 142 124 15% 14%
------ ------ ----- -----
ENDOSURGERY $ 690 $ 618 12% 12%
------ ------ ----- -----
Worldwide $2,105 $1,996 5% 6%
====== ====== ===== =====

GROSS PROFIT
Gross profit as a percentage of net sales increased to 70.8 percent in the third
quarter of 2002 from 68.1 percent in the third quarter of 2001, and increased to
69.5 percent for the nine months ended September 30, 2002 from 64.7 percent for
the same period in the prior year. Excluding charges for expenses associated
with the global operations plan and a $49 million provision recorded in the
second quarter of 2001 for excess NIR(R) stent inventories, gross margins
improved to 70.8 percent in the third quarter of 2002 from 70.1 percent in the
third quarter of 2001, and improved to 70.8 percent for the nine months ended
September 30, 2002 from 69.3 percent for the same period in the previous year.
The increase in gross margin for the three and nine months ended September 30,
2002 is primarily due to operational cost improvements achieved through the
Company's global operations plan and to shifts in the Company's product sales
mix, primarily due to sales of the Express coronary stent, partially offset by
revenue declines in Japan.


25

SELLING, GENERAL AND ADMINISTRATIVE (SG&A) EXPENSES
SG&A expenses as a percentage of sales decreased to approximately 34 percent of
sales in the third quarter of 2002 from 35 percent in the third quarter of 2001,
and increased approximately $17 million to $249 million. SG&A expenses as a
percentage of sales increased to 35 percent of sales for the nine months ended
September 30, 2002 from 34 percent for the nine months ended September 30, 2001
and increased approximately $49 million to $736 million. The increase in
expenses in 2002 is primarily attributable to costs associated with businesses
acquired in 2002 and 2001 and to costs incurred to expand and strengthen the
Company's field sales force.

AMORTIZATION EXPENSE
Amortization expense decreased to $19 million in the third quarter of 2002 from
$30 million in the third quarter of 2001 and decreased as a percentage of sales
to 3 percent from 4 percent. Amortization expense decreased to $53 million for
the nine months ended September 30, 2002 from $105 million during the nine
months ended September 30, 2001 and decreased as a percentage of sales to 3
percent from 5 percent. The decrease in expense dollars for the third quarter is
due to the adoption on January 1, 2002 of Financial Accounting Standards Board
(FASB) Statement No. 142, "Goodwill and Other Intangible Assets". The decrease
for the nine months ended September 30, 2002 is primarily a result of a $24
million pre-tax write-down of intangible assets in the second quarter of 2001
and the adoption of Statement No. 142. As a result of adoption of Statement No.
142, the Company realized a pre-tax benefit of approximately $12 million and $35
million of amortization reductions for goodwill and indefinite-lived intangible
assets in the third quarter and for the nine months ended September 30, 2002,
respectively. This benefit was partially offset by amortization of intangible
assets related to businesses acquired in 2002 and 2001. During the second
quarter of 2002, the Company completed the initial impairment review required by
Statement No. 142; the Company did not recognize any impairment losses as a
result of this review.

ROYALTIES
Royalties decreased to $9 million in the third quarter of 2002 from $10 million
in the third quarter of 2001 and remained approximately 1 percent of sales.
Royalties decreased to $26 million for the nine months ended September 30, 2002
from $28 million for the nine months ended September 30, 2001 and remained
approximately 1 percent of sales. The Company continues to enter into strategic
technological alliances, some of which include royalty commitments.

RESEARCH AND DEVELOPMENT (R&D) EXPENSE
R&D expense increased 21 percent to $87 million in the third quarter of 2002
from $72 million in the third quarter of 2001 and increased as a percentage of
sales to 12 percent from 11 percent. R&D expense increased 25 percent to $248
million for the nine months ended September 30, 2002 from $199 million for the
nine months ended September 30, 2001 and increased as a percentage of sales to
12 percent from 10 percent. The increase in research and development expense is
primarily due to investment in development and clinical trials relating to the
Company's TAXUS(TM) drug-eluting stent program and to investment in development
programs acquired in connection with the Company's business combinations
consummated in 2001, primarily related to the Embolic Protection, Inc.
Filterwire(TM) and the Interventional Technologies, Inc. (IVT) Cutting
Balloon(TM) technologies.


26

The TAXUS program is a series of clinical studies designed to collect data on
Boston Scientific's proprietary paclitaxel-eluting stent technology for reducing
coronary restenosis, the growth of tissue within an artery after angioplasty and
stenting. Paclitaxel, the active component of a popular chemotherapeutic agent,
has demonstrated promising results in pre-clinical and clinical studies for
reducing the processes leading to restenosis. The comprehensive TAXUS program
positions Boston Scientific to obtain CE approval to launch paclitaxel-eluting
stents in European and other international markets in late 2002 or early 2003;
to launch in the U.S. in late 2003; and to launch in Japan in early 2005,
subject to regulatory approvals.

The TAXUS I trial confirmed safety and reported zero thrombosis and zero
restenosis. Clinical follow-up through 12 months continues to show favorable
results. The TAXUS II trial is the Company's first large drug-eluting stent
trial and reported final, six-month results in September 2002 at the annual
Transcatheter Cardiovascular Therapeutics symposium, convincingly demonstrating
both safety and efficacy in reducing coronary restenosis. The TAXUS II trial
consisted of two sequential cohorts, a slow-release formulation and
moderate-release formulation. The slow-release formulation cohort reported an
in-stent binary restenosis rate of 2.3 percent and an in-segment binary
restenosis rate of 5.5 percent. The moderate-release formulation cohort reported
an in-stent binary restenosis rate of 4.7 percent and an in-segment binary
restenosis rate of 8.6 percent. Although not specifically studied, combined
results from the two cohorts, excluding restenosis occurring in non-study stents
and in gaps between stents, reflect an in-stent restenosis rate of 1.2 percent
and an in-segment restenosis rate of 4.7 percent. The TAXUS III trial is a
single-arm registry examining the feasibility of implanting up to two
paclitaxel-eluting stents for the treatment of in-stent restenosis. The trial
enrolled patients with complex vascular disease having recurrent occlusion in a
stent, who have an increased probability of restenosis. The TAXUS III trial
reported final six-month results in May 2002, with no stent thromboses and no
deaths and an overall binary restenosis rate of 16 percent. The reported
in-stent binary restenosis rate was 4 percent. The TAXUS IV trial completed
enrollment during the second quarter of 2002, and the patients are now in the
follow-up period. TAXUS IV is a pivotal study designed to collect data to
support regulatory filings for U.S. product commercialization; the Company plans
on making its PMA submission to the FDA in the second quarter of 2003. The
prospective, randomized, double-blind trial is designed to assess the safety and
efficacy of a slow-release dose formulation paclitaxel-eluting TAXUS stent
system. In addition, the Company has initiated, or plans to initiate in the
fourth quarter of 2002, separate clinical trials utilizing its slow-release and
moderate-release formulations in patients with complex coronary artery disease.

INTEREST EXPENSE AND OTHER, NET
Interest expense decreased to $10 million in the third quarter of 2002 from $16
million in the third quarter of 2001 and decreased to $32 million for the nine
months ended September 30, 2002 from $46 million for the nine months ended
September 30, 2001. The decrease in interest expense is primarily attributable
to lower average interest rates in the three and nine-month periods ended
September 30, 2002 as compared to the prior year. Other, net, decreased to an
expense of $1 million in the third quarter of 2002 from income of $1 million in
the third quarter of 2001, and decreased to an expense of $15


27

million for the nine months ended September 30, 2002 from income of $2 million
for the nine months ended September 30, 2001. The nine month change is primarily
due to a charitable donation of $18 million to fund the newly created Boston
Scientific Foundation during the second quarter of 2002. The Boston Scientific
Foundation is a philanthropic organization whose mission is to improve the
health of individuals and communities, and to enhance educational opportunity.

EFFECTIVE TAX RATE
During the third quarter of 2002, the Company changed its estimate of its 2002
effective tax rate, excluding the impact of after-tax special charges and
credits, to 29 percent from 30 percent. The decrease is primarily attributable
to geographic changes in the manufacturing of the Company's products. As a
result of this change, the Company's effective tax rate for the quarter,
excluding the impact of after-tax special charges and credits, was 27 percent.
The cumulative effect of this reduction resulted in an increase in the Company's
net income for the nine months ended September 30, 2002 of $4 million, or $0.01
per share (diluted), of which approximately $3 million represents the impact for
the first half of 2002. Management currently estimates that the 2002 effective
tax rate will remain at approximately 29 percent.

GLOBAL OPERATIONS STRATEGY UPDATE
During 2000, the Company approved and committed to a global operations plan
consisting of a series of strategic initiatives designed to increase
productivity and enhance innovation. The plan includes manufacturing process and
supply chain programs and a plant optimization initiative. The intent of the
plant optimization initiative is to better allocate the Company's resources by
creating a more effective network of manufacturing and research and development
facilities.

During the first half 2002, the Company recorded pre-tax expenses of $23 million
as cost of sales primarily related to transition costs associated with the plant
optimization plan and to abnormal production variances related to underutilized
plant capacity. During the second quarter of 2002, the Company substantially
completed the plant optimization initiative. In addition, during the second
quarter of 2002, the Company recorded a $6 million pre-tax charge to cost of
sales for severance and related costs associated with its global operations
strategy. The approximately 250 affected employees included manufacturing,
manufacturing support and management personnel. The reductions resulted from the
Company's continued achievement of operational efficiencies within its plant
network and its continued effort to reduce costs. At September 30, 2002, the
Company had made cash outlays of approximately $155 million since the inception
of the global operations strategy and had approximately $9 million of accrued
severance and related costs remaining associated with its global operations
strategy initiatives. The accrued costs are expected to be paid by the end of
2003.

The Company estimates that the global operations plan will achieve future
pre-tax operating savings, relative to the base year of 1999, of approximately
$220 million in 2002 and approximately $250 million in annualized savings
thereafter. These savings will be realized primarily as reduced cost of sales.
Savings to date have been partially offset by price erosion and the effects of
foreign currency fluctuations. Additionally, the Company continues to use a
portion of these savings to fund its increased investment in research and
development.

28

PURCHASED RESEARCH AND DEVELOPMENT
On June 13, 2002, the Company completed its acquisition of the 93 percent of the
outstanding shares of EMT not previously owned by the Company in an all-cash
transaction for an initial payment of approximately $50 million, plus contingent
payments upon achievement of certain milestones. EMT designs, manufactures and
markets Enteryx(TM), a liquid polymer technology for the treatment of
gastroesophageal reflux disease (GERD). The acquisition is intended to expand
the Company's Endosurgery product offerings in the GERD market.

On June 27, 2002, the Company completed its tender offer relating to its
acquisition of the outstanding shares of BEI Medical Systems Company, Inc. (BEI)
in an all-cash transaction for approximately $95 million. BEI designs,
manufactures and markets less-invasive technology used by gynecologists to treat
excessive uterine bleeding due to benign causes. The acquisition is intended to
expand the Company's product offerings in the area of women's health and will
become part of the Company's Endosurgery group.

The Company's acquisitions were accounted for using the purchase method of
accounting. The condensed consolidated financial statements include the
operating results for each acquired entity from its respective date of
acquisition. Pro forma information is not presented, as the acquired companies'
results of operations prior to their date of acquisition are not material,
individually or in the aggregate, to the Company. The EMT acquisition involves
potential earn-out payments based on EMT reaching certain milestones. These
payments would be allocated to specific intangible asset categories with the
remainder assigned to excess of cost over net assets acquired as if the
consideration had been paid as of the date of acquisition.

The aggregate purchase price for each acquisition has been allocated to the
assets acquired and liabilities assumed based on their fair values at the date
of acquisition. The estimated excess of purchase price over the fair value of
the net tangible assets acquired was allocated to identifiable intangible
assets, as valued by an independent appraiser using information and assumptions
provided by management. Based upon these valuations, the Company recorded a
charge of approximately $45 million to account for purchased research and
development related to EMT. The valuation of purchased research and development,
for which management is primarily responsible, represents the estimated fair
value at the date of acquisition related to in-process projects. As of the date
of acquisition, the in-process projects had not yet reached technological
feasibility and had no alternative future uses. The primary basis for
determining the technological feasibility of these projects is obtaining
regulatory approval to market the product. Accordingly, the value attributable
to these projects, which had not yet obtained regulatory approval, was expensed
in conjunction with the acquisition. If the projects are not successful or
completed in a timely manner, the Company may not realize the financial benefits
expected for these projects. Other intangible assets subject to amortization
recorded in connection with the EMT and BEI acquisitions are being amortized on
a straight-line basis ranging from 9 to 25 years.


29

The income approach was used to establish the fair values of purchased research
and development. This approach establishes fair value by estimating the
after-tax cash flows attributable to the in-process project over its useful life
and then discounting these after-tax cash flows back to a present value. Revenue
estimates were based on estimates of relevant market sizes, expected market
growth rates, expected trends in technology and expected product introductions
by competitors. In arriving at the value of the in-process research and
development projects, the Company considered, among other factors, the
in-process project's stage of completion, the complexity of the work completed
as of the acquisition date, the costs already incurred, the projected costs to
complete, the contribution of core technologies and other acquired assets, the
expected introduction date and the estimated useful life of the technology. The
discount rate used to arrive at a present value as of the date of acquisition
was based on the time value of money and medical technology investment risk
factors. For the purchased research and development programs acquired in
connection with the EMT acquisition, risk-adjusted discount rates ranging from
18 percent to 26 percent were utilized to discount the projected cash flows. The
Company believes that the estimated purchased research and development amounts
so determined represent the fair value at the date of acquisition and do not
exceed the amount a third party would pay for the projects.

The most significant project, relative to the purchased research and development
charge recorded in connection with the EMT acquisition, is the Enteryx(TM)
technology for the treatment of GERD, which represents approximately 87 percent
of the in-process value. Enteryx is a patented liquid polymer for the treatment
of GERD. As of the date of acquisition, the project was expected to be completed
and the product to be commercially available within one to two years, with an
estimated cost to complete of approximately $2 million.

The Company's research and development projects acquired in connection with its
2001 business combinations are generally progressing in line with the estimates
set forth in the Company's 2001 Annual Report on Form 10-K, with the exception
of IVT's next-generation Infiltrator(R) transluminal drug-delivery catheter
project. Due to alternative drug-delivery products available to the Company, the
Company has reduced its future revenue projections for this product. The Company
expects to continue to pursue this and other research and development projects
acquired in connection with its 2001 business combinations and believes it has a
reasonable chance of completing the projects.

OUTLOOK

The worldwide coronary stent market is dynamic and highly competitive with
significant market share volatility. In mid-September 2002, the Company launched
its Express2(TM) coronary stent system in the U.S. The product has been well
received in the market, more than tripling the Company's domestic coronary stent
market share to approximately 19 percent by September 30, 2002.

The introduction of drug-eluting stents is likely to have a significant impact
on the market size for coronary stents and on the distribution of market share
across the industry. Clinical performance, reimbursement levels and product
pricing, among other factors, will impact the size of that market.


30

It is expected that one of the Company's competitors will launch a drug-eluting
stent into the U.S. market in early 2003, while the Company's drug-eluting stent
product is expected to be launched in the U.S. in the fourth quarter of 2003.
Until the Company launches its drug-eluting stent product, it is likely that its
U.S. coronary stent business will be subject to significant share and price
pressure; however the Company expects to achieve growth in its U.S. coronary
stent business in 2003 compared to the prior year.

The Company has been encouraged by the clinical results to date on its TAXUS
program and believes that drug-eluting stents present a significant opportunity
for growth in its revenues and earnings. The Company's growth opportunities
within the drug-eluting stent market, and its ability to improve operating
margins, may be significantly impacted by the results of its clinical trials,
competitive offerings, the outcome of litigation, the availability of inventory
to meet customer demand and average selling prices. The timing of submission for
and receipt of regulatory approvals to market coronary stents, drug-eluting
stents and peripheral stent platforms in the U.S. and international markets may
also influence the Company's ability to offer competitive stent products.

As the health care environment continues to undergo rapid change, management
expects that it will continue to focus on strategic initiatives and make
additional investments in existing relationships. During the nine months ended
September 30, 2002 and during 2001, the Company consummated several business
acquisitions and strategic alliances. Management believes it has developed a
sound plan to integrate these businesses acquired in 2002 and 2001. The failure
to successfully integrate these businesses could impair the Company's ability to
realize the strategic and financial objectives of these transactions. In
connection with these and other acquisitions consummated during the last five
years, the Company has acquired numerous in-process research and development
platforms. As the Company continues to undertake strategic initiatives, it is
reasonable to assume that it will acquire additional in-process research and
development platforms.

Uncertainty remains with regard to future changes within the health care
industry. The trend toward managed care and economically motivated and more
sophisticated buyers in the U.S. may result in continued pressure on selling
prices of certain products and compression of gross margins. Further, the U.S.
marketplace is increasingly characterized by consolidation among health care
providers and purchasers of medical devices who prefer to limit the number of
suppliers from which they purchase medical products. There can be no assurance
that these entities will continue to purchase products from the Company.

International markets are also being affected by economic pressure to contain
reimbursement levels and health care costs. The Company's profitability from its
international operations may be limited by risks and uncertainties related to
economic conditions in these regions, regulatory and reimbursement approvals,
competitive offerings, infrastructure development, rights to intellectual
property and the ability of the Company to implement its overall business


31

strategy. Any significant changes in the competitive, political, regulatory,
reimbursement or economic environment where the Company conducts international
operations may have a material impact on revenues and profits, especially in
Japan, given its high profitability relative to its contribution to revenues.
The Company's Japan business is expected to be under continued pressure,
particularly in coronary stents due to the lack of physician acceptance of the
NIR(R) coronary stent platform. Deterioration in the Japanese and/or emerging
markets economies may impact the Company's ability to grow its business and to
collect its accounts receivable in international markets. Additionally, the
trend in countries around the world toward more stringent regulatory
requirements for product clearance, changing reimbursement rates and more
vigorous enforcement activities has generally caused or may cause medical device
manufacturers to experience more uncertainty, greater risk and higher expenses.

These factors may impact the rate at which the Company can grow. However,
management believes that it is positioning the Company to take advantage of
opportunities that exist in the markets it serves.

LIQUIDITY AND CAPITAL RESOURCES

Cash and short-term investments totaled $259 million at September 30, 2002,
compared to $185 million at December 31, 2001. The Company had $140 million of
working capital at September 30, 2002, as compared to $275 million at December
31, 2001. The decrease in working capital is primarily due to an increase in
short-term liabilities reflecting obligations recorded in connection with
litigation settlements and to a decrease in inventory resulting from the
Company's global operations strategy. These reductions were partially offset by
an increase in cash from operations, including litigation settlements. During
the nine months ended September 30, 2002, the Company generated cash from
operating activities of $540 million, including cash received from litigation
settlements. Cash generated by operating activities for the nine months ended
September 30, 2002 were primarily used to fund acquisitions, strategic
alliances, capital expenditures and to reduce the Company's borrowings during
the period.

In August 2002, the Company entered into a revolving credit and security
facility providing for up to $200 million of additional borrowing capacity
secured by the Company's domestic trade accounts receivable. The maximum amount
available for borrowing under this facility changes based upon the amount of
eligible receivables, concentration of eligible receivables and other factors.
At September 30, 2002, $159 million was outstanding under this facility and bore
interest at asset-backed commercial paper rates plus 0.35 percent, or
approximately 2.2 percent at September 30, 2002. Certain significant changes in
the quality of the Company's receivables may cause an amortization event under
this facility. An amortization event may require the Company to immediately
repay borrowings under the facility. The financing structure required the
Company to create a wholly owned special purpose entity, which is consolidated
by the Company. This entity purchases receivables from the Company and then
borrows from two third-party financial institutions using U.S. trade accounts
receivable as collateral. The transactions remain on the Company's balance sheet
because the Company has the right to prepay any borrowings


32

outstanding, allowing the Company to retain effective control over the
receivables. Accordingly, pledged receivables and the corresponding borrowings
are included as trade-accounts receivable, net and bank obligations,
respectively, on the accompanying condensed consolidated balance sheets.

The Company had approximately $286 million and $99 million of commercial paper
outstanding at September 30, 2002 and December 31, 2001, respectively. In
addition, the Company had approximately $125 million and $547 million in
unsecured revolving credit facility borrowings outstanding at September 30, 2002
and December 31, 2001, respectively. At September 30, 2002, the revolving credit
facilities totaled approximately $1.6 billion, consisting of a $1 billion credit
facility that terminates in May 2003 and a $600 million credit facility that
terminates in August 2006.

The Company has the ability to refinance a portion of its short-term debt on a
long-term basis through its revolving credit facilities. The Company expects a
minimum of $306 million of its short-term borrowings, including $286 million of
commercial paper and $20 million of bank obligations, will remain outstanding
beyond the next twelve months and, accordingly, has classified this portion as
long-term borrowings at September 30, 2002, compared to $471 million of bank
obligations classified as long-term at December 31, 2001.

During the first quarter of 2002, the Company repaid 6 billion Japanese yen
(translated to approximately $45 million at the date of repayment and $46
million at December 31, 2001) of borrowings outstanding with a syndicate of
Japanese banks.

The Company has recognized net deferred tax assets aggregating $198 million at
September 30, 2002 and $131 million at December 31, 2001. The assets relate
principally to the establishment of inventory and product-related reserves,
purchased research and development and net operating loss carryforwards. In
light of the Company's historical financial performance, the Company believes
that these assets will be substantially recovered.

During the third quarter of 2002, the Company entered into an agreement to
settle a number of patent infringement lawsuits between the Company and
Medtronic, Inc. The settlement resolved the Company's damage claims against
Medtronic arising out of a German court case and a previous U.S. arbitration
proceeding involving Medtronic rapid exchange stent delivery systems and
angioplasty dilatation balloon catheters. In accordance with the settlement
agreement, during the third quarter of 2002, Medtronic paid the Company
approximately $175 million to settle damage award claims for past infringement.
In addition, during the third quarter of 2002, the Company recorded a net $76
million accrual in accordance with a 2001 settlement agreement. These amounts
are shown as litigation settlements, net on the accompanying condensed
consolidated statements of operations.

Certain of the Company's acquisition transactions involve earn-out payments
based on the acquired companies reaching certain performance and other
milestones. During the fourth quarter of 2002, the Company expects to make
earn-out payments of approximately $150 million related to these acquisitions.
The Company anticipates revenues of approximately $200 million for 2002


33

associated with its 2001 and 2002 acquisitions. In addition, the Company expects
to complete its acquisition of Smart Therapeutics, Inc. (Smart) in the fourth
quarter of 2002 for an initial payment of $50 million, plus contingent payments
upon achievement of certain milestones.

The Company expects to incur capital expenditures of approximately $25 million
during the remainder of 2002. The Company expects that its cash and cash
equivalents, marketable securities, cash flows from operating activities and
borrowing capacity will be sufficient to meet its projected operating cash
needs, including anticipated capital expenditures, acquisition-related payments,
other strategic initiatives and known settlement obligations.

LEGAL PROCEEDINGS
The Company is involved in various legal proceedings, including patent
infringement and product liability suits, from time to time in the normal course
of business. In management's opinion, the Company is not currently involved in
any legal proceeding other than those specifically identified in Note K to the
condensed consolidated financial statements contained herein, Note J to the
Company's quarterly report on Form 10-Q for the quarter ended June 30, 2002,
Note H to the Company's quarterly report on Form 10-Q for the quarter ended
March 31, 2002 and the consolidated financial statements contained in the
Company's 2001 Annual Report on Form 10-K which, individually or in the
aggregate, could have a material effect on the financial condition, operations
and/or cash flows of the Company. Additionally, legal costs associated with
asserting the Company's patent portfolio and defending against claims that the
Company's products infringe the intellectual property of others are significant,
and legal costs associated with non-patent litigation and compliance activities
are rising. Depending on the prevalence, significance and complexity of these
matters, the Company's legal provision could be adversely affected in the
future. As of September 30, 2002 the range of loss for reasonably possible
contingencies that can be estimated is not material.

Further, product liability claims against the Company may be asserted in the
future related to events not known to management at the present time. As a
result of current economic factors impacting the insurance industry, at the
beginning of the third quarter of 2002, the Company elected to become
substantially self-insured with respect to general and product liability claims.
Losses for claims in excess of the limits of purchased insurance would be
recorded at the time and to the extent they are probable and estimable.
Management believes that the Company's risk management practices, including
limited insurance coverage, are reasonably adequate to protect against
anticipated general and product liability losses. However, unanticipated
catastrophic losses could have a material adverse impact on the Company's
financial position, results of operations and liquidity.


34

CAUTIONARY STATEMENTS FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995

This report contains forward-looking statements. The Company desires to take
advantage of the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995 and is including this statement for the express purpose of
availing itself of the protections of the safe harbor with respect to all
forward-looking statements. Forward-looking statements discussed in this report
include, but are not limited to, statements with respect to, and the Company's
performance may be affected by:

o volatility in the coronary stent market, competitive offerings and the
timing of submission for and receipt of regulatory approvals to market
TAXUS drug-eluting stents and other coronary and peripheral stent
platforms;

o the Company's ability to timely launch the Express(TM) Coronary stent
in the Japanese market and the TAXUS drug-eluting stent in the U.S.
and international markets;

o the impact of the introduction of drug-eluting stents on the size and
distribution of share within the coronary stent market in the U.S. and
around the world;

o the Company's ability to capitalize on the opportunity in the
drug-eluting stent market for significant growth in revenue and
earnings;

o the continued decline in NIR(R) coronary stent sales, particularly in
Japan, and changes in the mix of the Company's coronary stent
platforms;

o the development and introduction of competing or technologically
advanced products by the Company's competitors;

o the Company's ability to achieve estimated operating savings from the
global operations plan within its cost estimates;

o the Company's ability to continue to increase productivity, achieve
manufacturing cost declines, gross margin benefits and inventory
reductions from its manufacturing process and supply chain programs;

o the ability of the Company to manage accounts receivable and gross
margins and to react effectively to the changing managed care
environment, reimbursement levels and worldwide economic and political
conditions;

o the Company's ability to integrate the BEI and EMT acquisitions and
the acquisitions consummated in 2001 and the Company's other strategic
alliances;

o the Company's ability to close the Smart acquisition in the fourth
quarter of 2002;

o the Company's ability to generate revenues and other benefits
associated with the 2001 and 2002 acquisitions and strategic
alliances;

35

o the Company's ability to successfully complete planned clinical trials
and to develop and launch products on a timely basis, including
products resulting from purchased research and development;

o the Company's ability to position itself to take advantage of
opportunities that exist in the markets it serves;

o the timing, size and nature of strategic initiatives, market
opportunities and research and development platforms available to the
Company;

o the Company's ability to maintain its effective tax rate for 2002 and
to substantially recover its net deferred tax assets;

o the ability of the Company to meet its projected cash needs and to
maintain its borrowings beyond the next twelve months;

o risks associated with international operations;

o the potential effect of foreign currency fluctuations on revenues,
expenses and resulting margins;

o the effect of litigation and compliance activities on the Company's
loss contingency, legal provision and cash flow; and

o the impact of stockholder, patent, product liability, Federal Trade
Commission, Medinol and other litigation, as well as the outcome of
the U.S. Department of Justice investigation.

Several important factors, in addition to the specific factors discussed in
connection with each forward-looking statement individually, could affect the
future results and growth rates of the Company and could cause those results and
rates to differ materially from those expressed in the forward-looking
statements contained in this report. These additional factors include, among
other things, future economic, competitive, reimbursement and regulatory
conditions, new product introductions, demographic trends, third-party
intellectual property, financial market conditions and future business decisions
of the Company and its competitors, all of which are difficult or impossible to
predict accurately and many of which are beyond the control of the Company.
Therefore, the Company wishes to caution each reader of this report to consider
carefully these factors as well as the specific factors discussed with each
forward-looking statement in this report and as disclosed in the Company's
filings with the Securities and Exchange Commission. These factors, in some
cases, have affected, and in the future (together with other factors) could
affect, the ability of the Company to implement its business strategy and may
cause actual results to differ materially from those contemplated by the
statements expressed in this report.

36

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company had foreign currency derivative instruments outstanding in the
notional amounts of $1,127 million and $845 million as of September 30, 2002 and
December 31, 2001, respectively. The Company has recorded $18 million of assets
and $12 million of liabilities to recognize the fair value of these instruments
at September 30, 2002, compared to $76 million of assets at December 31, 2001.
The change in the fair value of these instruments is primarily due to
fluctuations in foreign currency exchange rates. As of September 30, 2002, a 10
percent increase in the U.S. dollar's value relative to the hedged foreign
currencies would increase the derivative instruments' fair value by
approximately $87 million. As of September 30, 2002, a 10 percent decrease in
the U.S. dollar's value relative to the hedged foreign currencies would decrease
the derivative instruments' fair value by approximately $79 million. Any
increase or decrease in the fair value of the Company's foreign exchange rate
sensitive derivative instruments would be substantially offset by a
corresponding decrease or increase in the fair value of the hedged underlying
asset, liability or cash flow.

The Company had interest rate swap contracts outstanding in the notional amount
of $562 million and $557 million at September 30, 2002 and December 31, 2001,
respectively. The Company has recorded approximately $17 million of other
long-term assets and $15 million of other long-term liabilities to recognize the
fair value of these instruments at September 30, 2002 and December 31, 2001,
respectively. As of September 30, 2002, a 100 basis point increase in global
interest rates would decrease the derivative instruments' fair value by $11
million. As of September 30, 2002, a 100 basis point decrease in global interest
rates would increase the derivative instruments' fair value by $11 million. Any
increase or decrease in the fair value of the Company's interest rate sensitive
derivative instruments would be substantially offset by a corresponding decrease
or increase in the fair value of the hedged underlying liability.


ITEM 4. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Within 90 days prior to the date of this report (the Evaluation Date), the
Company conducted an evaluation, under the supervision of its President and
Chief Executive Officer and Senior Vice President - Finance & Administration and
Chief Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures. Based on this evaluation, the
Company's President and Chief Executive Officer and Senior Vice President -
Finance & Administration and Chief Financial Officer concluded that as of the
Evaluation Date, the Company's disclosure controls and procedures are effective
in ensuring that material information relating to the Company required to be
included in the Company's periodic SEC filings was made known to them on a
timely basis. It should be noted that any system of controls is designed to
provide reasonable, but not absolute, assurances that the system will achieve
its stated goals under all reasonably foreseeable circumstances.

CHANGES IN INTERNAL CONTROLS

There were no significant changes in the Company's internal controls, or to the
Company's knowledge, in other factors that could significantly affect the
Company's disclosure controls and procedures subsequent to the Evaluation Date.


37

PART II
OTHER INFORMATION

ITEM 1: Legal Proceedings

Note K - Commitments and Contingencies to the Company's unaudited condensed
consolidated financial statements contained elsewhere in this Quarterly Report
is incorporated herein by reference.

ITEM 6: Exhibits and Reports on Form 8-K

(a) Exhibits

10.1 Form of Credit and Security Agreement dated as of August
16, 2002 among Boston Scientific Funding Corporation,
the Company, Blue Ridge Asset Funding Corporation,
Victory Receivables Corporation, The Bank of
Tokyo-Mitsubishi Ltd., New York Branch and Wachovia Bank,
N.A.
10.2 Form of Receivables Sale Agreement dated as of August 16,
2002 between the Company and each of its Direct or
Indirect Wholly-Owned Subsidiaries that Hereafter Becomes
a Seller Hereunder, as the Sellers, and Boston Scientific
Funding Corporation, as the Buyer
99.1 Certification of Chief Executive Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
99.2 Certification of Chief Financial Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

(b) The following reports were filed during the quarter ended
September 30, 2002:

Form 8-K Date of Event Description
-------- ------------- -----------
Item 9 August 9, 2002 Statements of Principal Executive
Officer and Principal Financial
Officer Under Oath Regarding Facts
and Circumstances Relating to
Exchange Act Filings


38


SIGNATURE

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 on November 14, 2002.


BOSTON SCIENTIFIC CORPORATION


By: /s/ Lawrence C. Best
--------------------------------------
Name: Lawrence C. Best
Title: Chief Financial Officer and Senior
Vice President - Finance and
Administration














39

CERTIFICATIONS

I, James R. Tobin, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Boston
Scientific Corporation;

2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):

a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and

6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.

Date: November 14, 2002 /s/ James R. Tobin
--------------------------------------
James R. Tobin
President and Chief Executive Officer

40

CERTIFICATIONS

I, Lawrence C. Best, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Boston
Scientific Corporation;

2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):

a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and

6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.

Date: November 14, 2002 /s/ Lawrence C. Best
------------------------------------------
Lawrence C. Best
Senior Vice President - Finance &
Administration and Chief Financial Officer

41