##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





Form 10-K





ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)


OF THE SECURITIES EXCHANGE ACTS OF 1934


For the fiscal year ended: December 31, 2004


Commission File Number: 1-10694





VISX, Incorporated


(Exact name of Registrant as specified in its charter)


|                                                                   |  |                                            
|------------------------------------------------------------------ |  | -------------------------------------------
|Delaware                                                           |  | 06-1161793                                 
|(State or other Jurisdiction
    of Incorporation or Organization) |  | (I.R.S. Employer
    Identification Number)

3400 Central Expressway


Santa Clara, California 95051


(Address of Principal Executive Offices)


(408) 733-2020


(Registrants Telephone Number, including Area Code)


Securities registered pursuant to Section 12(b) of the
Act:


|                                                                               |  |                                                              
|------------------------------------------------------------------------------ |  | -------------------------------------------------------------
|Common Stock, $0.01 Par Value
    Common Stock Purchase Rights(Title of Class) |  | New York Stock Exchange(Name of Exchange on Which Registered)

Securities registered pursuant to Section 12(g) of the
Act:


None.





þ o


o


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|             |  |                                                                                           |    |      |    | 
|------------ |  | ----------------------------------------------------------------------------------------- | -- | ---- | -- | 
|             |  |                                                                                           |    | Page |   
|PART I      
|Item 1.      |  | Business                                                                                  |    |      | 3  | 
|Item 2.      |  | Properties                                                                                |    |      | 11 | 
|Item 3.      |  | Legal Proceedings                                                                         |    |      | 12 | 
|Item 4.      |  | Submission of Matters to a Vote of Security
    Holders                                   |    |      | 13 | 
|Item 4A.     |  | Executive Officers of the Registrant                                                      |    |      | 13 | 
|PART II     
|Item 5.      |  | Market for VISXs Common Equity and
    Related Stockholder Matters                       |    |      | 14 | 
|Item 6.      |  | Selected Financial Data                                                                   |    |      | 15 | 
|Item 7.      |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations |    |      | 15 | 
|            
|Item 7A.     |  | Quantitative and Qualitative Disclosures
    about Market Risk                            |    |      | 34 | 
|Item 8.      |  | Financial Statements and Supplementary
    Data                                           |    |      | 35 | 
|Item 9.      |  | Changes in and Disagreements With
    Accountants on Accounting and Financial Disclosure  |    |      | 54 | 
|            
|Item 9A.     |  | Controls and Procedures                                                                   |    |      | 54 | 
|PART III    
|Item 10.     |  | Directors and Executive Officers of VISX                                                  |    |      | 54 | 
|Item 11.     |  | Executive Compensation                                                                    |    |      | 57 | 
|Item 12.     |  | Security Ownership of Certain Beneficial
    Owners and Management                        |    |      | 60 | 
|Item 13.     |  | Certain Relationships and Related
    Transactions                                        |    |      | 61 | 
|Item 14.     |  | Principal Accountant Fees and Services                                                    |    |      | 61 | 
|PART IV      |  |                                                                                           |    |      |    | 
|Item 15.     |  | Exhibits, Financial Statement Schedule and
    Reports on Form 8-K                        |    |      | 62 | 
|SIGNATURES   |  |                                                                                           | 64 |     
|EXHIBIT 21.1
|EXHIBIT 23.1
|EXHIBIT 31.1
|EXHIBIT 31.2
|EXHIBIT 32.1









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Legal
Proceedings Risk Factors





PART I





Item 1. Business


The Company


tm






Recent Events








3



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Refractive Vision Disorders








| |                              |                                                                                       
| | ---------------------------- | --------------------------------------------------------------------------------------
| | (RIGHT POINTING ARROW GRAPH) | Nearsightedness(also known as myopia): images are
    focused in front of the retina; 
|
| | (RIGHT POINTING ARROW GRAPH) | Farsightedness(also known as hyperopia): images are
    focused behind the retina; and
|
| | (RIGHT POINTING ARROW GRAPH) | Astigmatism: images are not focused at any one point on
    the retina.               



presbyopia.




Laser Vision Correction








LASIK


In Situ


Standard LASIK




4



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Custom LASIK


tm








PRK






Corneal Pathologies: Custom-CAP® and PTK








5



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FDA Approvals






| |  |                                                                                                                                                                 |  |                   |  |                                                                            | 
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- |  | -------------------------------------------------------------------------- | 
| |  |                                                                                                                                                                 | 
| |  | FDA Treatment Approval                                                                                                                                          |  | FDA Approval Date | 
| |  |                                                                                                                                                                 | 
| |  | Myopia or near sightedness                                                                                                                                      |  |                   |  | March 1996                                                                 | 
| |  |                                                                                                                                                                 | 
| |  | Astigmatism                                                                                                                                                     |  |                   |  | April 1997                                                                 | 
| |  |                                                                                                                                                                 | 
| |  | Higher myopia with or without astigmatism                                                                                                                       |  |                   |  | January 1998                                                               | 
| |  |                                                                                                                                                                 | 
| |  | Hyperopia or farsightedness                                                                                                                                     |  |                   |  | November 1998                                                              | 
| |  |                                                                                                                                                                 | 
| |  | Laser Assisted In SituKeratomileusis (LASIK)                                                                                                                    |  |                   |  | November 1999                                                              | 
| |  |                                                                                                                                                                 | 
| |  | WaveScan System to diagnose refractive errors of the eye                                                                                                        |  |                   |  | May 2000, received 510(k) clearance                                        | 
| |  |                                                                                                                                                                 | 
| |  | Enlarged treatment zone with a blended ablation edge                                                                                                            |  |                   |  | March 2001                                                                 | 
| |  |                                                                                                                                                                 | 
| |  | Mixed astigmatism                                                                                                                                               |  |                   |  | November 2001                                                              | 
| |  |                                                                                                                                                                 | 
| |  | Custom-Contoured Ablation Patterns
    (Custom-CAPtmMethod) for the treatment of patients with
    symptomatic decentered ablations from previous laser surgery |  |                   |  | December 2001, under the Humanitarian Device Exemption program
    (HDE) | 
| |  |                                                                                                                                                                 | 
| |  | CustomVue for myopia and astigmatism                                                                                                                            |  |                   |  | May 2003                                                                   | 
| |  |                                                                                                                                                                 | 
| |  | CustomVue for hyperopia and astigmatism                                                                                                                         |  |                   |  | December 2004                                                              | 
| |  |                                                                                                                                                                 | 

International Approvals




Products


VISX STAR Excimer Laser System.


tm




VISX WaveScan System.


6



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VISX Treatment Cards.




Marketing, Sales and Distribution






Marketing Programs




VISX University® Programs.








VISX Business Development Program.


7



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Customer Support and Service


Customer Response Center.


VISXPRESS


VISX on the Internet. http://www.visx.com,




| |                              |                                                                                                                                                                                                                       
| | ---------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (RIGHT POINTING ARROW GRAPH) | Information for consumers regarding the benefits of VISX laser
    vision correction, including an interactive map providing
    consumers with the locations of VISX installations and
    VISX-certified physicians;
|
| | (RIGHT POINTING ARROW GRAPH) | Clinical information for the physician community, including
    downloadable presentations and white papers concerning the most
    recent VISX clinical results from leading ophthalmologists
    worldwide;         
|
| | (RIGHT POINTING ARROW GRAPH) | On-line access to news about new products and services,
    physician certification course schedules, and registration for
    practice development programs such as VISX University; and                             
|
| | (RIGHT POINTING ARROW GRAPH) | Marketing and practice development tools, including links to
    services and web sites that provide useful information for
    promotion of laser vision correction by our physicians.                               

Major Customers




Reliance on Patents and Proprietary Technology








Cross License between VISX and Nidek.


License to WaveLight.


8



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License to LaserSight.




Cross License between VISX and Bausch & Lomb.


Cross License between VISX and Summit.


Other Licensing Agreements.




Confidentiality Arrangements.


Government Regulation


United States Food and Drug Administration.


9



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Other Government Regulation.


International.






Competition






10



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Manufacturing, Components and Raw Materials




Research and Development and Regulatory




Employees




Seasonal Variation




Financial Information about Segments and Geographic Areas




Where You Can Find More Information











|        |           
|------- | ----------
|Item 2. | Properties





11



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|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings









12



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






Item 4A. Executive Officers of the Registrant




|                        |  |     |    |          |  |                                                                                 |  |  |      | 
|----------------------- |  | --- | -- | -------- |  | ------------------------------------------------------------------------------- |  |  | ---- | 
|Name                    |  | Age |    | Position |  | Year First Held Current Position                                               
|                        |  |     |    |          |  |                                                                                
|Elizabeth H. Dávila     |  |     | 60 |          |  | Chairman of the Board and Chief Executive Officer                               |  |  | 2001 | 
|Douglas H. Post         |  |     | 53 |          |  | President and Chief Operating Officer                                           |  |  | 2003 | 
|Derek A. Bertocci       |  |     | 51 |          |  | Senior Vice President, Chief Financial Officer                                  |  |  | 2004 | 
|Carol F.H. Harner, Ph.D |  |     | 61 |          |  | Senior Vice President, Research and Development                                 |  |  | 1997 | 
|John F. Runkel, Jr      |  |     | 49 |          |  | Senior Vice President, Business Development, General Counsel,
    and Secretary |  |  | 2004 | 
|Donald L. Fagen         |  |     | 51 |          |  | Vice President, Global Sales                                                    |  |  | 2001 | 
|Theresa A. Johnson      |  |     | 42 |          |  | Vice President, Operations                                                      |  |  | 2003 | 
|Catherine E. Murphy     |  |     | 57 |          |  | Vice President, Human Resources                                                 |  |  | 2001 | 
|Alan F. Russell, Ph.D   |  |     | 63 |          |  | Vice President, Regulatory and Clinical Affairs                                 |  |  | 2001 | 
|Joaquin V. Wolff        |  |     | 47 |          |  | Vice President, Global Marketing                                                |  |  | 2001 | 

Elizabeth H. Dávila.


Douglas H. Post.


Derek A. Bertocci.


Carol F. H. Harner, Ph.D.


John F. Runkel, Jr.


13



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Donald L. Fagen.


Theresa A. Johnson.


Catherine E. Murphy.


Alan F. Russell, Ph.D.


Joaquin V. Wolff.







PART II







|        |                                                                    
|------- | -------------------------------------------------------------------
|Item 5. | Market for VISXs Common Equity and Related
    Stockholder Matters



|     |                |      |   |       |     |  |   |       | 
|---- | -------------- | ---- | - | ----- | --- |  | - | ----- | 
|     |                | High |   |       | Low | 
|     |                |      |   |       |     | 
|2003 |                |      |   |       |     |  |   |      
|     | First Quarter  |      | $ | 10.06 |     |  | $ | 7.93  | 
|     | Second Quarter |      |   | 18.81 |     |  |   | 11.06 | 
|     | Third Quarter  |      |   | 23.28 |     |  |   | 17.74 | 
|     | Fourth Quarter |      |   | 25.77 |     |  |   | 18.95 | 
|2004 |                |      |   |       |     |  |   |      
|     | First Quarter  |      | $ | 26.35 |     |  | $ | 17.30 | 
|     | Second Quarter |      |   | 26.72 |     |  |   | 18.88 | 
|     | Third Quarter  |      |   | 25.89 |     |  |   | 18.19 | 
|     | Fourth Quarter |      |   | 26.85 |     |  |   | 15.60 | 



14



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|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data



Selected Condensed Consolidated Financial Information


|                                              |         |                                       |         |        |      |   |         |        |  |   |         |        |  |      |         |        |  |   |         |        | 
|--------------------------------------------- | ------- | ------------------------------------- | ------- | ------ | ---- | - | ------- | ------ |  | - | ------- | ------ |  | ---- | ------- | ------ |  | - | ------- | ------ | 
|                                              |         | Year Ended December 31,               |        
|                                              |         |                                       |        
|                                              |         | (In thousands, except per share data) |        
|                                              |         | 2004                                  |         |        | 2003 |   |         | 2002   |  |   | 2001    |        |  | 2000 |        
|                                              |         |                                       |         |        |      |   |         |        |  |   |         |        |  |      |        
|Statement Of Operations Data:                 |         |                                       |         |        |      |   |         |        |  |   |         |        |  |      |         |        |  |   |         |       
|Total revenues(A)                             |         | $                                     | 165,858 |        |      | $ | 143,905 |        |  | $ | 139,926 |        |  | $    | 165,016 |        |  | $ | 190,154 |       
|Cost of revenues                              |         |                                       | 42,386  |        |      |   | 52,070  |        |  |   | 50,805  |        |  |      | 58,440  |        |  |   | 62,684  |       
|Total costs and expenses(A)                   |         |                                       | 106,306 |        |      |   | 109,300 |        |  |   | 121,056 |        |  |      | 157,665 |        |  |   | 146,018 |       
|Income from operations                        |         |                                       | 59,552  |        |      |   | 34,605  |        |  |   | 18,870  |        |  |      | 7,351   |        |  |   | 44,136  |       
|Net income                                    |         | $                                     | 38,442  |        |      | $ | 23,251  |        |  | $ | 15,342  |        |  | $    | 10,909  |        |  | $ | 35,221  |       
|Earnings per share:                           |         |                                       |         |        |      |   |         |        |  |   |         |        |  |      |         |        |  |   |         |       
|                                              | Basic   |                                       | $       | 0.78   |      |   | $       | 0.47   |  |   | $       | 0.29   |  |      | $       | 0.19   |  |   | $       | 0.57   | 
|                                              | Diluted |                                       | $       | 0.76   |      |   | $       | 0.46   |  |   | $       | 0.29   |  |      | $       | 0.19   |  |   | $       | 0.55   | 
|Shares used for earnings per share:           |         |                                       |         |        |      |   |         |        |  |   |         |        |  |      |         |        |  |   |         |       
|                                              | Basic   |                                       |         | 49,229 |      |   |         | 49,471 |  |   |         | 53,096 |  |      |         | 56,660 |  |   |         | 61,431 | 
|                                              | Diluted |                                       |         | 50,869 |      |   |         | 50,937 |  |   |         | 53,816 |  |      |         | 58,081 |  |   |         | 63,778 | 
|Balance Sheet Data:                           |         |                                       |         |        |      |   |         |        |  |   |         |        |  |      |         |        |  |   |         |       
|Cash, cash equiv., and short-term investments |         | $                                     | 138,408 |        |      | $ | 86,076  |        |  | $ | 122,955 |        |  | $    | 123,807 |        |  | $ | 229,453 |       
|Working capital                               |         |                                       | 162,299 |        |      |   | 107,040 |        |  |   | 140,173 |        |  |      | 159,935 |        |  |   | 245,662 |       
|Total assets                                  |         |                                       | 222,823 |        |      |   | 163,963 |        |  |   | 200,592 |        |  |      | 219,925 |        |  |   | 321,507 |       
|Retained earnings                             |         |                                       | 220,360 |        |      |   | 181,918 |        |  |   | 158,667 |        |  |      | 143,325 |        |  |   | 132,416 |       
|Stockholders equity                          |         | $                                     | 178,656 |        |      | $ | 125,799 |        |  | $ | 155,190 |        |  | $    | 176,278 |        |  | $ | 268,772 |       




|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(A) | EITF No. 00-25, Vendor Income Statement
    Characterization of Consideration Paid to a Reseller of the
    Vendors Products (EITF 00-25) and
    EITF No. 01-09, Accounting for Consideration Given by
    a Vendor to a Customer or Reseller of the Vendors
    Products (EITF 01-09), were adopted by
    VISX on January 1, 2002. The 2001 and 2000 information
    presented in the table above reflects the effects of this
    adoption.






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of Financial
    Condition and Results of Operations

Forward Looking Statements




15



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16



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Overview








| |   |                    
| | - | -------------------
| |  | Nearsightedness;   
|
| |  | Farsightedness; and
|
| |  | Astigmatism.       



tm










| |   |                                           
| | - | ------------------------------------------
| |  | Trends in procedures sales; and           
|
| |  | Market share for VISX and its competitors.







17



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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Demand for our CustomVue procedure. Our CustomVue
    procedure generates more than double the revenue of our standard
    procedure and any increase in the conversion to CustomVue
    directly improves our profits. As demonstrated in FDA studies,
    our CustomVue procedure can produce better vision than is
    possible with glasses and contact lenses. In addition, clinical
    data shows that our CustomVue procedure produces superior vision
    quality compared to standard LASIK eye surgery and may result in
    greater patient satisfaction with night vision.                                                                                                                                                                           
|
| |  | Market acceptance of laser vision correction.
    Increased acceptance of laser vision correction by both doctors
    and patients in the United States and key international markets
    is essential for our continued growth. Laser vision correction
    has penetrated approximately 6% of the eligible United States
    population, and our profitability and continued growth will be
    largely dependent on increasing levels of market acceptance and
    procedure growth. We believe ongoing technical advances, such as
    our Iris Registration product, the WaveScan Fourier algorithm,
    and CustomVue procedure, that enhance the quality of
    patients vision will increase the demand for laser vision
    correction surgery.         
|
| |  | Our ability to obtain additional FDA approvals. We
    continue to expand the list of FDA approved indications that can
    be treated by our products. As we receive approvals for
    additional types and ranges of refractive disorders from the
    FDA, the pool of eligible laser vision correction candidates
    increases, thereby expanding the potential for growth in
    procedures, CustomVue adoption and license revenue.                                                                                                                                                                                                                                                                                                                        
|
| |  | Our competition. Competition in the laser vision
    correction market is intense which creates pricing pressure on
    our products. Additionally, most of our competitors have greater
    resources and a broader market presence. As a result, the
    competition to obtain procedure market share is intense.                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | The United States economy. We have always charged
    a license fee for procedures sold in the United States.
    Therefore, it remains our most significant market for license
    revenue. As such, economic conditions in the United States
    impact our license revenue more than global economic conditions.
    Industry analysts have tracked procedure volume in the United
    States against economic indicators such as consumer confidence.
    They have noted a correlation between consumer confidence and
    the number of laser vision correction procedures performed per
    quarter. A decline in economic conditions in the United States
    could result in a decline in the number of laser vision
    correction procedures performed.



18



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Results of Operations




|                                         |                                      |                          |    |    |      |  |    |      |     |  |    |    |     | 
|---------------------------------------- | ------------------------------------ | ------------------------ | -- | -- | ---- |  | -- | ---- | --- |  | -- | -- | --- | 
|                                         |                                      | Year Ended               |   
|                                         |                                      | December 31,             |   
|                                         |                                      |                          |   
|                                         |                                      | 2004                     |    |    | 2003 |  |    | 2002 |    
|                                         |                                      |                          |    |    |      |  |    |      |    
|Revenues:                                |                                      |                          |    |    |      |  |    |      |     |  |    |   
|                                         | License and other revenues           |                          |    | 71 | %    |  |    | 61   | %   |  |    | 52 | %  
|                                         | System revenues                      |                          |    | 17 |      |  |    | 26   |     |  |    | 35 |    
|                                         | Service and parts revenues           |                          |    | 12 |      |  |    | 13   |     |  |    | 13 |    
|                                         |                                      |                          |    |    |      |  |    |      |    
|                                         |                                      | Total revenues           |    |    | 100  |  |    |      | 100 |  |    |    | 100 | 
|                                         |                                      |                          |    |    |      |  |    |      |    
|Costs and Expenses:                      |                                      |                          |    |    |      |  |    |      |     |  |    |   
|                                         | Cost of license and other revenues   |                          |    | 2  |      |  |    | 2    |     |  |    | 2  |    
|                                         | Cost of system revenues              |                          |    | 14 |      |  |    | 25   |     |  |    | 24 |    
|                                         | Cost of service and parts revenues   |                          |    | 9  |      |  |    | 9    |     |  |    | 10 |    
|                                         | Selling, general and administrative  |                          |    | 26 |      |  |    | 27   |     |  |    | 31 |    
|                                         | Research, development and regulatory |                          |    | 13 |      |  |    | 13   |     |  |    | 13 |    
|                                         | Litigation settlement                |                          |    |   |      |  |    |     |     |  |    | 6  |    
|                                         |                                      |                          |    |    |      |  |    |      |    
|                                         |                                      | Total costs and expenses |    |    | 64   |  |    |      | 76  |  |    |    | 86  | 
|                                         |                                      |                          |    |    |      |  |    |      |    
|Income From Operations                   |                                      |                          | 36 |    |      |  | 24 |      |     |  | 14 |   
|                                         |                                      |                          |    |    |      |  |    |      |    
|Other Income:                            |                                      |                          |    |    |      |  |    |      |     |  |    |   
|                                         | Interest income                      |                          |    | 1  |      |  |    | 2    |     |  |    | 4  |    
|                                         |                                      |                          |    |    |      |  |    |      |    
|Income Before Provision For Income Taxes |                                      |                          | 37 |    |      |  | 26 |      |     |  | 18 |   
|                                         | Provision for income taxes           |                          |    | 14 |      |  |    | 10   |     |  |    | 7  |    
|                                         |                                      |                          |    |    |      |  |    |      |    
|Net Income                               |                                      |                          | 23 | %  |      |  | 16 | %    |     |  | 11 | % 
|                                         |                                      |                          |    |    |      |  |    |      |    

2004 Compared to 2003


|                           |                     |                         |         |      |      |   |         |        |   |  |     |    | 
|-------------------------- | ------------------- | ----------------------- | ------- | ---- | ---- | - | ------- | ------ | - |  | --- | -- | 
|                           |                     | Year Ended December 31, |        
|                           |                     |                         |        
|                           |                     | 2004                    |         |      | 2003 |   |         | Change |  
|                           |                     |                         |         |      |      |   |         |        |  
|                           |                     | ($000s)                |        
|License and other revenues |                     | $                       | 117,108 |      |      | $ | 87,351  |        |   |  | 34  | % 
|                           | Percent of revenues |                         |         | 70.6 | %    |   |         | 60.7   | % |  |     |    | 
|System revenues            |                     | $                       | 27,790  |      |      | $ | 38,248  |        |   |  | (27 | )%
|                           | Percent of revenues |                         |         | 16.8 | %    |   |         | 26.6   | % |  |     |    | 
|Service and parts revenues |                     | $                       | 20,960  |      |      | $ | 18,306  |        |   |  | 14  | % 
|                           | Percent of revenues |                         |         | 12.6 | %    |   |         | 12.7   | % |  |     |    | 
|Total                      |                     | $                       | 165,858 |      |      | $ | 143,905 |        |   |  | 15  | % 



| |                           
| | --------------------------
| | License and Other Revenues





| |   |                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | License fees charged on a per procedure basis for access to the
    proprietary software contained in the VISX STAR System that
    enables the user to perform procedures covered by our patents;
|
| |  | Selling price for the physical card used to deliver access to
    the proprietary software contained in the VISX STAR
    System; and                                                             
|
| |  | Other fees relate to license fees from third parties who have
    licensed our technology.                                                                                                        



19



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| |   |                                                           
| | - | ----------------------------------------------------------
| |  | Further increases in demand for CustomVue procedures;     
|
| |  | FDA approval of new CustomVue procedures; and             
|
| |  | Growth in the United States laser vision correction market





| |                
| | ---------------
| | System Revenues





| |   |                      
| | - | ---------------------
| |  | VISX STAR Systems;   
|
| |  | WaveScan Systems; and
|
| |  | Upgrades             











| |                           
| | --------------------------
| | Service and Parts Revenues





20



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|                                     |                             |                         |        |      |      |   |        |        |   |  |     |    | 
|------------------------------------ | --------------------------- | ----------------------- | ------ | ---- | ---- | - | ------ | ------ | - |  | --- | -- | 
|                                     |                             | Year Ended December 31, |       
|                                     |                             |                         |       
|                                     |                             | 2004                    |        |      | 2003 |   |        | Change |  
|                                     |                             |                         |        |      |      |   |        |        |  
|                                     |                             | ($000s)                |       
|Cost of license and other revenues   |                             | $                       | 3,533  |      |      | $ | 3,507  |        |   |  | 1   | % 
|                                     | Percent of related revenues |                         |        | 3.0  | %    |   |        | 4.0    | % |  |     |    | 
|Cost of system revenues              |                             | $                       | 23,623 |      |      | $ | 35,328 |        |   |  | (33 | )%
|                                     | Percent of related revenues |                         |        | 85.0 | %    |   |        | 92.4   | % |  |     |    | 
|Cost of service and parts revenues   |                             | $                       | 15,230 |      |      | $ | 13,235 |        |   |  | 15  | % 
|                                     | Percent of related revenues |                         |        | 72.7 | %    |   |        | 72.3   | % |  |     |    | 
|Selling, general and administrative  |                             | $                       | 42,483 |      |      | $ | 38,583 |        |   |  | 10  | % 
|                                     | Percent of total revenues   |                         |        | 25.6 | %    |   |        | 26.8   | % |  |     |    | 
|Research, development and regulatory |                             | $                       | 21,437 |      |      | $ | 18,647 |        |   |  | 15  | % 
|                                     | Percent of total revenues   |                         |        | 12.9 | %    |   |        | 13.0   | % |  |     |    | 



| |                                   
| | ----------------------------------
| | Cost of License and Other Revenues





| |                        
| | -----------------------
| | Cost of System Revenues







| |                                   
| | ----------------------------------
| | Cost of Service and Parts Revenues





| |                                              
| | ---------------------------------------------
| | Selling, General, and Administrative Expenses





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Legal expenses increased $6.6 million in 2004 from 2003.
    The primary reasons for the increase were related to the receipt
    in 2003 of $5.3 million of insurance reimbursements related
    to legal expenses incurred in connection with the Nidek
    lawsuits, which offsets legal expenses in 2003, and
    $3.1 million of fees incurred in 2004 for the pending
    merger with AMO, offset by a $1.8 million reduction of
    ongoing legal expenses in 2004 as compared to 2003;
|
| |  | Lower incentive compensation of $1.4 million;                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | $1.0 million of additional costs to comply with elements of
    the Sarbanes Oxley Act of 2002 offset by a reduction of
    $1.2 million in general expenses associated with the filing
    of our 2003 proxy statement and a stockholder proposal for an
    alternative slate of directors;                                                                                                                                                                                                 

21



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##### Table of Contents





| |   |                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------
| |  | An increase in expenses of $0.3 million for continued
    training and promotion of our CustomVue procedure; and
|
| |  | A reduction in bad debt expense of $1.5 million due to the
    absence of any large write-offs in 2004.         



| |                                               
| | ----------------------------------------------
| | Research, Development, and Regulatory Expenses





| |   |                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------
| |  | System advancements;                                                                                                                      
|
| |  | New methods for correcting vision disorders including new
    CustomVue correction procedures (such as hyperopia and high
    myopia); and
|
| |  | Continued research and clinical trials for treatment of
    presbyopia.                                                                   



| |             
| | ------------
| | Other Income





| |                     
| | --------------------
| | Income Tax Provision



Results of Operations


2003 Compared to 2002


|                           |                     |                         |         |      |      |   |         |        |   |  |     |    | 
|-------------------------- | ------------------- | ----------------------- | ------- | ---- | ---- | - | ------- | ------ | - |  | --- | -- | 
|                           |                     | Year Ended December 31, |        
|                           |                     |                         |        
|                           |                     | 2003                    |         |      | 2002 |   |         | Change |  
|                           |                     |                         |         |      |      |   |         |        |  
|                           |                     | (000s)                 |        
|License and other revenues |                     | $                       | 87,351  |      |      | $ | 72,524  |        |   |  | 20  | % 
|                           | Percent of revenues |                         |         | 60.7 | %    |   |         | 51.8   | % |  |     |    | 
|System revenues            |                     | $                       | 38,248  |      |      | $ | 48,595  |        |   |  | (21 | )%
|                           | Percent of revenues |                         |         | 26.6 | %    |   |         | 34.7   | % |  |     |    | 
|Service and parts revenues |                     | $                       | 18,306  |      |      | $ | 18,807  |        |   |  | (3  | )%
|                           | Percent of revenues |                         |         | 12.7 | %    |   |         | 13.5   | % |  |     |    | 
|Total                      |                     | $                       | 143,905 |      |      | $ | 139,926 |        |   |  | 3   | % 



| |                           
| | --------------------------
| | License and Other Revenues





22



---



##### Table of Contents





| |                
| | ---------------
| | System Revenues







| |   |                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Less upgrade revenue, which resulted from 80% of our United
    States customers having already upgraded their VISX STAR
    S2tm
    to the STAR S3® System by the end of 2002;               
|
| |  | Fewer VISX STAR System sales due to the continued weak economic
    environment in the United States and in Asia Pacific, political
    tensions in Korea and the outbreak of SARS in 2003; and
|
| |  | The competitive market for laser systems. To respond to
    promotional offers by our competitors we earned lower average
    revenues per system on laser sales in 2003 as compared to 2002.  





| |                           
| | --------------------------
| | Service and Parts Revenues



|                                     |                             |                         |        |      |      |   |        |        |   |  |    |    | 
|------------------------------------ | --------------------------- | ----------------------- | ------ | ---- | ---- | - | ------ | ------ | - |  | -- | -- | 
|                                     |                             | Year Ended December 31, |       
|                                     |                             |                         |       
|                                     |                             | 2003                    |        |      | 2002 |   |        | Change |  
|                                     |                             |                         |        |      |      |   |        |        |  
|                                     |                             | (000s)                 |       
|Cost of license and other revenues   |                             | $                       | 3,507  |      |      | $ | 3,302  |        |   |  | 6  | % 
|                                     | Percent of related revenues |                         |        | 4.0  | %    |   |        | 4.6    | % |  |    |    | 
|Cost of system revenues              |                             | $                       | 35,328 |      |      | $ | 33,064 |        |   |  | 7  | % 
|                                     | Percent of related revenues |                         |        | 92.4 | %    |   |        | 68.0   | % |  |    |    | 
|Cost of service and parts revenues   |                             | $                       | 13,235 |      |      | $ | 14,439 |        |   |  | (8 | )%
|                                     | Percent of related revenues |                         |        | 72.3 | %    |   |        | 76.8   | % |  |    |    | 
|Selling, general and administrative  |                             | $                       | 38,583 |      |      | $ | 42,537 |        |   |  | (9 | )%
|                                     | Percent of total revenues   |                         |        | 26.8 | %    |   |        | 30.4   | % |  |    |    | 
|Research, development and regulatory |                             | $                       | 18,647 |      |      | $ | 18,714 |        |   |  | (0 | )%
|                                     | Percent of total revenues   |                         |        | 13.0 | %    |   |        | 13.4   | % |  |    |    | 



| |                                   
| | ----------------------------------
| | Cost of License and Other Revenues





| |                        
| | -----------------------
| | Cost of System Revenues







| |                                   
| | ----------------------------------
| | Cost of Service and Parts Revenues



23



---



##### Table of Contents





| |                                              
| | ---------------------------------------------
| | Selling, General, and Administrative Expenses





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Legal expenses declined $7.6 million in 2003 from 2002. We
    settled a lawsuit against Nidek in the first quarter of 2003
    which was the main reason for the $9.7 million reduction in
    gross legal expenses in 2003 compared with 2002. Offsetting
    gross legal expenses, we received insurance reimbursements of
    $5.3 million and $7.5 million in 2003 and 2002,
    respectively, related to legal expenses we incurred in
    connection with the Nidek lawsuits; and
|
| |  | An increase in expenses of $4.9 million to promote our
    CustomVue procedure.                                                                                                                                                                                                                                                                                                                                                                                                         



| |                                               
| | ----------------------------------------------
| | Research, Development, and Regulatory Expenses





| |   |                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Laser platforms such as our STAR
    S4tm
    laser system;                                                                                          
|
| |  | Eye diagnostic units such as our WaveScan System;                                                                                                    
|
| |  | New methods for correcting vision disorders including additional
    indications (such as hyperopia and high myopia) for our
    CustomVue treatment;
|
| |  | Continued research and clinical trials for treatment of
    presbyopia; and                                                                          
|
| |  | Continued funding of early stage research at Stanford University
    for future treatments for age-related macular degeneration.                     



| |                          
| | -------------------------
| | Interest and Other Income





| |   |                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------
| |  | Lower average cash balances due to use of cash for the
    repurchase of our stock and payment of the Nidek
    settlement; and
|
| |  | Lower average yields on our portfolio of cash and investments
    compared to 2002 due to market declines in interest rates.   



| |                     
| | --------------------
| | Income Tax Provision



Quarterly Results of Operations




|                                            |  |         |        |  |         |   |        |         |  |   |         |  |  |         |        |  |         |   |        |         |  |   |         |  |  |   |        |  |  |   |        | 
|------------------------------------------- |  | ------- | ------ |  | ------- | - | ------ | ------- |  | - | ------- |  |  | ------- | ------ |  | ------- | - | ------ | ------- |  | - | ------- |  |  | - | ------ |  |  | - | ------ | 
|                                            |  | 2004    |        |  | 2003    |  
|                                            |  |         |        |  |         |  
|                                            |  | 1st Qtr |        |  | 2nd Qtr |   |        | 3rd Qtr |  |   | 4th Qtr |  |  | 1st Qtr |        |  | 2nd Qtr |   |        | 3rd Qtr |  |   | 4th Qtr | 
|                                            |  |         |        |  |         |   |        |         |  |   |         |  |  |         |        |  |         |   |        |         |  |   |         | 
|Total revenues                              |  | $       | 43,805 |  |         | $ | 42,976 |         |  | $ | 38,671  |  |  | $       | 40,406 |  |         | $ | 34,433 |         |  | $ | 31,986  |  |  | $ | 39,268 |  |  | $ | 38,218 | 
|                                            |  |         |        |  |         |   |        |         |  |   |         |  |  |         |        |  |         |   |        |         |  |   |         | 
|Cost of revenues                            |  |         | 9,869  |  |         |   | 11,706 |         |  |   | 9,281   |  |  |         | 11,530 |  |         |   | 12,824 |         |  |   | 11,390  |  |  |   | 16,335 |  |  |   | 11,521 | 
|Total costs and expenses                    |  |         | 24,670 |  |         |   | 27,632 |         |  |   | 24,315  |  |  |         | 29,689 |  |         |   | 26,324 |         |  |   | 27,033  |  |  |   | 31,687 |  |  |   | 24,256 | 
|Income from operations                      |  |         | 19,135 |  |         |   | 15,344 |         |  |   | 14,356  |  |  |         | 10,717 |  |         |   | 8,109  |         |  |   | 4,953   |  |  |   | 7,581  |  |  |   | 13,962 | 
|Income before provision for income taxes    |  |         | 19,463 |  |         |   | 15,802 |         |  |   | 14,963  |  |  |         | 11,359 |  |         |   | 9,052  |         |  |   | 6,771   |  |  |   | 7,950  |  |  |   | 14,284 | 
|Provision for income taxes                  |  |         | 7,707  |  |         |   | 6,258  |         |  |   | 3,671   |  |  | $       | 5,509  |  |         |   | 3,576  |         |  |   | 2,673   |  |  |   | 3,085  |  |  |   | 5,472  | 
|                                            |  |         |        |  |         |   |        |         |  |   |         |  |  |         |        |  |         |   |        |         |  |   |         | 
|Net income                                  |  | $       | 11,756 |  |         | $ | 9,544  |         |  | $ | 11,292  |  |  | $       | 5,850  |  |         | $ | 5,476  |         |  | $ | 4,098   |  |  | $ | 4,865  |  |  | $ | 8,812  | 
|                                            |  |         |        |  |         |   |        |         |  |   |         |  |  |         |        |  |         |   |        |         |  |   |         | 
|Earnings per share, diluted                 |  | $       | 0.23   |  |         | $ | 0.19   |         |  | $ | 0.22    |  |  | $       | 0.11   |  |         | $ | 0.11   |         |  | $ | 0.08    |  |  | $ | 0.10   |  |  | $ | 0.17   | 
|                                            |  |         |        |  |         |   |        |         |  |   |         |  |  |         |        |  |         |   |        |         |  |   |         | 
|Shares used for earnings per share, diluted |  |         | 50,433 |  |         |   | 50,832 |         |  |   | 50,971  |  |  |         | 51,058 |  |         |   | 51,805 |         |  |   | 51,406  |  |  |   | 50,132 |  |  |   | 50,716 | 
|                                            |  |         |        |  |         |   |        |         |  |   |         |  |  |         |        |  |         |   |        |         |  |   |         | 

Seasonal Variation.


24



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##### Table of Contents





Critical Accounting Policies, Estimates and Judgments




Revenue Recognition






Accounts Receivable




Inventories




Legal Contingencies




25



---



##### Table of Contents





Accounting for Taxes




Liquidity and Capital Resources




|                                                   |  |      |         |  |        |  |     |      |  |   |         |  |  |      |       |  |  |   |         | 
|-------------------------------------------------- |  | ---- | ------- |  | ------ |  | --- | ---- |  | - | ------- |  |  | ---- | ----- |  |  | - | ------- | 
|                                                   |  | 2004 |         |  | Change |  |     | 2003 |  |   | Change  |  |  | 2002 |      
|                                                   |  |      |         |  |        |  |     |      |  |   |         |  |  |      |      
|Cash, cash equivalents, and short-term investments |  | $    | 138,408 |  |        |  | 61% |      |  | $ | 86,076  |  |  |      | (30)% |  |  | $ | 122,955 | 
|Working capital                                    |  |      | 162,299 |  |        |  | 52% |      |  |   | 107,040 |  |  |      | (24)% |  |  |   | 140,173 | 
|Stockholders equity                               |  |      | 178,656 |  |        |  | 42% |      |  |   | 125,799 |  |  |      | (19)% |  |  |   | 155,190 | 







| |   |                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------
| |  | Positive cash flow from operating activities of
    $49.5 million;                                                                   
|
| |  | Proceeds from issuance of common stock related to employee
    participation in employee stock programs generating
    $21.9 million;
|
| |  | Cash of $16.4 million used to repurchase 0.8 million
    shares of stock; and                                                        
|
| |  | Capital expenditures costing $2.2 million.                                                                                           





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Generated $58.0 million of cash from net income plus
    non-cash related expenses;                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | Used cash to increase inventory by $14.2 million primarily
    to support the increase in sales of systems under rental or
    operating leases. The costs of systems shipped to customers
    under rental or operating agreements are transferred from
    inventory to prepaid expenses and long term other assets. This
    transfer is reflected in the supplemental cash flow information
    section of our consolidated statements of cash flows.
|
| |  | Used cash to fund an increase in accounts receivable of
    $4.4 million due primarily to higher sales levels in the
    latter half of the year, and;                                                                                                                                                                                                                                                                                                   

26



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##### Table of Contents





| |   |                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Increased accrued and other current liabilities by
    $5.9 million due primarily to increased deferred revenue
    associated with operating and rental lease arrangements.

















|                            |  |                        |        |           |        |   |       |           |           |   |           |  |  |         |    |  |  |   |   | 
|--------------------------- |  | ---------------------- | ------ | --------- | ------ | - | ----- | --------- | --------- | - | --------- |  |  | ------- | -- |  |  | - | - | 
|                            |  | Payments Due by Period
|                            |  |                       
|                            |  |                        |        | Less than |        |   |       |           | More than
|                            |  | Total                  |        |           | 1 Year |   |       | 1-3 Years |           |   | 3-5 Years |  |  | 5 Years
|                            |  |                        |        |           |        |   |       |           |           |   |           |  |  |        
|Contractual Obligations     |  |                        |        |           |        |   |       |           |           |   |           |  |  |         |    |  |  |   |   | 
|Operating Lease Obligations |  | $                      | 7,125  |           |        | $ | 2,181 |           |           | $ | 4,892     |  |  | $       | 52 |  |  |   |  | 
|Purchase Obligations        |  |                        | 7,972  |           |        |   | 6,273 |           |           |   | 1,699     |  |  |         |   |  |  |   |  | 
|                            |  |                        |        |           |        |   |       |           |           |   |           |  |  |         |   
|Total                       |  | $                      | 15,097 |           |        | $ | 8,454 |           |           | $ | 6,591     |  |  | $       | 52 |  |  | $ |  | 
|                            |  |                        |        |           |        |   |       |           |           |   |           |  |  |         |   

New Accounting Pronouncements




27



---



##### Table of Contents













Risk Factors




Our business and stock price may be adversely affected if the
merger with AMO is not completed.






28



---



##### Table of Contents







If laser vision correction is not broadly accepted by both
doctors and patients, our business, financial position and
results of operations would be materially and adversely
impacted.




The possibility of long-term side effects and adverse
publicity regarding laser correction surgery could seriously
harm our business.




The market in which we operate is subject to extensive
government regulation, which increases our costs and could
prevent us from selling our products.




29



---



##### Table of Contents







The clinical trial process required to obtain regulatory
approvals are costly and uncertain, and could result in delays
in new product introductions or even an inability to release a
product.




Intense competition in the laser vision correction industry
could result in the loss of customers, an inability to attract
new customers, a decline in the price we charge for our products
and procedures or a decline in our market share.


tm tm




General economic conditions could have a negative impact on
our business, financial position, and results of operations.




30



---



##### Table of Contents





We rely upon a small number of customers for a significant
portion of our revenues, which makes our financial position and
operating results vulnerable to the loss of one of more of these
customers.




If we fail to keep pace with advances in our industry or fail
to develop new methods of vision correction, customers may not
buy our products and our revenue may decline.




While we devote significant resources to research and
development, our research and development may not lead to new
products that achieve commercial success.




Our business is dependent on the enforceability and the
validity of our United States and foreign patents; any
unfavorable determinations with respect to these patents could
negatively impact our financial condition and harm our
business.




An unfavorable outcome in a product liability lawsuit could
have a material adverse effect on our business, financial
position, and results of operations.


tm


31



---



##### Table of Contents





If we become involved in litigation, unexpected costs and
diversion of managements resources could result.




Our reliance on sales in international markets could
negatively impact our revenues and operating results.






| |   |                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------
| |  | the need for export licenses in many countries;                                                            
|
| |  | unexpected regulatory requirements;                                                                        
|
| |  | tariffs and other potential trade barriers and restrictions;                                               
|
| |  | political, legal and economic instability in foreign markets
    such as South Korea;                      
|
| |  | longer accounts receivable cycles in all international markets;                                            
|
| |  | difficulties in managing operations across disparate geographic
    areas;                                 
|
| |  | foreign currency fluctuations;                                                                             
|
| |  | reduced or limited protection of our intellectual property
    rights in some countries such as Taiwan; and
|
| |  | dependence on local distributors.                                                                          



An unfavorable outcome in the securities class action lawsuit
pending against us and certain of our directors and executive
officers could impact our ability to complete the merger with
AMO, or alternatively, could result in our stockholders having
rights of rescission against the merger.




Any failure by third party financing entities to satisfy
their obligations to us would negatively impact our financial
condition.




32



---



##### Table of Contents





Because our expenses are relatively fixed in the short term,
our earnings will decline if it does not meet our projected
sales.




Adverse tax assessments could have a negative impact on our
earnings.




If any of our single source suppliers were to cease providing
components, our business, financial position, and results of
operations, could be materially adversely affected.


tm


Volatility in our stock price may discourage investment in
our common stock.






| |   |                                                                                     
| | - | ------------------------------------------------------------------------------------
| |  | announcements about us or our competitors;                                          
|
| |  | results or settlements of litigation;                                               
|
| |  | quarterly variations in operating results;                                          
|
| |  | the introduction or abandonment of new technologies or products;                    
|
| |  | changes in product pricing policies by us or our competitors;                       
|
| |  | changes in earnings estimates by analysts or changes in
    accounting policies; and
|
| |  | economic changes and political uncertainties.                                       



If any of our employees, consultants or others breach their
proprietary information agreements, our competitive position
could be harmed.




33



---



##### Table of Contents





Recent changes in the accounting treatment of stock options
could have a negative impact on our financial statements and
cause its stock price to decline.




The anti-takeover provisions in our charter documents could
delay or prevent a takeover attempt or make an investment in our
common stock less appealing to future investors.









|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures About Market
    Risk

Interest Rate Risk.




| |   |                                                                       
| | - | ----------------------------------------------------------------------
| |  | Rated investment grade A or higher by the major
    rating services;
|
| |  | Can readily be resold for cash; and                                   
|
| |  | Mature no more than 3 years from our date of purchase.                



|                                                                                         |  |      |        |   |      |   |        |      |  |      |   |  |      |   |        |  |  |   |   |  |  |   |   | 
|---------------------------------------------------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | ---- |  | ---- | - |  | ---- | - | ------ |  |  | - | - |  |  | - | - | 
|                                                                                         |  | 2005 |        |   | 2006 |   |        | 2007 |  | 2008 |   |  | 2009 |   | Beyond
|                                                                                         |  |      |        |   |      |   |        |      |  |      |   |  |      |   |       
|Cash equivalents and short-term investments (amortized cost as
    of December 31, 2004) |  | $    | 83,742 |   |      | $ | 46,081 |      |  | $    |  |  |      | $ |       |  |  | $ |  |  |  | $ |  | 
|Weighted average effective interest rate                                                 |  |      | 1.89   | % |      |   | 2.58   | %    |  |      |  |  |      |   |       |  |  |   |  |  |  |   |  | 

Foreign Currency Exchange Rate Risk.


34



---



##### Table of Contents








|        |                                            
|------- | -------------------------------------------
|Item 8. | Financial Statements and Supplementary Data

VISX, INCORPORATED AND SUBSIDIARIES


TABLE OF CONTENTS


|                                                                             |  |      |    | 
|---------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                             |  | Page
|                                                                             |  |     
|Consolidated Balance Sheets                                                  |  |      | 36 | 
|Consolidated Statements of Operations                                        |  |      | 37 | 
|Consolidated Statements of Stockholders Equity and
    Comprehensive Income |  |      | 38 | 
|Consolidated Statements of Cash Flows                                        |  |      | 39 | 
|Notes to Consolidated Financial Statements                                   |  |      | 40 | 
|Reports of Independent Registered Public Accounting Firm                     |  |      | 52 | 

35



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##### Table of Contents



VISX, INCORPORATED AND SUBSIDIARIES


CONSOLIDATED BALANCE SHEETS


|                                                                                                                      |                                                                                                                              |                            |                                            |                           |         |         |          |         |         |         |        | 
|--------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------------------------------------------ | ------------------------- | ------- | ------- | -------- | ------- | ------- | ------- | ------ | 
|                                                                                                                      |                                                                                                                              | December 31,               |                                           
|                                                                                                                      |                                                                                                                              |                            |                                           
|                                                                                                                      |                                                                                                                              | 2004                       |                                            |                           | 2003    |        
|                                                                                                                      |                                                                                                                              |                            |                                            |                           |         |        
|                                                                                                                      |                                                                                                                              | (In thousands, except      |                                           
|                                                                                                                      |                                                                                                                              | share and per share        |                                           
|                                                                                                                      |                                                                                                                              | amounts)                   |                                           
|ASSETS                                                                                                               
|Current Assets                                                                                                        |                                                                                                                              |                            |                                            |                           |         |         |          |        
|                                                                                                                      | Cash and cash equivalents                                                                                                    |                            | $                                          | 14,536                    |         |         | $        | 24,895  |        
|                                                                                                                      | Short-term investments                                                                                                       |                            |                                            | 123,872                   |         |         |          | 61,181  |        
|                                                                                                                      | Accounts receivable, net of allowances for doubtful accounts of
    $3,895 and $4,195, respectively                          |                            |                                            | 31,584                    |         |         |          | 27,432  |        
|                                                                                                                      | Inventories                                                                                                                  |                            |                                            | 14,255                    |         |         |          | 11,219  |        
|                                                                                                                      | Deferred tax assets and prepaid expenses                                                                                     |                            |                                            | 22,219                    |         |         |          | 20,477  |        
|                                                                                                                      |                                                                                                                              |                            |                                            |                           |         |        
|                                                                                                                      |                                                                                                                              | Total current assets       |                                            |                           | 206,466 |         |          |         | 145,204 |        
|Property and Equipment, net                                                                                           |                                                                                                                              |                            | 3,990                                      |                           |         |         | 3,851    |        
|Long-Term Deferred Tax and Other Assets                                                                               |                                                                                                                              |                            | 12,367                                     |                           |         |         | 14,908   |        
|                                                                                                                      |                                                                                                                              |                            |                                            |                           |         |        
|                                                                                                                      |                                                                                                                              |                            | Total Assets                               |                           | $       | 222,823 |          |         | $       | 163,963 |       
|                                                                                                                      |                                                                                                                              |                            |                                            |                           |         |        
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                 
|Current Liabilities                                                                                                   |                                                                                                                              |                            |                                            |                           |         |         |          |        
|                                                                                                                      | Accounts payable                                                                                                             |                            | $                                          | 3,588                     |         |         | $        | 3,442   |        
|                                                                                                                      | Accrued liabilities and other current liabilities                                                                            |                            |                                            | 40,579                    |         |         |          | 34,722  |        
|                                                                                                                      |                                                                                                                              |                            |                                            |                           |         |        
|                                                                                                                      |                                                                                                                              |                            |                                            | Total current liabilities |         |         | 44,167   |         |         |         | 38,164 | 
|                                                                                                                      |                                                                                                                              |                            |                                            |                           |         |        
|Commitments and Contingencies (Notes 9 and 12)                                                                        |                                                                                                                              |                            |                                            |                           |         |         |          |        
|Stockholders Equity:                                                                                                 |                                                                                                                              |                            |                                            |                           |         |         |          |        
|                                                                                                                      | Common stock  $.01 par value,
    180,000,000 shares authorized; 64,990,089 shares
    issued at December 31, 2004 and 2003 |                            |                                            | 650                       |         |         |          | 650     |        
|                                                                                                                      | Additional paid-in capital                                                                                                   |                            |                                            | 200,209                   |         |         |          | 201,108 |        
|Less: 15,066,708 and 16,295,297 common stock treasury shares at
    December 31, 2004 and 2003, respectively, at cost |                                                                                                                              |                            | (242,496                                   | )                         |         |         | (258,218 | )      
|                                                                                                                      | Accumulated other comprehensive income (loss)                                                                                |                            |                                            | (67                       | )       |         |          | 341     |        
|                                                                                                                      | Retained earnings                                                                                                            |                            |                                            | 220,360                   |         |         |          | 181,918 |        
|                                                                                                                      |                                                                                                                              |                            |                                            |                           |         |        
|                                                                                                                      |                                                                                                                              | Total stockholders equity |                                            |                           | 178,656 |         |          |         | 125,799 |        
|                                                                                                                      |                                                                                                                              |                            |                                            |                           |         |        
|                                                                                                                      |                                                                                                                              |                            | Total Liabilities and Stockholders Equity |                           | $       | 222,823 |          |         | $       | 163,963 |       
|                                                                                                                      |                                                                                                                              |                            |                                            |                           |         |        



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##### Table of Contents



VISX, INCORPORATED AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF OPERATIONS


|                                         |                                      |                                       |        |         |         |   |        |        |         |   |        |        |         | 
|---------------------------------------- | ------------------------------------ | ------------------------------------- | ------ | ------- | ------- | - | ------ | ------ | ------- | - | ------ | ------ | ------- | 
|                                         |                                      | Year Ended December 31,               |       
|                                         |                                      |                                       |       
|                                         |                                      | 2004                                  |        |         | 2003    |   |        | 2002   |        
|                                         |                                      |                                       |        |         |         |   |        |        |        
|                                         |                                      | (In thousands, except per share data) |       
|Revenues:                                |                                      |                                       |        |         |         |   |        |        |         |   |        |       
|                                         | License and other revenues           |                                       | $      | 117,108 |         |   | $      | 87,351 |         |   | $      | 72,524 |        
|                                         | System revenues                      |                                       |        | 27,790  |         |   |        | 38,248 |         |   |        | 48,595 |        
|                                         | Service and parts revenues           |                                       |        | 20,960  |         |   |        | 18,306 |         |   |        | 18,807 |        
|                                         |                                      |                                       |        |         |         |   |        |        |        
|                                         |                                      | Total revenues                        |        |         | 165,858 |   |        |        | 143,905 |   |        |        | 139,926 | 
|                                         |                                      |                                       |        |         |         |   |        |        |        
|Costs and Expenses:                      |                                      |                                       |        |         |         |   |        |        |         |   |        |       
|                                         | Cost of license and other revenues   |                                       |        | 3,533   |         |   |        | 3,507  |         |   |        | 3,302  |        
|                                         | Cost of system revenues              |                                       |        | 23,623  |         |   |        | 35,328 |         |   |        | 33,064 |        
|                                         | Cost of service and parts revenues   |                                       |        | 15,230  |         |   |        | 13,235 |         |   |        | 14,439 |        
|                                         | Selling, general and administrative  |                                       |        | 42,483  |         |   |        | 38,583 |         |   |        | 42,537 |        
|                                         | Research, development and regulatory |                                       |        | 21,437  |         |   |        | 18,647 |         |   |        | 18,714 |        
|                                         | Litigation settlement                |                                       |        |        |         |   |        |       |         |   |        | 9,000  |        
|                                         |                                      |                                       |        |         |         |   |        |        |        
|                                         |                                      | Total costs and expenses              |        |         | 106,306 |   |        |        | 109,300 |   |        |        | 121,056 | 
|                                         |                                      |                                       |        |         |         |   |        |        |        
|Income From Operations                   |                                      |                                       | 59,552 |         |         |   | 34,605 |        |         |   | 18,870 |       
|                                         |                                      |                                       |        |         |         |   |        |        |        
|Other Income:                            |                                      |                                       |        |         |         |   |        |        |         |   |        |       
|                                         | Interest income                      |                                       |        | 2,035   |         |   |        | 3,452  |         |   |        | 5,611  |        
|                                         |                                      |                                       |        |         |         |   |        |        |        
|Income Before Provision For Income Taxes |                                      |                                       | 61,587 |         |         |   | 38,057 |        |         |   | 24,481 |       
|                                         | Provision for income taxes           |                                       |        | 23,145  |         |   |        | 14,806 |         |   |        | 9,139  |        
|                                         |                                      |                                       |        |         |         |   |        |        |        
|Net Income                               |                                      | $                                     | 38,442 |         |         | $ | 23,251 |        |         | $ | 15,342 |       
|                                         |                                      |                                       |        |         |         |   |        |        |        
|Earnings Per Share                       |                                      |                                       |        |         |         |   |        |        |         |   |        |       
|                                         | Basic                                |                                       | $      | 0.78    |         |   | $      | 0.47   |         |   | $      | 0.29   |        
|                                         |                                      |                                       |        |         |         |   |        |        |        
|                                         | Diluted                              |                                       | $      | 0.76    |         |   | $      | 0.46   |         |   | $      | 0.29   |        
|                                         |                                      |                                       |        |         |         |   |        |        |        
|Shares Used For Earnings Per Share       |                                      |                                       |        |         |         |   |        |        |         |   |        |       
|                                         | Basic                                |                                       |        | 49,229  |         |   |        | 49,471 |         |   |        | 53,096 |        
|                                         |                                      |                                       |        |         |         |   |        |        |        
|                                         | Diluted                              |                                       |        | 50,869  |         |   |        | 50,937 |         |   |        | 53,816 |        
|                                         |                                      |                                       |        |         |         |   |        |        |        



37



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##### Table of Contents



VISX, INCORPORATED AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND
COMPREHENSIVE INCOME


|                                                            |                                                                                       |                |        |        |       |   |     |            |  |   |             |   |       |               |          |   |               |   |       |          |   |  |               |        |   |   |         |        |  |   |         |        |  
|----------------------------------------------------------- | ------------------------------------------------------------------------------------- | -------------- | ------ | ------ | ----- | - | --- | ---------- |  | - | ----------- | - | ----- | ------------- | -------- | - | ------------- | - | ----- | -------- | - |  | ------------- | ------ | - | - | ------- | ------ |  | - | ------- | ------ | -
|                                                            |                                                                                       |                |        | Common |       |   |     |            |  |   | Accumulated |   |       |               |          |   |               |  
|                                                            |                                                                                       | Common         |        |        | Stock |   |     | Additional |  |   |             |   | Other |               |          |   |               |   |       | Total    |  
|                                                            |                                                                                       | Shares         |        |        | Par   |   |     | Paid-In    |  |   | Treasury    |   |       | Comprehensive |          |   | Comprehensive |   |       | Retained |   |  | Stockholders |       
|                                                            |                                                                                       | Issued         |        |        | Value |   |     | Capital    |  |   | Stock       |   |       | Income/(loss) |          |   | Income        |   |       | Earnings |   |  | Equity        |       
|                                                            |                                                                                       |                |        |        |       |   |     |            |  |   |             |   |       |               |          |   |               |   |       |          |   |  |               |       
|                                                            |                                                                                       | (In thousands) |       
|Balance, December 31, 2001                                  |                                                                                       |                | 64,990 |        |       | $ | 650 |            |  | $ | 208,130     |   |       | $             | (178,347 | ) |               | $ | 2,520 |          |   |  |               |        |   | $ | 143,325 |        |  | $ | 176,278 |       
|Repurchases of common stock                                 |                                                                                       |                |       |        |       |   |    |            |  |   |            |   |       |               | (42,740  | ) |               |   |      |          |   |  |               |        |   |   |        |        |  |   | (42,740 | )     
|Exercise of stock options                                   |                                                                                       |                |       |        |       |   |    |            |  |   | (6,681      | ) |       |               | 10,566   |   |               |   |      |          |   |  |               |        |   |   |        |        |  |   | 3,885   |       
|Common stock issued under the Employee Stock Purchase Plan  |                                                                                       |                |       |        |       |   |    |            |  |   | (760        | ) |       |               | 1,773    |   |               |   |      |          |   |  |               |        |   |   |        |        |  |   | 1,013   |       
|Income tax benefit arising from employee stock option plans |                                                                                       |                |        |        |       |   |     |            |  |   | 2,011       |   |       |               |          |   |               |   |       |          |   |  |               |        |   |   |         |        |  |   | 2,011   |       
|Comprehensive income:                                       |                                                                                       |                |        |        |       |   |     |            |  |   |             |   |       |               |          |   |               |   |       |          |   |  |               |        |   |   |         |        |  |   |         |       
|                                                            | Net income                                                                            |                |        |       |       |   |     |           |  |   |             |  |       |               |          |  |               |   |       |         |   |  | $             | 15,342 |   |   |         | 15,342 |  |   |         | 15,342 |  
|                                                            | Foreign currency translation adjustment                                               |                |        |       |       |   |     |           |  |   |             |  |       |               |          |  |               |   |       | 37       |   |  |               | 37     |   |   |         |       |  |   |         | 37     |  
|                                                            | Adjustment for unrealized holding gains/(losses) on
    available-for-sale securities |                |        |       |       |   |     |           |  |   |             |  |       |               |          |  |               |   |       | (636     | ) |  |               | (636   | ) |   |         |       |  |   |         | (636   | )
|                                                            |                                                                                       |                |        |        |       |   |     |            |  |   |             |   |       |               |          |   |               |   |       |          |   |  |               |       
|                                                            | Comprehensive income                                                                  |                |        |        |       |   |     |            |  |   |             |   |       |               |          |   |               |   |       |          |   |  | $             | 14,743 |   |   |         |        |  |   |         |        |  
|                                                            |                                                                                       |                |        |        |       |   |     |            |  |   |             |   |       |               |          |   |               |   |       |          |   |  |               |       
|Balance, December 31, 2002                                  |                                                                                       |                | 64,990 |        |       |   | 650 |            |  |   | 202,700     |   |       |               | (208,748 | ) |               |   | 1,921 |          |   |  |               |        |   |   | 158,667 |        |  |   | 155,190 |       
|Repurchases of common stock                                 |                                                                                       |                |       |        |       |   |    |            |  |   |            |   |       |               | (63,000  | ) |               |   |      |          |   |  |               |        |   |   |        |        |  |   | (63,000 | )     
|Exercise of stock options                                   |                                                                                       |                |       |        |       |   |    |            |  |   | (4,274      | ) |       |               | 11,336   |   |               |   |      |          |   |  |               |        |   |   |        |        |  |   | 7,062   |       
|Common stock issued under the Employee Stock Purchase Plan  |                                                                                       |                |       |        |       |   |    |            |  |   | (1,078      | ) |       |               | 2,194    |   |               |   |      |          |   |  |               |        |   |   |        |        |  |   | 1,116   |       
|Income tax benefit arising from employee stock option plans |                                                                                       |                |        |        |       |   |     |            |  |   | 3,760       |   |       |               |          |   |               |   |       |          |   |  |               |        |   |   |         |        |  |   | 3,760   |       
|Comprehensive income:                                       |                                                                                       |                |        |        |       |   |     |            |  |   |             |   |       |               |          |   |               |   |       |          |   |  |               |        |   |   |         |        |  |   |         |       
|                                                            | Net income                                                                            |                |        |       |       |   |     |           |  |   |             |  |       |               |          |  |               |   |       |         |   |  | $             | 23,251 |   |   |         | 23,251 |  |   |         | 23,251 |  
|                                                            | Foreign currency translation adjustment                                               |                |        |       |       |   |     |           |  |   |             |  |       |               |          |  |               |   |       | (48      | ) |  |               | (48    | ) |   |         |       |  |   |         | (48    | )
|                                                            | Adjustment for unrealized holding gains/(losses) on
    available-for-sale securities |                |        |       |       |   |     |           |  |   |             |  |       |               |          |  |               |   |       | (1,532   | ) |  |               | (1,532 | ) |   |         |       |  |   |         | (1,532 | )
|                                                            |                                                                                       |                |        |        |       |   |     |            |  |   |             |   |       |               |          |   |               |   |       |          |   |  |               |       
|                                                            | Comprehensive income                                                                  |                |        |        |       |   |     |            |  |   |             |   |       |               |          |   |               |   |       |          |   |  | $             | 21,671 |   |   |         |        |  |   |         |        |  
|                                                            |                                                                                       |                |        |        |       |   |     |            |  |   |             |   |       |               |          |   |               |   |       |          |   |  |               |       
|Balance, December 31, 2003                                  |                                                                                       |                | 64,990 |        |       |   | 650 |            |  |   | 201,108     |   |       |               | (258,218 | ) |               |   | 341   |          |   |  |               |        |   |   | 181,918 |        |  |   | 125,799 |       
|Repurchases of common stock                                 |                                                                                       |                |       |        |       |   |    |            |  |   |            |   |       |               | (16,395  | ) |               |   |      |          |   |  |               |        |   |   |        |        |  |   | (16,395 | )     
|Exercise of stock options                                   |                                                                                       |                |       |        |       |   |    |            |  |   | (8,992      | ) |       |               | 29,437   |   |               |   |      |          |   |  |               |        |   |   |        |        |  |   | 20,445  |       
|Common stock issued under the Employee Stock Purchase Plan  |                                                                                       |                |       |        |       |   |    |            |  |   | (1,226      | ) |       |               | 2,680    |   |               |   |      |          |   |  |               |        |   |   |        |        |  |   | 1,454   |       
|Income tax benefit arising from employee stock option plans |                                                                                       |                |        |        |       |   |     |            |  |   | 9,319       |   |       |               |          |   |               |   |       |          |   |  |               |        |   |   |         |        |  |   | 9,319   |       
|Comprehensive income:                                       |                                                                                       |                |        |        |       |   |     |            |  |   |             |   |       |               |          |   |               |   |       |          |   |  |               |        |   |   |         |        |  |   |         |       
|                                                            | Net income                                                                            |                |        |       |       |   |     |           |  |   |             |  |       |               |          |  |               |   |       |         |   |  | $             | 38,442 |   |   |         | 38,442 |  |   |         | 38,442 |  
|                                                            | Foreign currency translation adjustment                                               |                |        |       |       |   |     |           |  |   |             |  |       |               |          |  |               |   |       | 28       |   |  |               | 28     |   |   |         |       |  |   |         | 28     |  
|                                                            | Adjustment for unrealized holding gains/(losses) on
    available-for-sale securities |                |        |       |       |   |     |           |  |   |             |  |       |               |          |  |               |   |       | (436     | ) |  |               | (436   | ) |   |         |       |  |   |         | (436   | )
|                                                            |                                                                                       |                |        |        |       |   |     |            |  |   |             |   |       |               |          |   |               |   |       |          |   |  |               |       
|                                                            | Comprehensive income                                                                  |                |        |        |       |   |     |            |  |   |             |   |       |               |          |   |               |   |       |          |   |  | $             | 38,034 |   |   |         |        |  |   |         |        |  
|                                                            |                                                                                       |                |        |        |       |   |     |            |  |   |             |   |       |               |          |   |               |   |       |          |   |  |               |       
|Balance, December 31, 2004                                  |                                                                                       |                | 64,990 |        |       | $ | 650 |            |  | $ | 200,209     |   |       | $             | (242,496 | ) |               | $ | (67   | )        |   |  |               |        |   | $ | 220,360 |        |  | $ | 178,656 |       
|                                                            |                                                                                       |                |        |        |       |   |     |            |  |   |             |   |       |               |          |   |               |   |       |          |   |  |               |       



38



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##### Table of Contents



VISX, INCORPORATED AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                                         |                                                                                       |                                                                                         |                                           |                                                   |        |        |         |         |       |        |        |         |       |        |        |  
|------------------------------------------------------------------------ | ------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------- | ----------------------------------------- | ------------------------------------------------- | ------ | ------ | ------- | ------- | ----- | ------ | ------ | ------- | ----- | ------ | ------ | -
|                                                                         |                                                                                       | Year Ended December 31,                                                                 |                                          
|                                                                         |                                                                                       |                                                                                         |                                          
|                                                                         |                                                                                       | 2004                                                                                    |                                           |                                                   | 2003   |        |         | 2002    |      
|                                                                         |                                                                                       |                                                                                         |                                           |                                                   |        |        |         |         |      
|                                                                         |                                                                                       | (In thousands)                                                                          |                                          
|Cash Flows From Operating Activities:                                    |                                                                                       |                                                                                         |                                           |                                                   |        |        |         |         |       |        |        |        
|                                                                         | Net income                                                                            |                                                                                         | $                                         | 38,442                                            |        |        | $       | 23,251  |       |        | $      | 15,342  |      
|                                                                         | Adjustments to reconcile net income to net cash provided by
    operating activities: |                                                                                         |                                           |                                                   |        |        |         |         |       |        |        |         |      
|                                                                         |                                                                                       | Depreciation and amortization                                                           |                                           |                                                   | 10,028 |        |         |         | 8,727 |        |        |         | 4,320 |       
|                                                                         |                                                                                       | Income tax benefit from exercise of stock options                                       |                                           |                                                   | 9,319  |        |         |         | 3,760 |        |        |         | 2,011 |       
|                                                                         |                                                                                       | Provision for doubtful accounts receivable                                              |                                           |                                                   | 234    |        |         |         | 1,686 |        |        |         | 1,397 |       
|                                                                         |                                                                                       | Increase (decrease) in cash flows from changes in operating
    assets and liabilities: |                                           |                                                   |        |        |         |         |       |        |        |         |       |       
|                                                                         |                                                                                       |                                                                                         |                                           | Accounts receivable                               |        |        | (4,388  | )       |       |        | (4,574 | )       |       |        | 6,535  |  
|                                                                         |                                                                                       |                                                                                         |                                           | Inventories                                       |        |        | (14,230 | )       |       |        | (6,514 | )       |       |        | (3,713 | )
|                                                                         |                                                                                       |                                                                                         |                                           | Deferred tax assets and prepaid expenses          |        |        | 707     |         |       |        | 5,472  |         |       |        | 10,232 |  
|                                                                         |                                                                                       |                                                                                         |                                           | Long-term deferred tax and other assets           |        |        | 3,349   |         |       |        | 3,192  |         |       |        | 2,001  |  
|                                                                         |                                                                                       |                                                                                         |                                           | Accounts payable                                  |        |        | 146     |         |       |        | (900   | )       |       |        | 1,071  |  
|                                                                         |                                                                                       |                                                                                         |                                           | Accrued liabilities and other current liabilities |        |        | 5,853   |         |       |        | (6,367 | )       |       |        | 690    |  
|                                                                         |                                                                                       |                                                                                         |                                           |                                                   |        |        |         |         |      
|                                                                         |                                                                                       |                                                                                         | Net cash provided by operating activities |                                                   |        | 49,460 |         |         |       | 27,733 |        |         |       | 39,886 |       
|                                                                         |                                                                                       |                                                                                         |                                           |                                                   |        |        |         |         |      
|Cash Flows From Investing Activities:                                    |                                                                                       |                                                                                         |                                           |                                                   |        |        |         |         |       |        |        |        
|                                                                         | Capital expenditures                                                                  |                                                                                         |                                           | (2,233                                            | )      |        |         | (2,385  | )     |        |        | (2,285  | )    
|                                                                         | Cash paid for acquisition of patents and technology assets                            |                                                                                         |                                           |                                                  |        |        |         | (5,900  | )     |        |        |        |      
|                                                                         | Purchases of available for sale securities                                            |                                                                                         |                                           | (109,175                                          | )      |        |         | (67,749 | )     |        |        | (77,706 | )    
|                                                                         | Proceeds from maturities of available for sale securities                             |                                                                                         |                                           | 46,047                                            |        |        |         | 90,304  |       |        |        | 100,260 |      
|                                                                         |                                                                                       |                                                                                         |                                           |                                                   |        |        |         |         |      
|                                                                         | Net cash provided by (used in) investing activities                                   |                                                                                         |                                           | (65,361                                           | )      |        |         | 14,270  |       |        |        | 20,269  |      
|                                                                         |                                                                                       |                                                                                         |                                           |                                                   |        |        |         |         |      
|Cash Flows From Financing Activities:                                    |                                                                                       |                                                                                         |                                           |                                                   |        |        |         |         |       |        |        |        
|                                                                         | Proceeds from issuance of common stock                                                |                                                                                         |                                           | 21,899                                            |        |        |         | 8,178   |       |        |        | 4,898   |      
|                                                                         | Repurchases of common stock                                                           |                                                                                         |                                           | (16,395                                           | )      |        |         | (63,000 | )     |        |        | (42,740 | )    
|                                                                         |                                                                                       |                                                                                         |                                           |                                                   |        |        |         |         |      
|                                                                         | Net cash provided by (used in) financing activities                                   |                                                                                         |                                           | 5,504                                             |        |        |         | (54,822 | )     |        |        | (37,842 | )    
|                                                                         |                                                                                       |                                                                                         |                                           |                                                   |        |        |         |         |      
|Effect of exchange rate changes                                          |                                                                                       |                                                                                         | 38                                        |                                                   |        |        | 27      |         |       |        | 25     |        
|                                                                         |                                                                                       |                                                                                         |                                           |                                                   |        |        |         |         |      
|Net increase (decrease) in cash and cash equivalents                     |                                                                                       |                                                                                         | (10,359                                   | )                                                 |        |        | (12,792 | )       |       |        | 22,338 |        
|Cash and cash equivalents, beginning of year                             |                                                                                       |                                                                                         | 24,895                                    |                                                   |        |        | 37,687  |         |       |        | 15,349 |        
|                                                                         |                                                                                       |                                                                                         |                                           |                                                   |        |        |         |         |      
|Cash and cash equivalents, end of year                                   |                                                                                       | $                                                                                       | 14,536                                    |                                                   |        | $      | 24,895  |         |       | $      | 37,687 |        
|                                                                         |                                                                                       |                                                                                         |                                           |                                                   |        |        |         |         |      
|Supplemental Cash Flow Information:                                      |                                                                                       |                                                                                         |                                           |                                                   |        |        |         |         |       |        |        |        
|Inventory transferred to prepaid expenses and long term other
    assets |                                                                                       | $                                                                                       | 11,192                                    |                                                   |        | $      | 8,015   |         |       | $      | 5,037  |        
|                                                                         |                                                                                       |                                                                                         |                                           |                                                   |        |        |         |         |      
|Cash paid for income taxes                                               |                                                                                       | $                                                                                       | 13,009                                    |                                                   |        | $      | 4,860   |         |       | $      | 108    |        
|                                                                         |                                                                                       |                                                                                         |                                           |                                                   |        |        |         |         |      



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VISX, INCORPORATED AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




|        |                                                           
|------- | ----------------------------------------------------------
|Note 1. | The Company and Summary of Significant Accounting Policies

VISX, Incorporated.


Use of Estimates.


Principles of Consolidation.


Translation of Foreign Currencies.


Cash, Cash Equivalents, and Short-term Investments.


Concentration of Credit Risks.


Fair Value of Financial Instruments.


Accounts Receivable, Allowances For Doubtful Accounts.


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Impaired Loans.


Inventories.


|                                |  |              |        |  |      |   |        | 
|------------------------------- |  | ------------ | ------ |  | ---- | - | ------ | 
|                                |  | December 31, |       
|                                |  |              |       
|                                |  | 2004         |        |  | 2003 |  
|                                |  |              |        |  |      |  
|Raw materials and subassemblies |  | $            | 9,113  |  |      | $ | 7,786  | 
|Work-in-process                 |  |              | 2,723  |  |      |   | 1,321  | 
|Finished goods                  |  |              | 2,419  |  |      |   | 2,112  | 
|                                |  |              |        |  |      |  
|                                |  | $            | 14,255 |  |      | $ | 11,219 | 
|                                |  |              |        |  |      |  

Property and Equipment.


|                                                |  |              |         |   |      |   |         |  
|----------------------------------------------- |  | ------------ | ------- | - | ---- | - | ------- | -
|                                                |  | December 31, |        
|                                                |  |              |        
|                                                |  | 2004         |         |   | 2003 |  
|                                                |  |              |         |   |      |  
|Furniture and fixtures                          |  | $            | 2,949   |   |      | $ | 2,992   |  
|Machinery and equipment                         |  |              | 13,330  |   |      |   | 14,441  |  
|Leasehold improvements                          |  |              | 3,558   |   |      |   | 3,378   |  
|                                                |  |              |         |   |      |  
|                                                |  |              | 19,837  |   |      |   | 20,811  |  
|Less: accumulated depreciation and amortization |  |              | (15,847 | ) |      |   | (16,960 | )
|                                                |  |              |         |   |      |  
|Property and equipment, net                     |  | $            | 3,990   |   |      | $ | 3,851   |  
|                                                |  |              |         |   |      |  



Investments.


Warranties.


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Revenue Recognition.




























42



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Earnings Per Share.


|                                                                        |  |                         |        |  |      |   |        |      |  |   |        | 
|----------------------------------------------------------------------- |  | ----------------------- | ------ |  | ---- | - | ------ | ---- |  | - | ------ | 
|                                                                        |  | Year Ended December 31, |       
|                                                                        |  |                         |       
|                                                                        |  | 2004                    |        |  | 2003 |   |        | 2002 | 
|                                                                        |  |                         |        |  |      |   |        |      | 
|Net Income                                                              |  | $                       | 38,442 |  |      | $ | 23,251 |      |  | $ | 15,342 | 
|Basic Earnings Per Share                                                |  |                         |        |  |      |   |        |      |  |   |        | 
|Net income                                                              |  | $                       | 38,442 |  |      | $ | 23,251 |      |  | $ | 15,342 | 
|Weighted average common shares outstanding                              |  |                         | 49,229 |  |      |   | 49,471 |      |  |   | 53,096 | 
|                                                                        |  |                         |        |  |      |   |        |      | 
|Basic earnings per share                                                |  | $                       | 0.78   |  |      | $ | 0.47   |      |  | $ | 0.29   | 
|                                                                        |  |                         |        |  |      |   |        |      | 
|Diluted Earnings Per Share                                              |  |                         |        |  |      |   |        |      |  |   |        | 
|Net income                                                              |  | $                       | 38,442 |  |      | $ | 23,251 |      |  | $ | 15,342 | 
|Weighted average common shares outstanding                              |  |                         | 49,229 |  |      |   | 49,471 |      |  |   | 53,096 | 
|Dilutive potential common shares from stock options                     |  |                         | 1,640  |  |      |   | 1,466  |      |  |   | 720    | 
|                                                                        |  |                         |        |  |      |   |        |      | 
|Weighted average common shares and dilutive potential common
    shares |  |                         | 50,869 |  |      |   | 50,937 |      |  |   | 53,816 | 
|                                                                        |  |                         |        |  |      |   |        |      | 
|Diluted earnings per share                                              |  | $                       | 0.76   |  |      | $ | 0.46   |      |  | $ | 0.29   | 
|                                                                        |  |                         |        |  |      |   |        |      | 



Legal Contingencies.


Stock-Based Compensation.




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|                                                                                                                                                    |  |             |  |                         |        |   |      |   |        |      |  |   |        |  
|--------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------- |  | ----------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                                                                                                                    |  |             |  | Year Ended December 31, |       
|                                                                                                                                                    |  |             |  |                         |       
|                                                                                                                                                    |  |             |  | 2004                    |        |   | 2003 |   |        | 2002 | 
|                                                                                                                                                    |  |             |  |                         |        |   |      |   |        |      | 
|Net Income                                                                                                                                          |  | As Reported |  | $                       | 38,442 |   |      | $ | 23,251 |      |  | $ | 15,342 |  
|Deduct: Total stock-based employee compensation expense
    determined under fair value based method for all awards, net of
    related tax effects |  |             |  |                         | (8,356 | ) |      |   | (7,957 | )    |  |   | (9,789 | )
|                                                                                                                                                    |  |             |  |                         |        |   |      |   |        |      | 
|Net Income                                                                                                                                          |  | Pro Forma   |  | $                       | 30,086 |   |      | $ | 15,294 |      |  | $ | 5,553  |  
|                                                                                                                                                    |  |             |  |                         |        |   |      |   |        |      | 
|Basic Earnings Per Share                                                                                                                            |  | As Reported |  | $                       | 0.78   |   |      | $ | 0.47   |      |  | $ | 0.29   |  
|                                                                                                                                                    |  | Pro Forma   |  |                         | 0.61   |   |      |   | 0.31   |      |  |   | 0.10   |  
|Diluted Earnings Per Share                                                                                                                          |  | As Reported |  | $                       | 0.76   |   |      | $ | 0.46   |      |  | $ | 0.29   |  
|                                                                                                                                                    |  | Pro Forma   |  |                         | 0.59   |   |      |   | 0.31   |      |  |   | 0.10   |  



|                                        |  |                             |       |  |      |  |       |      |  |  |       | 
|--------------------------------------- |  | --------------------------- | ----- |  | ---- |  | ----- | ---- |  |  | ----- | 
|                                        |  | Assumptions By Year Options |      
|                                        |  | Granted                     |      
|                                        |  |                             |      
|                                        |  | 2004                        |       |  | 2003 |  |       | 2002 | 
|                                        |  |                             |       |  |      |  |       |      | 
|Expected life of options (in years)     |  |                             | 5.29  |  |      |  | 4.40  |      |  |  | 4.22  | 
|Expected life of ESPP rights (in years) |  |                             | 1.25  |  |      |  | 1.25  |      |  |  | 1.25  | 
|Volatility for options                  |  |                             | 71%   |  |      |  | 75%   |      |  |  | 79%   | 
|Volatility for ESPP rights              |  |                             | 58%   |  |      |  | 60%   |      |  |  | 61%   | 
|Risk free interest rate for options     |  |                             | 3.03% |  |      |  | 2.50% |      |  |  | 4.09% | 
|Risk free interest rate for ESPP rights |  |                             | 1.87% |  |      |  | 1.62% |      |  |  | 1.72% | 
|Dividend yield                          |  |                             | 0.0%  |  |      |  | 0.0%  |      |  |  | 0.0%  | 





New Accounting Pronouncements.






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Reclassifications.




|        |                  
|------- | -----------------
|Note 2. | Segment Reporting

Segments.


Export Revenues.


|                                       |  |                         |        |  |      |   |        |      |  |   |        | 
|-------------------------------------- |  | ----------------------- | ------ |  | ---- | - | ------ | ---- |  | - | ------ | 
|                                       |  | Year Ended December 31, |       
|                                       |  |                         |       
|                                       |  | 2004                    |        |  | 2003 |   |        | 2002 | 
|                                       |  |                         |        |  |      |   |        |      | 
|Europe                                 |  | $                       | 6,710  |  |      | $ | 7,702  |      |  | $ | 7,990  | 
|Americas (excluding the United States) |  |                         | 3,625  |  |      |   | 3,915  |      |  |   | 3,058  | 
|Asia and Other                         |  |                         | 16,059 |  |      |   | 12,749 |      |  |   | 21,782 | 
|                                       |  |                         |        |  |      |   |        |      | 
|                                       |  | $                       | 26,394 |  |      | $ | 24,366 |      |  | $ | 32,830 | 
|                                       |  |                         |        |  |      |   |        |      | 



Major Customers.


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|        |                                                         
|------- | --------------------------------------------------------
|Note 3. | Short-Term Investment in Securities and Cash Equivalents



|                       |                                 |                                                                              |         |       |                   |   |      |            |      |   |           |   |        |             |        |   |        |   |     |   |    |   |        |   |        | 
|---------------------- | ------------------------------- | ---------------------------------------------------------------------------- | ------- | ----- | ----------------- | - | ---- | ---------- | ---- | - | --------- | - | ------ | ----------- | ------ | - | ------ | - | --- | - | -- | - | ------ | - | ------ | 
|                       |                                 | December 31, 2004                                                            |         |       | December 31, 2003 |  
|                       |                                 |                                                                              |         |       |                   |  
|                       |                                 |                                                                              |         | Gross |                   |   |      |            |      |   | Gross     |   |        | Aggregate   |       
|                       |                                 | Amortized                                                                    |         |       | Unrealized        |   |      | Aggregate  |      |   | Amortized |   |        | Unrealized  |        |   | Fair   |  
|                       |                                 | Cost                                                                         |         |       | (Loss)            |   |      | Fair Value |      |   | Cost      |   |        | Gain/(Loss) |        |   | Value  |  
|                       |                                 |                                                                              |         |       |                   |   |      |            |      |   |           |   |        |             |        |   |        |  
|Short-Term Investments |                                 |                                                                              |         |       |                   |   |      |            |      |   |           |   |        |             |        |   |        |   |     |   |    |   |        |  
|                       | (Available-for-Sale Securities) |                                                                              |         |       |                   |   |      |            |      |   |           |   |        |             |        |   |        |   |     |   |    |   |        |   |       
|                       |                                 | US Treasury obligations and direct obligations of
    US Government agencies |         | $     | 75,112            |   |      | $          | (386 | ) |           | $ | 74,726 |             |        | $ | 14,287 |   |     | $ | 18 |   |        | $ | 14,305 | 
|                       |                                 | Federal government sponsored enterprises securities                         |         |       | 18,112            |   |      |            | (71  | ) |           |   | 18,041 |             |        |   | 22,605 |   |     |   | 34 |   |        |   | 22,639 | 
|                       |                                 | State & local governmental agency securities                                 |         |       | 3,698             |   |      |            | (18  | ) |           |   | 3,680  |             |        |   | 4,906  |   |     |   | (6 | ) |        |   | 4,900  | 
|                       |                                 | Debt securities of corporations                                              |         |       | 27,546            |   |      |            | (121 | ) |           |   | 27,425 |             |        |   | 19,253 |   |     |   | 84 |   |        |   | 19,337 | 
|                       |                                 |                                                                              |         |       |                   |   |      |            |      |   |           |   |        |             |        |   |        |  
|                       |                                 |                                                                              | 124,468 |       |                   |   | (596 | )          |      |   | 123,872   |   |        |             | 61,051 |   |        |   | 130 |   |    |   | 61,181 |  
|Cash Equivalents       |                                 |                                                                              |         |       |                   |   |      |            |      |   |           |   |        |             |        |   |        |   |     |   |    |   |        |  
|                       |                                 | Money Market                                                                 |         |       | 2,055             |   |      |            |     |   |           |   | 2,055  |             |        |   | 5,122  |   |     |   |   |   |        |   | 5,122  | 
|                       |                                 | Corporate notes                                                              |         |       | 3,300             |   |      |            |     |   |           |   | 3,300  |             |        |   | 4,001  |   |     |   |   |   |        |   | 4,001  | 
|                       |                                 |                                                                              |         |       |                   |   |      |            |      |   |           |   |        |             |        |   |        |  
|                       |                                 |                                                                              |         |       | 5,355             |   |      |            |     |   |           |   | 5,355  |             |        |   | 9,123  |   |     |   |   |   |        |   | 9,123  | 
|                       |                                 |                                                                              |         |       |                   |   |      |            |      |   |           |   |        |             |        |   |        |  
|Total investments      |                                 | $                                                                            | 129,823 |       |                   | $ | (596 | )          |      | $ | 129,227   |   |        | $           | 70,174 |   |        | $ | 130 |   |    | $ | 70,304 |  
|                       |                                 |                                                                              |         |       |                   |   |      |            |      |   |           |   |        |             |        |   |        |  







|        |                             
|------- | ----------------------------
|Note 4. | Patent and Technology Assets





|        |                                                  
|------- | -------------------------------------------------
|Note 5. | Accrued Liabilities and Other Current Liabilities



|                                     |  |              |        |  |      |   |        | 
|------------------------------------ |  | ------------ | ------ |  | ---- | - | ------ | 
|                                     |  | December 31, |       
|                                     |  |              |       
|                                     |  | 2004         |        |  | 2003 |  
|                                     |  |              |        |  |      |  
|Payroll and related accruals         |  | $            | 5,693  |  |      | $ | 5,190  | 
|Accrued warranty                     |  |              | 1,136  |  |      |   | 1,779  | 
|Deposits and deferred revenue        |  |              | 13,653 |  |      |   | 9,487  | 
|Accrued sales and marketing expenses |  |              | 4,839  |  |      |   | 2,895  | 
|Accrued taxes                        |  |              | 12,286 |  |      |   | 14,445 | 
|Accrued legal expenses               |  |              | 1,408  |  |      |   | 301    | 
|Other                                |  |              | 1,564  |  |      |   | 625    | 
|                                     |  |              |        |  |      |  
|                                     |  | $            | 40,579 |  |      | $ | 34,722 | 
|                                     |  |              |        |  |      |  

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|                           |  |      |        |   |      |   |        |  
|-------------------------- |  | ---- | ------ | - | ---- | - | ------ | -
|                           |  | 2004 |        |   | 2003 |  
|                           |  |      |        |   |      |  
|Balance as of January 1,   |  | $    | 1,779  |   |      | $ | 1,963  |  
|New warranties             |  |      | 465    |   |      |   | 3,075  |  
|Payments                   |  |      | (1,108 | ) |      |   | (3,259 | )
|                           |  |      |        |   |      |  
|Balance as of December 31, |  | $    | 1,136  |   |      | $ | 1,779  |  
|                           |  |      |        |   |      |  



|        |                               
|------- | ------------------------------
|Note 6. | Stock Based Compensation Plans









|                                               |  |                         |        |           |           |   |       |        |           |   |           |   |  |           |       |  |           |   |       |   |  |   |       | 
|---------------------------------------------- |  | ----------------------- | ------ | --------- | --------- | - | ----- | ------ | --------- | - | --------- | - |  | --------- | ----- |  | --------- | - | ----- | - |  | - | ----- | 
|                                               |  | Year Ended December 31, |       
|                                               |  |                         |       
|                                               |  | 2004                    |        |           | 2003      |   |       | 2002   |          
|                                               |  |                         |        |           |           |   |       |        |          
|                                               |  |                         |        | Wtd. Avg. |           |   |       |        | Wtd. Avg. |   |           |   |  | Wtd. Avg. |      
|Activity                                       |  | Shares                  |        |           | Ex. Price |   |       | Shares |           |   | Ex. Price |   |  | Shares    |       |  | Ex. Price |  
|                                               |  |                         |        |           |           |   |       |        |           |   |           |   |  |           |       |  |           |  
|Outstanding, start of year                     |  |                         | 9,000  |           |           | $ | 17.77 |        |           |   | 8,378     |   |  | $         | 18.30 |  |           |   | 8,465 |   |  | $ | 18.73 | 
|Granted                                        |  |                         | 1,249  |           |           |   | 20.44 |        |           |   | 1,551     |   |  |           | 11.69 |  |           |   | 1,246 |   |  |   | 14.55 | 
|Exercised                                      |  |                         | (1,843 | )         |           |   | 11.03 |        |           |   | (717      | ) |  |           | 9.87  |  |           |   | (620  | ) |  |   | 6.27  | 
|Forfeited                                      |  |                         | (185   | )         |           |   | 19.48 |        |           |   | (212      | ) |  |           | 21.00 |  |           |   | (713  | ) |  |   | 27.27 | 
|                                               |  |                         |        |           |           |   |       |        |           |   |           |   |  |           |       |  |           |  
|Outstanding, end of year                       |  |                         | 8,221  |           |           |   | 19.65 |        |           |   | 9,000     |   |  |           | 17.77 |  |           |   | 8,378 |   |  |   | 18.30 | 
|                                               |  |                         |        |           |           |   |       |        |           |   |           |   |  |           |       |  |           |  
|Exercisable, end of year                       |  |                         | 5,624  |           |           |   | 21.23 |        |           |   | 6,009     |   |  |           | 19.92 |  |           |   | 5,341 |   |  |   | 18.94 | 
|                                               |  |                         |        |           |           |   |       |        |           |   |           |   |  |           |       |  |           |  
|Weighted average fair value per option granted |  | $                       | 12.23  |           |           |   |       |        |           | $ | 6.76      |   |  |           |       |  |           | $ | 8.89  |   |  |   |       | 
|                                               |  |                         |        |           |           |   |       |        |           |   |           |   |  |           |       |  |           |  

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|                 |  |                     |       |           |                     |   |            |             |  |  |        |           |  |                |       |  |  |   |       | 
|---------------- |  | ------------------- | ----- | --------- | ------------------- | - | ---------- | ----------- |  |  | ------ | --------- |  | -------------- | ----- |  |  | - | ----- | 
|                 |  | December 31, 2004   |      
|                 |  |                     |      
|                 |  | Options Outstanding |       |           |                    
|                 |  |                     |       |           | Options Exercisable |  
|                 |  |                     |       | Wtd. Avg. |                     |   |            |            
|                 |  |                     |       | Wtd. Avg. |                     |   | Years Left |             |  |  |        | Wtd. Avg. | 
|Exercise Prices  |  | Shares              |       |           | Exercise Price      |   |            | to Exercise |  |  | Shares |           |  | Exercise Price |      
|                 |  |                     |       |           |                     |   |            |             |  |  |        |           |  |                |      
|$ 4.63 - $  8.69 |  |                     | 1,322 |           |                     | $ | 7.40       |             |  |  | 5.86   |           |  |                | 730   |  |  | $ | 6.86  | 
|8.75 -   15.14   |  |                     | 1,294 |           |                     |   | 13.71      |             |  |  | 6.54   |           |  |                | 863   |  |  |   | 13.60 | 
|15.47 -   15.90  |  |                     | 1,376 |           |                     |   | 15.83      |             |  |  | 6.19   |           |  |                | 1,276 |  |  |   | 15.83 | 
|15.91 -   19.73  |  |                     | 1,871 |           |                     |   | 18.94      |             |  |  | 7.49   |           |  |                | 811   |  |  |   | 18.16 | 
|19.85 -   25.81  |  |                     | 1,237 |           |                     |   | 23.51      |             |  |  | 6.97   |           |  |                | 823   |  |  |   | 24.33 | 
|26.13 -   49.78  |  |                     | 846   |           |                     |   | 31.53      |             |  |  | 4.38   |           |  |                | 846   |  |  |   | 31.53 | 
|49.95 -  100.75  |  |                     | 275   |           |                     |   | 76.48      |             |  |  | 4.57   |           |  |                | 275   |  |  |   | 76.48 | 
|                 |  |                     |       |           |                     |   |            |             |  |  |        |           |  |                |      
|                 |  |                     | 8,221 |           |                     |   | 19.65      |             |  |  | 6.37   |           |  |                | 5,624 |  |  |   | 21.23 | 
|                 |  |                     |       |           |                     |   |            |             |  |  |        |           |  |                |      



|        |                     
|------- | --------------------
|Note 7. | Stockholders Equity





|        |             
|------- | ------------
|Note 8. | Income Taxes



|                                         |  |                         |        |  |      |   |        |      |  |   |        | 
|---------------------------------------- |  | ----------------------- | ------ |  | ---- | - | ------ | ---- |  | - | ------ | 
|                                         |  | Year Ended December 31, |       
|                                         |  |                         |       
|                                         |  | 2004                    |        |  | 2003 |   |        | 2002 | 
|                                         |  |                         |        |  |      |   |        |      | 
|Domestic                                 |  | $                       | 61,582 |  |      | $ | 38,028 |      |  | $ | 24,404 | 
|Foreign                                  |  |                         | 5      |  |      |   | 29     |      |  |   | 77     | 
|                                         |  |                         |        |  |      |   |        |      | 
|Income before provision for income taxes |  | $                       | 61,587 |  |      | $ | 38,057 |      |  | $ | 24,481 | 
|                                         |  |                         |        |  |      |   |        |      | 





|                           |         |                         |        |        |     |   |        |        |  |   |       |       |  
|-------------------------- | ------- | ----------------------- | ------ | ------ | --- | - | ------ | ------ |  | - | ----- | ----- | -
|                           |         | Year Ended December 31, |       
|                           |         |                         |       
|                           |         | 204                     |        |        | 203 |   |        | 202    | 
|                           |         |                         |        |        |     |   |        |        | 
|Current:                   |         |                         |        |        |     |   |        |        |  |   |       |      
|                           | Federal |                         | $      | 18,858 |     |   | $      | 11,444 |  |   | $     | (230  | )
|                           | State   |                         |        | 2,321  |     |   |        | 1,836  |  |   |       | 631   |  
|                           |         |                         |        |        |     |   |        |        | 
|                           |         |                         | 21,179 |        |     |   | 13,280 |        |  |   | 401   |      
|                           |         |                         |        |        |     |   |        |        | 
|Deferred, net              |         |                         |        |        |     |   |        |        |  |   |       |      
|                           | Federal |                         |        | 1,500  |     |   |        | 965    |  |   |       | 7,139 |  
|                           | State   |                         |        | 466    |     |   |        | 561    |  |   |       | 1,599 |  
|                           |         |                         |        |        |     |   |        |        | 
|                           |         |                         | 1,966  |        |     |   | 1,526  |        |  |   | 8,738 |      
|                           |         |                         |        |        |     |   |        |        | 
|Provision for income taxes |         | $                       | 23,145 |        |     | $ | 14,806 |        |  | $ | 9,139 |      
|                           |         |                         |        |        |     |   |        |        | 



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|                                             |  |                         |      |   |     |  |      |     |  |  |      |  
|-------------------------------------------- |  | ----------------------- | ---- | - | --- |  | ---- | --- |  |  | ---- | -
|                                             |  | Year Ended December 31, |     
|                                             |  |                         |     
|                                             |  | 204                     |      |   | 203 |  |      | 202 | 
|                                             |  |                         |      |   |     |  |      |     | 
|Statutory Federal income tax rate            |  |                         | 35.0 | % |     |  | 35.0 | %   |  |  | 35.0 | %
|State income taxes, net of Federal benefit   |  |                         | 5.9  |   |     |  | 5.2  |     |  |  | 5.1  |  
|R&D credit, foreign sales benefit, and other |  |                         | (3.3 | ) |     |  | (1.3 | )   |  |  | (2.8 | )
|                                             |  |                         |      |   |     |  |      |     | 
|Effective income tax rate                    |  |                         | 37.6 | % |     |  | 38.9 | %   |  |  | 37.3 | %
|                                             |  |                         |      |   |     |  |      |     | 





|                                 |                                          |              |        |       |      |   |        |       | 
|-------------------------------- | ---------------------------------------- | ------------ | ------ | ----- | ---- | - | ------ | ----- | 
|                                 |                                          | December 31, |       
|                                 |                                          |              |       
|                                 |                                          | 2004         |        |       | 2003 |  
|                                 |                                          |              |        |       |      |  
|Cumulative temporary differences |                                          |              |        |       |      |   |        |      
|                                 | Allowance for doubtful receivables       |              | $      | 1,700 |      |   | $      | 1,800 | 
|                                 | Inventories                              |              |        | 900   |      |   |        | 900   | 
|                                 | Warranty accrual                         |              |        | 500   |      |   |        | 800   | 
|                                 | Accrued sales promotions and commissions |              |        | 300   |      |   |        | 300   | 
|                                 | Deferred revenue                         |              |        | 1,000 |      |   |        | 3,200 | 
|                                 | Patents and intangible assets            |              |        | 1,700 |      |   |        | 800   | 
|                                 | Other accrued liabilities                |              |        | 4,600 |      |   |        | 4,900 | 
|                                 |                                          |              |        |       |      |  
|Net deferred income tax asset    |                                          | $            | 10,700 |       |      | $ | 12,700 |      
|                                 |                                          |              |        |       |      |  





|        |            
|------- | -----------
|Note 9. | Commitments



|                             |                              |                 |       |       |             |  |       |       | 
|---------------------------- | ---------------------------- | --------------- | ----- | ----- | ----------- |  | ----- | ----- | 
|                             |                              | Operating Lease |       |       | Purchase    | 
|                             |                              | Commitments     |       |       | Commitments | 
|                             |                              |                 |       |       |             | 
|Year Ended December 31, 2005 |                              | $               | 2,181 |       |             |  | 6,273 |      
|2006                         |                              |                 | 2,040 |       |             |  | 1,699 |      
|2007                         |                              |                 | 1,984 |       |             |  |      |      
|2008                         |                              |                 | 868   |       |             |  |      |      
|2009                         |                              |                 | 52    |       |             |  |      |      
|                             |                              |                 |       |       |             | 
|                             | Total minimum lease payments |                 | $     | 7,125 |             |  | $     | 7,972 | 
|                             |                              |                 |       |       |             | 



|         |                      
|-------- | ---------------------
|Note 10. | Long-Term Receivables



49



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|         |                
|-------- | ---------------
|Note 11. | Related Parties









|         |           
|-------- | ----------
|Note 12. | Litigation





50



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|         |                                                                       
|-------- | ----------------------------------------------------------------------
|Note 13. | Acquisition of VISX, Incorporated by Advanced Medical Optics,
    Inc.







51



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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM






Internal Control 
Integrated Framework








Internal Control  Integrated Framework Internal Control 
Integrated Framework




KPMG LLP






52



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM












Internal Control 
Integrated Framework


KPMG LLP






53



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|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure








|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures

Conclusion Regarding the Effectiveness of Disclosure Controls
and Procedures




Internal Control over Financial Reporting




Managements Report on Internal Control Over Financial
Reporting


Internal Control  Integrated Framework Internal Control  Integrated Framework,







PART III







|         |                                         
|-------- | ----------------------------------------
|Item 10. | Directors and Executive Officers of VISX



|                    |  |                    
|------------------- |  | -------------------
|Elizabeth H. Dávila |  | Director Since 1995



54



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|                 |  |                    
|---------------- |  | -------------------
|Laureen De Buono |  | Director Since 2003



|                  |  |                    
|----------------- |  | -------------------
|Glendon E. French |  | Director Since 1995



|                 |  |                    
|---------------- |  | -------------------
|John W. Galiardo |  | Director Since 1996



|              |  |                    
|------------- |  | -------------------
|Jay T. Holmes |  | Director Since 1999



|                    |  |                    
|------------------- |  | -------------------
|Gary S. Petersmeyer |  | Director Since 2001



55



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|                   |  |                    
|------------------ |  | -------------------
|Richard B. Sayford |  | Director Since 1995





Board Committees




Audit Committee.


Director Compensation




Employment Arrangements and Change of Control Severance
Agreements




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Section 16(a) Beneficial Ownership Reporting
Compliance






Compensation Committee Interlocks and Insider
Participation




Code of Business Conduct and Ethics











|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation

Summary Compensation Table.


|                            |                                   |      |      |                     |  |                  |         |                    |  |                 |         |         |  |  |         |         |  |   |        |       | 
|--------------------------- | --------------------------------- | ---- | ---- | ------------------- |  | ---------------- | ------- | ------------------ |  | --------------- | ------- | ------- |  |  | ------- | ------- |  | - | ------ | ----- | 
|                            |                                   |      |      |                     |  |                  |         | Long-Term          |  |                
|                            |                                   |      |      |                     |  |                  |         | Compensation       |  |                
|                            |                                   |      |      |                     |  | Awards           |         |                   
|                            |                                   |      |      | Annual Compensation |  |                  |         |                   
|                            |                                   |      |      |                     |  | Number of Shares |         | All Other         
|Name and Principal Position |                                   | Year |      | Salary(1)           |  | Bonus(2)         |         | Underlying Options |  | Compensation(3)
|                            |                                   |      |      |                     |  |                  |         |                    |  |                
|Elizabeth H. Dávila         |                                   |      | 2004 |                     |  | $                | 454,000 |                    |  | $               | 363,000 |         |  |  | 175,000 |         |  | $ | 10,064 |      
|                            | Chairman of the Board and         |      |      | 2003                |  |                  |         | 453,000            |  |                 |         | 364,000 |  |  |         | 225,000 |  |   |        | 9,414 | 
|                            | Chief Executive Officer           |      |      | 2002                |  |                  |         | 420,000            |  |                 |         | 336,000 |  |  |         | 225,000 |  |   |        | 9,456 | 
|Douglas H. Post             |                                   |      | 2004 |                     |  | $                | 315,000 |                    |  | $               | 221,000 |         |  |  | 75,000  |         |  | $ | 8,515  |      
|                            | President and Chief               |      |      | 2003                |  |                  |         | 287,000            |  |                 |         | 215,000 |  |  |         | 200,000 |  |   |        | 9,414 | 
|                            | Operating Officer                 |      |      | 2002                |  |                  |         | 250,000            |  |                 |         | 125,000 |  |  |         | 62,500  |  |   |        | 9,385 | 
|John F. Runkel, Jr.         |                                   |      | 2004 |                     |  | $                | 270,000 |                    |  | $               | 116,000 |         |  |  | 72,500  |         |  | $ | 8,228  |      
|                            | Senior Vice President of Business |      |      | 2003                |  |                  |         | 270,000            |  |                 |         | 150,000 |  |  |         | 37,500  |  |   |        | 9,383 | 
|                            | Development, General Counsel      |      |      | 2002                |  |                  |         | 250,000            |  |                 |         | 100,000 |  |  |         | 30,000  |  |   |        | 9,385 | 
|Carol F.H. Harner           |                                   |      | 2004 |                     |  | $                | 250,000 |                    |  | $               | 107,000 |         |  |  | 18,500  |         |  | $ | 10,064 |      
|                            | Senior Vice President,            |      |      | 2003                |  |                  |         | 240,000            |  |                 |         | 105,000 |  |  |         | 80,000  |  |   |        | 9,324 | 
|                            | Research and Development          |      |      | 2002                |  |                  |         | 218,000            |  |                 |         | 88,000  |  |  |         | 30,000  |  |   |        | 9,289 | 
|Derek A. Bertocci(4)        |                                   |      | 2004 |                     |  | $                | 234,000 |                    |  | $               | 108,000 |         |  |  | 65,000  |         |  | $ | 8,515  |      
|                            | Senior Vice President             |      |      | 2003                |  |                  |         | 208,000            |  |                 |         | 94,000  |  |  |         | 37,500  |  |   |        | 8,061 | 
|                            | and Chief Financial Officer       |      |      | 2002                |  |                  |         | 192,000            |  |                 |         | 77,000  |  |  |         | 37,500  |  |   |        | 8,040 | 

57



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|    |                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | No compensation is paid to officers of the Company for services
    rendered as directors.                                                                                                                                                                                                                                                                                                                       
|   
|(2) | Includes bonuses earned in the designated year but paid the
    following year.                                                                                                                                                                                                                                                                                                                                  
|   
|(3) | Includes premiums paid by the Company for Group Term Life
    Insurance and, for fiscal year 2002, the Companys
    contribution of $7,500 under its 401(k) Plan matching program;
    for fiscal year 2003, the Companys contribution of $7,500
    under its 401(k) Plan matching program; and, for fiscal year
    2004, the Companys contribution of $7,687.50 under its
    401(k) Plan matching program.
|   
|(4) | Mr. Bertocci was promoted to Senior Vice President and
    Chief Financial Officer effective March 1, 2004.                                                                                                                                                                                                                                                                                                      

Option Grants in Last Fiscal Year.


|                       |  |            |         |            |              |  |      |           |  |   |            |  |  |                  |            |  |  |   |              | 
|---------------------- |  | ---------- | ------- | ---------- | ------------ |  | ---- | --------- |  | - | ---------- |  |  | ---------------- | ---------- |  |  | - | ------------ | 
|                       |  |            |         | Percent of |              |  |      |           |  |   |           
|                       |  | Number of  |         |            | Total        |  |      |           |  |   |            | 
|                       |  | Shares     |         |            | Options      |  |      |           |  |   |            | 
|                       |  | Underlying |         |            | Granted to   |  |      | Exercise  |  |   |            |  | 
|                       |  | Options    |         |            | Employees in |  |      | Price per |  |   | Expiration |  |  | Grant Date       |           
|Name                   |  | Granted(1) |         |            | Fiscal Year  |  |      | Share     |  |   | Date       |  |  | Present Value(2) |           
|                       |  |            |         |            |              |  |      |           |  |   |            |  |  |                  |           
|Elizabeth H. Dávila    |  |            | 175,000 |            |              |  | 14.3 | %         |  | $ | 19.73      |  |  |                  | 02/11/2014 |  |  | $ | 2,151,032.80 | 
|Douglas H. Post        |  |            | 75,000  |            |              |  | 6.1  | %         |  |   | 19.73      |  |  |                  | 02/11/2014 |  |  |   | 921,870.95   | 
|John F. Runkel, Jr.    |  |            | 37,500  |            |              |  | 3.1  | %         |  |   | 19.73      |  |  |                  | 02/11/2014 |  |  |   | 460,936.39   | 
|John F. Runkel, Jr.(3) |  |            | 35,000  |            |              |  | 2.9  | %         |  |   | 19.85      |  |  |                  | 08/19/2014 |  |  |   | 424,531.78   | 
|Carol F.H. Harner      |  |            | 18,500  |            |              |  | 1.5  | %         |  |   | 19.73      |  |  |                  | 02/11/2014 |  |  |   | 227,395.13   | 
|Derek A. Bertocci      |  |            | 65,000  |            |              |  | 5.3  | %         |  |   | 19.73      |  |  |                  | 02/11/2014 |  |  |   | 798,956.05   | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Options granted in 2004 have a ten-year term and vest 25% on the
    first anniversary of the grant date, and ratably thereafter at
    the rate of 1/48 of the total grant per month for three years.
    The exercisability of the options is automatically accelerated
    upon a change in control of the Company.                                                                                                                                                                                             
|   
|(2) | The fair value of each stock option is estimated on the date of
    grant using the Black-Scholes option pricing model in accordance
    with Statement of Financial Accounting Standards No. 123.
    The following weighted average assumptions were used to value
    stock options granted in 2004: risk-free interest rate of 3.03%,
    expected volatility of 71%, no expected dividends, and an
    expected life of 5.29 years beyond the vesting date for
    each years vesting increment of an option.
|   
|(3) | Mr. Runkel was promoted to Senior Vice President of
    Business Development and General Counsel effective
    August 19, 2004.                                                                                                                                                                                                                                                                                                                                                                                    

Aggregate Option Exercises in Last Fiscal Year and Fiscal
Year-End Values.


|                    |  |             |         |  |             |                        |                            |             |                         |                    |               |  |  |             |         |  |               |   |               |  |  |   |              | 
|------------------- |  | ----------- | ------- |  | ----------- | ---------------------- | -------------------------- | ----------- | ----------------------- | ------------------ | ------------- |  |  | ----------- | ------- |  | ------------- | - | ------------- |  |  | - | ------------ | 
|                    |  |             |         |  |             | Number of Shares       |                            |             | Value of Unexercised    |                   
|                    |  |             |         |  |             | Underlying Unexercised |                            |             | In-the-Money Options at |                   
|                    |  | Shares      |         |  |             |                        | Options at Fiscal Year-End |             |                         | Fiscal Year-End(2) |              
|                    |  | Acquired on |         |  | Value       |                        |                            |             |                         |                    |               | 
|Name                |  | Exercise    |         |  | Realized(1) |                        |                            | Exercisable |                         |                    | Unexercisable |  |  | Exercisable |         |  | Unexercisable |  
|                    |  |             |         |  |             |                        |                            |             |                         |                    |               |  |  |             |         |  |               |  
|Elizabeth H. Dávila |  |             | 320,000 |  |             | $                      | 4,817,257.57               |             |                         |                    | 1,490,211     |  |  |             | 409,897 |  |               | $ | 12,736,969.97 |  |  | $ | 4,463,848.90 | 
|Douglas H. Post     |  |             | 70,000  |  |             |                        | 1,042,166.09               |             |                         |                    | 251,436       |  |  |             | 220,523 |  |               |   | 1,890,397.43  |  |  |   | 1,552,377.15 | 
|John F. Runkel, Jr. |  |             | 39,500  |  |             |                        | 449,208.55                 |             |                         |                    | 24,406        |  |  |             | 103,594 |  |               |   | 285,187.81    |  |  |   | 926,304.46   | 
|Carol F.H. Harner   |  |             | 0       |  |             |                        | 0                          |             |                         |                    | 126,555       |  |  |             | 79,126  |  |               |   | 528,112.67    |  |  |   | 685,750.75   | 
|Derek A. Bertocci   |  |             | 60,000  |  |             |                        | 930,572.71                 |             |                         |                    | 231,914       |  |  |             | 98,907  |  |               |   | 1,663,189.19  |  |  |   | 911,775.45   | 

58



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|    |                                                                                                                                                                                                                                                                     
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Market value of underlying shares at the exercise date minus the
    exercise price.                                                                                                                                                                                
|   
|(2) | Value of unexercised options is based on the price of the last
    reported sale of the Companys common stock on the New York
    Stock Exchange of $25.87 per share on December 31,
    2004 (the last trading day for fiscal 2004), minus the exercise
    price.

EQUITY COMPENSATION PLAN INFORMATION




|                                                              |          |                      |           |                      |  |                         |       |       |  |  |           |           | 
|------------------------------------------------------------- | -------- | -------------------- | --------- | -------------------- |  | ----------------------- | ----- | ----- |  |  | --------- | --------- | 
|                                                              |          | (a)                  |           | (b)                  |  | (c)                    
|                                                              |          |                      |           |                      |  |                        
|                                                              |          |                      |           |                      |  | Number of Securities   
|                                                              |          |                      |           |                      |  | Remaining Available for
|                                                              |          | Number of Securities |           |                      |  | Future Issuance Under  
|                                                              |          | to be Issued Upon    |           | Weighted Average     |  | Equity Compensation    
|                                                              |          | Exercise of          |           | Exercise Price of    |  | Plans (excluding       
|                                                              |          | Outstanding Options, |           | Outstanding Options, |  | securities reflected in
|Plan Category                                                 |          | Warrants and Rights  |           | Warrants and Rights  |  | column (a))            
|                                                              |          |                      |           |                      |  |                        
|Equity compensation plans approved by security holders(1)     |          |                      | 6,944,778 |                      |  | $                       | 20.92 |       |  |  | 2,023,920 |          
|Equity compensation plans not approved by security holders(2) |          |                      | 1,276,427 |                      |  | $                       | 12.74 |       |  |  | 0         |          
|                                                              | Total(3) |                      |           | 8,221,205            |  |                         | $     | 19.65 |  |  |           | 2,023,920 | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | These plans include the 1995 Director Option and Stock
    Deferral Plan, the 2000 Stock Plan and the Performance Incentive
    Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|(2) | The 2001 Nonstatutory Stock Option Plan (the 2001 Stock
    Plan ) was adopted by the Companys Board of
    Directors on January 23, 2001. The 2001 Stock Plan
    permitted the grant of nonstatutory stock options to employees
    and consultants who were not officers of the Company. Options
    granted under the 2001 Stock Plan generally had a term of
    10 years and vested over a period of four years following
    the date of grant. The Board of Directors, or a committee
    appointed by the Board of Directors, administer the 2001 Stock
    Plan. The Board of Directors could amend or terminate the 2001
    Stock Plan at any time, but any such action that adversely
    affected any option then outstanding under the 2001 Stock Plan
    required the consent of the holder of the option. On the date of
    the Companys 2003 Annual Meeting of Stockholders, the 2001
    Stock Plan was terminated for purposes of making additional
    grants.
|   
|(3) | Included in these amounts are stock options that remain
    outstanding and that were granted under five terminated stock
    option plans.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

59



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|         |                                                                   
|-------- | ------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial Owners and
    Management

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT




|                                                   |                         |              |           |              |  |  |     |   | 
|-------------------------------------------------- | ----------------------- | ------------ | --------- | ------------ |  |  | --- | - | 
|                                                   |                         | Common       |           | Approximate 
|                                                   |                         | Stock        |           | Percent     
|                                                   |                         | Beneficially |           | Beneficially
|Beneficial Owner                                   |                         | Owned        |           | Owned       
|                                                   |                         |              |           |             
|Barclays Global Investors, NA                      |                         |              | 3,662,708 | (1)          |  |  | 7.3 | %
|                                                   | 45 Fremont Street       |              |           |              |  |  |     |   | 
|                                                   | San Francisco, CA 94105 |              |           |              |  |  |     |   | 
|Derek A. Bertocci                                  |                         |              | 289,019   | (2)          |  |  |    |  
|Elizabeth H. Dávila                                |                         |              | 1,652,606 | (3)          |  |  | 3.3 | %
|Laureen De Buono                                   |                         |              | 28,437    | (4)          |  |  |    |  
|Glendon E. French                                  |                         |              | 52,250    | (5)          |  |  |    |  
|John W. Galiardo                                   |                         |              | 106,862   | (6)          |  |  |    |  
|Carol F.H. Harner                                  |                         |              | 143,951   | (7)          |  |  |    |  
|Jay T. Holmes                                      |                         |              | 124,730   | (8)          |  |  |    |  
|Gary S. Petersmeyer                                |                         |              | 38,900    | (9)          |  |  |    |  
|Douglas H. Post                                    |                         |              | 310,251   | (10)         |  |  |    |  
|John F. Runkel, Jr.                                |                         |              | 45,610    | (11)         |  |  |    |  
|Richard B. Sayford                                 |                         |              | 59,050    | (12)         |  |  |    |  
|All directors and officers as a group (16 persons) |                         |              | 3,206,158 | (13)         |  |  | 6.4 | %






| |   |                                                                       
| | - | ----------------------------------------------------------------------
| |  | Represents less than 1% of the Companys outstanding common
    stock.



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Includes 2,634,101 shares owned by Global Investors, NA,
    765,007 shares owned by Barclays Global Fund Advisors,
    138,100 shares owned by Barclays Global Investors, Ltd.,
    and 25,500 shares owned by Barclays Capital Securities
    Limited. The number of shares beneficially owned is as of
    December 31, 2004, pursuant to a Schedule 13G filed by
    Barclays Global Investors, NA with the SEC on February 14,
    2005.
|
| | (2) | Mr. Bertoccis total includes options to
    purchase 258,995 shares that will be exercisable by
    April 30, 2005.                                                                                                                                                                                                                                                                                                                         
|
| | (3) | Ms. Dávilas total includes options to
    purchase 1,621,461 shares that will be exercisable by
    April 30, 2005.                                                                                                                                                                                                                                                                                                                         
|
| | (4) | Ms. De Buonos total includes options to
    purchase 28,437 shares that will be exercisable by
    April 30, 2005.                                                                                                                                                                                                                                                                                                                          
|
| | (5) | Mr. Frenchs total includes options to
    purchase 52,250 shares that will be exercisable by
    April 30, 2005.                                                                                                                                                                                                                                                                                                                            
|
| | (6) | Mr. Galiardos total includes options to
    purchase 102,862 shares that will be exercisable by
    April 30, 2005.                                                                                                                                                                                                                                                                                                                         
|
| | (7) | Dr. Harners total includes options to
    purchase 142,781 shares that will be exercisable by
    April 30, 2005.                                                                                                                                                                                                                                                                                                                           
|
| | (8) | Mr. Holmes total includes options to
    purchase 121,250 shares that will be exercisable by
    April 30, 2005.                                                                                                                                                                                                                                                                                                                            
|
| | (9) | Mr. Petersmeyers total includes options to
    purchase 31,543 shares that will be exercisable by
    April 30, 2005.                                                                                                                                                                                                                                                                                                                       



|     |                                                                                                                                                                        
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Mr. Posts total includes options to
    purchase 297,478 shares that will be exercisable by
    April 30, 2005.                                                       
|    
|(11) | Mr. Runkels total includes options to
    purchase 42,217 shares that will be exercisable by
    April 30, 2005.                                                      
|    
|(12) | Mr. Sayfords total includes options to
    purchase 58,250 shares that will be exercisable by
    April 30, 2005.                                                     
|    
|(13) | The total includes options to purchase an aggregate of
    3,087,508 shares held by non-employee directors and
    officers that will be exercisable by April 30, 2005.

60



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##### Table of Contents








|         |                                               
|-------- | ----------------------------------------------
|Item 13. | Certain Relationships and Related Transactions







| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Indemnification; Directors and Officers
    Insurance.Under the merger agreement, AMO agreed that,
    for a period of six years following completion of the merger,
    the indemnification obligations, including those in favor of our
    directors and executive officers, set forth in the
    Companys certificate of incorporation and bylaws and any
    Company indemnification agreements, including those between the
    Company and its directors and executive officers, will survive.
    In addition, for a period of six years from the completion of
    the merger, AMO will cause our existing policy of
    directors and officers and fiduciary liability
    insurance to be maintained, subject to certain limitations.                                                                                                                                                                                                                                              
|
| |  | Executive Officer Severance Payments and Stock Option
    Acceleration.In addition to the Severance Agreements
    with the Named Officers described above, the Company has also
    entered into Severance Agreements with the following executive
    officers: Donald L. Fagen; Theresa A. Johnson;
    Catherine E. Murphy; Alan F. Russell, Ph.D.; and
    Joaquin V. Wolff. The Severance Agreements provide, among
    other things, that if the executive officers employment is
    terminated other than for cause within two years after a change
    of control of the Company, the executive officer is entitled to
    receive a lump sum severance payment equal to three times the
    executive officers annual base salary and bonus. If the
    merger with AMO is consummated, any executive officer terminated
    other than for cause within the subsequent two year period would
    be entitled to the benefits afforded under their respective
    Severance Agreement.






|         |                                       
|-------- | --------------------------------------
|Item 14. | Principal Accountant Fees and Services

Fees billed to the Company by its Auditors during 2004




| |   |            
| | - | -----------
| |  | Audit Fees:





| |   |                    
| | - | -------------------
| |  | Audit-Related Fees:





| |   |          
| | - | ---------
| |  | Tax Fees:





| |   |                
| | - | ---------------
| |  | All Other Fees:





61



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##### Table of Contents






PART IV







|         |                                                                     
|-------- | --------------------------------------------------------------------
|Item 15. | Exhibits, Financial Statement Schedules, and Reports on
    Form 8-K



| |                                                                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a)(1) Financial Statements. The following
    consolidated financial statements of VISX, Incorporated and its
    subsidiaries are found in this Annual Report on Form 10-K
    for the fiscal year ended December 31, 2004:

|                                                                             |  |      |    | 
|---------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                             |  | Page
|                                                                             |  |     
|Consolidated Balance Sheets                                                  |  |      | 36 | 
|Consolidated Statements of Operations                                        |  |      | 37 | 
|Consolidated Statements of Stockholders Equity and
    Comprehensive Income |  |      | 38 | 
|Consolidated Statements of Cash Flows                                        |  |      | 39 | 
|Notes to Consolidated Financial Statements                                   |  |      | 40 | 
|Reports of Independent Registered Public Accounting Firm                     |  |      | 52 | 

Financial Statement Schedules.




Exhibits


Reports on Form 8-K.




| |                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) Report on Form 8-K furnished on October 22,
    2004 under Item 12 (results of operations and financial
    condition) covering VISXs third quarter 2004 financial
    results.
|
| | (2) Report on Form 8-K filed on November 10,
    2004, covering the agreement and plan of merger with AMO.                                                                          
|
| | (3) Report on Form 8-K filed on November 18,
    2004, covering various corporate matters and the AMO merger
    litigation.                                                        
|
| | (4) Report on Form 8-K filed on December 6, 2004,
    covering an amendment to the agreement and plan of merger with
    AMO.                                                       
|
| | (5) Report on Form 8-K filed on December 15,
    2004, covering the approval of CustomVue Hyperopia by the United
    States Food and Drug Administration.                          

Exhibits.


Financial Statement Schedules.


62



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##### Table of Contents



VISX, INCORPORATED AND SUBSIDIARIES


FINANCIAL STATEMENT SCHEDULES




SCHEDULE II  VALUATION AND QUALIFYING
ACCOUNTS


|                             |                                     |           |  |            |  |            |  |           |  |  |  |       |  |  |  |       | 
|---------------------------- | ----------------------------------- | --------- |  | ---------- |  | ---------- |  | --------- |  |  |  | ----- |  |  |  | ----- | 
|                             |                                     |           |  | Additions  |  |            |  |          
|                             |                                     | Balance   |  | Charged to |  |            |  | Balance  
|                             |                                     | at Start  |  | Costs and  |  |            |  | at End   
|Description                  |                                     | of Period |  | Expenses   |  | Deductions |  | of Period
|                             |                                     |           |  |            |  |            |  |          
|Year Ended December 31, 2002 |                                     |           |  |            |  |            |  |           |  |  |  |       |  |  |  |      
|                             |   Allowances for doubtful accounts |           |  | 4,567      |  |            |  | 1,397     |  |  |  | 3,401 |  |  |  | 2,563 | 
|Year Ended December 31, 2003 |                                     |           |  |            |  |            |  |           |  |  |  |       |  |  |  |      
|                             |   Allowances for doubtful accounts |           |  | 2,563      |  |            |  | 1,686     |  |  |  | 54    |  |  |  | 4,195 | 
|Year Ended December 31, 2004 |                                     |           |  |            |  |            |  |           |  |  |  |       |  |  |  |      
|                             |   Allowances for doubtful accounts |           |  | 4,195      |  |            |  | 234       |  |  |  | 534   |  |  |  | 3,895 | 

63



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##### Table of Contents






SIGNATURES






| |                       
| | ----------------------
| | VISX, INCORPORATED    
| | a Delaware corporation



| |     |                       
| | --- | ----------------------
| | By: | /s/Elizabeth H. Dávila

| |                        
| | -----------------------
| |                        
| | Elizabeth H. Dávila    
| | Chief Executive Officer



POWER OF ATTORNEY






|                                                   |  |                                                                                      |  |              
|-------------------------------------------------- |  | ------------------------------------------------------------------------------------ |  | -------------
|Signature                                          |  | Title                                                                                |  | Date         
|                                                   |  |                                                                                      |  |              
|Principal Executive Officer:                      
|                                                  
|/s/ Elizabeth H.
    DávilaElizabeth
    H. Dávila |  | Chairman of the Board
    and Chief Executive Officer                                |  | March 9, 2005
|                                                  
|                                                  
|Principal Financial Officer:                      
|/s/ Derek A. BertocciDerek
    A. Bertocci         |  | Senior Vice President,
    Chief Financial Officer
    (principal financial officer) |  | March 9, 2005
|                                                  
|                                                  
|Principal Accounting Officer:                     
|/s/ Martyn J. WebsterMartyn
    J. Webster         |  | Controller
    (principal accounting officer)                                        |  | March 9, 2005
|                                                  
|                                                  
|Directors:                                        
|/s/ Laureen De BuonoLaureen
    De Buono           |  | Director                                                                             |  | March 8, 2005
|/s/ Glendon E. FrenchGlendon
    E. French         |  | Director                                                                             |  | March 8, 2005

64



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##### Table of Contents



|                                             |  |          |  |              
|-------------------------------------------- |  | -------- |  | -------------
|Signature                                    |  | Title    |  | Date         
|                                             |  |          |  |              
|/s/ John W. GaliardoJohn
    W. Galiardo     |  | Director |  | March 8, 2005
|/s/ Jay T. HolmesJay
    T. Holmes           |  | Director |  | March 8, 2005
|/s/ Gary PetersmeyerGary
    Petersmeyer     |  | Director |  | March 8, 2005
|/s/ Richard B. SayfordRichard
    B. Sayford |  | Director |  | March 8, 2005

65



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##### Table of Contents



INDEX TO EXHIBITS


[Item 14(c)]


|        |    |             |  |                                                                                                                                                                                                                                                                                                               
|------- | -- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 2  | .1*         |  | Agreement and Plan of Merger by and among Advanced Medical
    Optics, Inc., Vault Merger Corporation, and VISX, Incorporated,
    dated November 9, 2004, (previously filed as
    Exhibit 2.1 to Current Report on Form 8-K filed on
    November 10, 2004)                                                 
|        | 2  | .2*         |  | Amendment No. 1, dated December 3, 2004, to the
    Agreement and Plan of Merger by and among Advanced Medical
    Optics, Inc., Vault Merger Corporation and VISX, Incorporated,
    dated November 9, 2004 (previously filed as
    Exhibit 2.1 to Current Report on Form 8-K filed on
    December 6, 2005)
|        | 3  | .1*         |  | Amended and Restated Certificate of Incorporation (previously
    filed as Exhibit 3 to Quarterly Report on Form 10-Q
    for the quarter ended September 30, 1996)                                                                                                                                           
|        | 3  | .2*         |  | Amended and Restated Bylaws as revised through December 12,
    2001 (previously filed as Exhibit 3.1 to Current Report on
    Form 8-K dated December 21, 2001)                                                                                                                                              
|        | 3  | .3*         |  | Amendment to Amended and Restated Certificate of Incorporation,
    effective as of June 4, 1999 (previously filed as
    Exhibit 3.1 to Current Report on Form 8-K filed on
    November 18, 2004)                                                                                                           
|        | 4  | .1*         |  | Reference is made to Exhibits 3.1, 3.2 and 3.3                                                                                                                                                                                                                                                                
|        | 4  | .2*         |  | Specimen Common Stock Certificate (previously filed as
    Exhibit 4.2 to Annual Report on Form 10-K, File
    No. 1-10694, for the fiscal year ended December 31,
    1990)                                                                                                                                  
|        | 4  | .3*         |  | Rights Agreement dated August 3, 2000 between VISX,
    Incorporated and Fleet National Bank, as Rights Agent
    (previously filed as Exhibit 4.1 to Current Report on
    Form 8-K filed on August 4, 2000)                                                                                                 
|        | 4  | .4*         |  | Amendment to the Rights Agreement, dated as of April 25,
    2001, between VISX, Incorporated and Fleet National Bank, as
    Rights Agent (previously filed as Exhibit 4.2 to Current
    Report on Form 8-K filed on May 1, 2001)                                                                           
|        | 4  | .5*         |  | Amendment No. 2 to the Rights Agreement, dated as of
    May 15, 2003, between VISX, Incorporated and EquiServe
    Trust Company, N.A., as successor Rights Agent to Fleet Bank
    (previously filed as Exhibit 4.3 to Current Report on
    Form 8-K filed on May 16, 2003)                                
|        | 4  | .6*         |  | Third Amendment to the Rights Agreement, dated as of
    November 9, 2004, between VISX, Incorporated and EquiServe
    Trust Company, N.A., as Rights Agent (previously filed as
    Exhibit 4.1 to Current Report on Form 8-K filed on
    November 10, 2004)                                               
|        | 10 | .1*         |  | Stock Option Plan (previously filed as Exhibit 10(E) to
    Form S-1 Registration Statement No. 33-23844)                                                                                                                                                                                                     
|        | 10 | .2*         |  | 1990 Stock Option Plan (previously filed as Exhibit 10.39
    to Annual Report on Form 10-K, File No. 1-10694, for
    the fiscal year ended December 31, 1990)                                                                                                                                               
|        | 10 | .3*         |  | Agreement dated as of January 1, 1992, between
    International Business Machines Corporation and the Company
    (previously filed as Exhibit 10.34 to Amendment No. 1
    to Form S-1 Registration Statement No. 33-46311)                                                                                 
|        | 10 | .4*         |  | Formation Agreement dated June 3, 1992, among Summit
    Technology, Inc., VISX, Incorporated, Summit Partner, Inc., and
    VISX Partner, Inc. (previously filed as Exhibit 10.1 to
    Current Report on Form 8-K dated June 3, 1992)                                                                       
|        | 10 | .5*         |  | General Partnership Agreement of Pillar Point Partners dated
    June 3, 1992, between VISX Partner, Inc. and Summit
    Partner, Inc. (previously filed as Exhibit 10.2 to Current
    Report on Form 8-K dated June 3, 1992)                                                                                
|        | 10 | .6*         |  | License-back to VISX Agreement dated June 3, 1992, between
    Pillar Point Partners and the Company (previously filed as
    Exhibit 10.3 to Current Report on Form 8-K dated
    June 3, 1992)                                                                                                              
|        | 10 | .7*         |  | Lease dated July 16, 1992, as amended October 2, 1992,
    between the Company and Sobrato Interests, a California limited
    partnership (previously filed as Exhibit 10.1 to Quarterly
    Report on Form 10-Q for the quarter ended
    September 30, 1992)                                               
|        | 10 | .8*         |  | 1993 Flexible Stock Incentive Plan (previously filed as
    Exhibit 10.28 to Annual Report on Form 10-K dated
    March 30, 1993)                                                                                                                                                                             
|        | 10 | .9*         |  | 1993 Employee Stock Purchase Plan (previously filed as
    Exhibit 10.29 to Annual Report on Form 10-K dated
    March 30, 1993)                                                                                                                                                                              
|        | 10 | .10*        |  | Form of Subscription Agreement (previously filed as
    Exhibit 10.24 to Annual Report on Form 10-K for the
    year ended December 31, 1994)                                                                                                                                                                 

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##### Table of Contents



|        |    |             |  |                                                                                                                                                                                                                                               
|------- | -- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 10 | .11*       |  | Agreement effective as of November 20, 1995, among the
    Company, Alcon Laboratories, Inc., and Alcon Pharmaceuticals,
    Ltd. (previously filed as Exhibit 10.28 to Annual Report on
    Form 10-K for the year ended December 31, 1995)  
|        | 10 | .12*        |  | Agreement and Stipulation of Settlement filed on
    November 20, 1995, in the Superior Court for the County of
    Santa Clara (previously filed as Exhibit 10.29 to
    Annual Report on Form 10-K for the year ended
    December 31, 1995)
|        | 10 | .13*        |  | Second Amendment to Lease dated March 8, 1996, between the
    Company and Sobrato Interests, a California limited partnership
    (previously filed as Exhibit 10.29 to Annual Report on
    Form 10-K for the year ended December 31, 1995) 
|        | 10 | .14*        |  | 1995 Stock Plan (previously filed as Exhibit 10.2 to
    Quarterly Report on Form 10-Q for the quarter ended
    June 30, 1996)                                                                                                               
|        | 10 | .15*        |  | 1995 Director Option Plan (previously filed as
    Exhibit 10.1 to Quarterly Report on Form 10-Q for the
    quarter ended June 30, 1996)                                                                                                     
|        | 10 | .16*        |  | 1996 Supplemental Stock Plan (previously filed as
    Exhibit 10.3 to Form S-8 Registration Statement
    No. 333-23999)                                                                                                                      
|        | 10 | .17*       |  | Settlement Agreement dated June 17, 1997 (previously filed
    as Exhibit 99.1 to Current Report on Form 8-K dated
    June 17, 1997)                                                                                                         
|        | 10 | .18*       |  | Settlement and Dissolution Agreement dated June 4, 1998
    (previously filed as Exhibit 99.1 to Current Report on
    Form 8-K filed June 23, 1998 and Current Report on
    Form 8-K/A filed July 28, 1999)                                 
|        | 10 | .19*        |  | 2000 Stock Plan (previously filed as Exhibit 10.20 to
    Annual Report on Form 10-K for the year ended
    December 31, 2000)                                                                                                                
|        | 10 | .20*        |  | 2001 Nonstatutory Stock Option Plan (previously filed as
    Exhibit 10.2 to Registration Statement on Form S-8
    (No. 333-57524) filed on March 23, 2001)                                                                                  
|        | 21 | .1          |  | Subsidiaries                                                                                                                                                                                                                                  
|        | 23 | .1          |  | Independent Auditors Consent                                                                                                                                                                                                                 
|        | 24 | .1          |  | Power of Attorney (see page 64)                                                                                                                                                                                                               
|        | 31 | .1          |  | Certification of Chief Executive Officer pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                        
|        | 31 | .2          |  | Certification of Chief Financial Officer pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                        
|        | 32 | .1          |  | Certification of Chief Executive Officer and Chief Financial
    Officer                                                                                                                                                                      






|  |                  
|- | -----------------
|* | Previously filed.



|  |                                                                                                
|- | -----------------------------------------------------------------------------------------------
| | Confidential Treatment has been requested and granted for
    certain portions of this exhibit.

67