<PAGE>   1

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------

                                   FORM 10-K
                            ------------------------

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

                  FOR THE FISCAL YEAR ENDED: DECEMBER 31, 2000

                        COMMISSION FILE NUMBER: 1-10694
                            ------------------------

                               VISX, INCORPORATED
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S>                                            <C>
                   DELAWARE                                      06-1161793
         (STATE OR OTHER JURISDICTION                         (I.R.S. EMPLOYER
      OF INCORPORATION OR ORGANIZATION)                    IDENTIFICATION NUMBER)
</TABLE>

                            3400 CENTRAL EXPRESSWAY
                         SANTA CLARA, CALIFORNIA 95051
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

                                 (408) 773-7022
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

<TABLE>
<S>                                            <C>
        COMMON STOCK, $0.01 PAR VALUE
         COMMON STOCK PURCHASE RIGHTS                     NEW YORK STOCK EXCHANGE
               (TITLE OF CLASS)                    (NAME OF EXCHANGE ON WHICH REGISTERED)
</TABLE>

          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                                     NONE.
                            ------------------------

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes [X]  No [ ]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  [X]

     The aggregate market value of the voting Common Stock held by
non-affiliates of the registrant as of March 19, 2001 was approximately
$978,837,295 based on the per share closing price of the Common Stock on the New
York Stock Exchange composite transactions tape of $17.05 on March 19, 2001. The
number of shares of Common Stock outstanding as of March 19, 2001 was
57,566,531.

                      DOCUMENTS INCORPORATED BY REFERENCE

     Certain portions of the registrant's Proxy Statement for its Annual Meeting
of Stockholders to be held on May 4, 2001 are incorporated by reference into
Part III.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>   2

                                     PART I

ITEM 1. BUSINESS

THE COMPANY

     VISX, a Delaware corporation organized in 1988, is a worldwide leader in
the development of proprietary technologies and systems for laser vision
correction (sometimes abbreviated as "LVC"). Laser vision correction relies on a
computerized laser to treat nearsightedness, astigmatism and farsightedness with
the goal of eliminating or reducing reliance on eyeglasses and contact lenses.
The VISX Excimer Laser System(TM) (the "VISX System") ablates, or removes,
submicron layers of tissue from the surface of the cornea to reshape the eye,
thereby improving vision. The vision correction market represents over 157
million people in the United States who experience some form of nearsightedness,
astigmatism or farsightedness. Typically, the individual receiving vision
correction pays for the treatment, and so the industry is not reliant on
reimbursement from governmental or private health care payors. A secondary
market for the VISX System is the treatment of corneal pathologies.

     We have developed and continue to refine a substantial proprietary position
in system and application technology relating to the use of lasers for vision
correction. Our strategy is to commercialize this intellectual property position
by broadening the installed base of VISX Systems around the world, and
collecting procedure and equipment royalties from licensed users and
manufacturers.

     This report contains forward-looking statements that involve risks and
uncertainties. VISX's actual results may differ significantly from the results
contemplated by the forward-looking statements. The factors set forth under
"Business -- Market Acceptance of Laser Vision Correction," "-- Reliance on
Patents and Proprietary Technology," "-- Uncertain Outcome of Antitrust and
Patent Proceedings," "-- Government Regulation," "-- Manufacturing, Components
and Raw Materials," "-- Competition," and "-- Product Liability and Insurance"
and under "Legal Proceedings" may cause actual results to vary from those
contemplated by certain forward-looking statements set forth in this report and
should be considered carefully in addition to the other information presented in
this report.

REFRACTIVE VISION DISORDERS AND LASER VISION CORRECTION

     The human eye functions much like a camera. It incorporates a lens system
that focuses light (the cornea and the lens), a variable aperture system that
regulates the amount of light passing through the eye (the iris) and film which
records the image (the retina). Images enter the human eye through the cornea.
In a properly functioning eye, the cornea bends, or refracts, the incoming
images, causing the images to focus on the retina. The retina translates the
image into an electrical signal, which it relays to the optic nerve and from
there to the brain. When the cornea is improperly curved, it cannot properly
focus (or refract) the light passing through it, resulting in a refractive
vision disorder. As a result, the viewer perceives a blurred image. The three
most common refractive vision disorders are:

     nearsightedness (also known as myopia): images are focused in front of the
retina

     astigmatism: images are not focused at any one point on the retina

     farsightedness (also known as hyperopia): images are focused behind the
retina

     Currently, eyeglasses or contact lenses are most often used to correct the
vision of people with refractive vision disorders. The VISX System is used to
change the shape of the cornea so that images are properly focused on the
retina, which in turn reduces or eliminates the need for corrective eyewear.

     In the early 1980s, experts thought it was impossible to operate directly
on the front of the cornea. In 1987, doctors using VISX equipment performed the
first procedure for the treatment of nearsightedness in the United States. The
United States Food and Drug Administration ("FDA") has since approved laser
vision correction using the VISX System as safe and effective for the treatment
of nearsightedness, with and without astigmatism, and farsightedness. In 2000,
we estimate that approximately 1.4 million LVC procedures were performed in the
United States using FDA-approved excimer laser systems.
<PAGE>   3

     In March 1996 the FDA approved the use of the VISX System to correct mild
to moderate nearsightedness. That approval was supplemented in April 1997 with
approval to correct astigmatism. In January 1998 VISX became the first company
ever to receive FDA approval to use a laser to treat higher myopia with or
without astigmatism. In November 1998 we received the first FDA approval for the
correction of hyperopia or farsightedness with a laser. In November 1999 the FDA
approved the use of the VISX System for LAser in SItu Keratomileusis (LASIK). In
March 2001, VISX received FDA approval for an enlarged treatment zone with a
blended ablation edge. In May 2000, VISX received 510(k) clearance from the FDA
of the WaveScan(TM) Wavefront System.

     LVC includes LASIK and PhotoRefractive Keratectomy (PRK). To perform LVC,
the ophthalmologist first measures the correction required by performing the
same examination used to prescribe eyeglasses or contact lenses. The doctor
programs the "prescription" into the VISX System, and the computer calculates
the data needed to make a precise corneal correction. The excimer laser system
emits laser pulses to ablate submicron layers of tissue from the front surface
of the cornea in a pattern to reshape the cornea. A micron equals 0.001 of a
millimeter, and the depth of tissue ablated during the procedure typically is
less than the width of a strand of human hair. The average procedure lasts
approximately 15 to 40 seconds, and consists of approximately 150 laser pulses,
each of which lasts several billionths of a second. The cumulative exposure of
the eye to laser light is less than one second. The entire patient visit,
including preparation, application of a topical anesthetic and post-operative
dressing, generally lasts no more than 30 minutes.

     The vast majority of laser vision correction procedures performed in the
United States are LASIK procedures. In performing LASIK, the doctor uses a type
of knife called a microkeratome to create a flap on the cornea. The doctor uses
the laser to ablate the exposed surface of the cornea, and then replaces the
flap. LASIK has gained in popularity primarily because there can be less
postoperative discomfort and a more immediate improvement in uncorrected vision.
Nevertheless, LASIK has a higher incidence of adverse events, often attributable
to the microkeratome, and requires a high degree of surgical skill.

     With PRK, patients may experience discomfort for approximately 24 hours,
and blurred vision for approximately 48 to 72 hours, after the procedure. The
ophthalmologist may prescribe drops to promote corneal healing and alleviate
discomfort. Although most patients experience significant improvement in
uncorrected vision (vision without the aid of eyeglasses or contact lenses)
within a few days of the procedure, it generally takes several months for the
final correction to stabilize and for the full benefit of the procedure to be
realized.

CORNEAL PATHOLOGIES AND PTK

     The VISX System also treats certain types of corneal pathologies in an
outpatient procedure known as PhotoTherapeutic Keratectomy (PTK). We estimate
that VISX Systems have been used worldwide to perform approximately 30,000 PTK
procedures. Although PTK is an important medical procedure for people who suffer
from corneal pathologies, the market opportunity represented by PTK is much
smaller than that represented by laser vision correction.

PRODUCTS

     VISX System. The VISX System is a fully integrated ophthalmic medical
device incorporating an excimer laser and a computer-driven workstation. The
laser ablations produced by the VISX System are the product of a variable
diameter beam scanning system, in which seven beams are homogenized as they
converge, scan and rotate to produce an extremely smooth ablation area on the
eye. Only the VISX System is capable of performing treatments using a variable
sized scanning beam (which includes small-spot scanning commonly known as
variable spot scanning, or VSS(TM)).

     The VISX STAR S3 ActiveTrak(TM) Excimer Laser also employs an active,
three-dimensional eye tracker that is capable of following all eye movements
during the procedure, ensuring precisely centered ablations and adding another
element of safety and comfort for both patient and doctor.

                                        2
<PAGE>   4

     Excimer lasers ablate tissue without generating the heat associated with
many other types of lasers that use different wavelengths and that can cause
unintended thermal damage to surrounding tissue. The excimer laser operates in
the ultraviolet spectrum and acts on the surface of the cornea, or under a
corneal flap; the light does not penetrate the eye, so there is no measurable
effect in the interior of the eye. The presence of seven scanning, variable
sized beams means that refractive corrections can be completed in a relatively
short time, and without significant tissue removal.

     VisionKey(R) Card. Use of the VISX System is controlled by a proprietary
smart card that is sold separately. The VisionKey smart card is encoded with
proprietary technology that is required to operate the VISX System. It also
provides the user with access to software upgrades and can facilitate the
collection of patient data. Because each procedure performed requires the use of
a VisionKey card, there is a close correlation between the sales of VisionKey
cards and the number of procedures performed.

     WaveScan(TM) Wavefront System. In order to enhance treatments with the VISX
System, VISX has developed the Wavefront System which uses wavefront technology
to diagnose refractive errors of the eye. These refractive errors are displayed
by the system in the form of an aberration map. The WaveScan takes advantage of
complex mathematical algorithms to derive complete refractive information about
the entire optical system. The WaveScan accomplishes this by projecting a beam
of light onto the retina and analyzing the reflected light waves. The wavefront
data also contains additional higher order aberration information, previously
unmeasureable by any other instrument, that may enable an even more precise
treatment for each patient.

MARKETING, SALES AND DISTRIBUTION

     Our marketing objective is to maximize consumer acceptance of laser vision
correction by (a) offering advanced laser technology to the eyecare medical
community, (b) developing improvements to that technology, and (c) providing our
customers with various services and programs designed to increase their
operating efficiency and effectiveness.

  Marketing Programs

     VISX University(R) Management Seminars. VISX University School of Business,
or VSB, is an educational program designed to teach laser center decision makers
how to effectively promote and market their excimer laser practices. Five
national sessions were held in 2000 and three national sessions are planned for
2001. Seventeen regional sessions, known as Fast Tracks, are also planned for
2001. Attendees learn about procedure-building techniques in advertising,
marketing, public relations, lead tracking, staff training, and consumer
education and recruitment. The VSB curriculum features a two-day program of
small-group, interactive workshops in which participants learn about the
experiences of successful VISX laser vision correction marketers and share their
own experiences. Professionals enrolled in VSB receive Continuing Medical
Education credits, as well as professional organization credits for nurses and
allied health professionals in ophthalmology.

     Business Development Managers. VISX employs a team of industry experts as
Business Development Managers who evaluate our customers at their sites and
create a customized plan with follow-up. Accounts that participate in this
program receive intensive "hands-on" consulting and training to help them grow
their procedure volume. The plan developed during the consultation phase
identifies specific areas that the customer can modify in order to respond more
successfully to consumers interested in having VISX laser vision correction.

     Marketing Communication Materials. Customers who buy or use a VISX System
receive educational and marketing materials including brochures, videos, slides,
and other tools to help them promote VISX laser vision correction.

     Procedure Financing Support. Consumers are accustomed to making monthly
payments to purchase goods and services, and VISX laser vision correction is
well adapted to that approach. We have referred our customers to several
financial vendors that specialize in offering and processing loans to consumers
through

                                        3
<PAGE>   5

eye care professionals. We are not directly involved with these financing
programs and do not benefit from the financing except to the extent it
contributes to growth in procedure royalties.

  Customer Support and Service

     Customer Response Center. The VISX Customer Response Center is open 24
hours a day, seven days a week, and is staffed by over 80 trained VISX
professionals to respond to calls and inquiries from our customers. Telephone
requests range from orders for parts and VisionKey cards to requests for
technical support, customer information, and field service. More than 60 members
of the Customer Response Center are field-based service engineers, strategically
located to enable them to respond rapidly to customer needs.

     Laser Installation/Training Process. We require new customers to
participate in a thorough and rigorous training process to ensure that they know
how to safely operate the VISX System and perform laser vision correction
surgery. After a VISX field service engineer installs the VISX System, the
operators are trained on-site in the use and maintenance of the VISX System.
Physicians are trained and certified by an independent ophthalmologist selected
by VISX to serve as a VISX Physician Trainer. The initial training of operators
and physicians is included with the purchase of the VISX System, and we receive
no profit from training courses given throughout the United States. Instead, it
is our philosophy that ophthalmologists are uniquely qualified to train
ophthalmologists, and we authorize certified VISX Physician Trainers to train
other physicians in the proper use of the VISX System. Over 7,900 United States
ophthalmologists have been trained to use the VISX System.

     VISXPRESS(R). At least once a month we broadcast a fax bulletin, called
VISXPRESS, communicating the latest news regarding VISX and laser vision
correction. The frequency of the publication is determined by the timing of
news. The bulletin is also used to communicate breaking news immediately to our
customers.

     VISX on the Internet. VISX believes that Internet-based marketing is
particularly well suited to the demographics of our target audience. Its
interactive capabilities enhance the effectiveness of communications with
customers and the professional eyecare community at large. Our website at
HTTP://WWW.VISX.COM includes the following resources:

     - Information for consumers regarding the benefits of laser vision
       correction, including multimedia testimonials from patients, and an
       interactive map providing consumers with the locations of VISX
       installations and VISX-certified physicians;

     - Clinical information for the physician community, including downloadable
       presentations and white papers concerning the most recent VISX clinical
       results from leading ophthalmologists worldwide;

     - On-line access to the Customer Response Center, including news about new
       products and services, physician certification course schedules, and
       registration for practice development programs such as VISX University;
       and

     - VSB Online, which gives our customers access to some of the same valuable
       educational information about practice building and marketing offered in
       the live VSB seminars, but from the convenience of their own desktop
       computers.

  International Sales and Marketing Strategy

     Our international sales and marketing strategy is to establish and maintain
a presence and quality image in selected markets either directly or indirectly
through distributors. To support this strategy, we have established a subsidiary
in Japan and have sales managers that cover key international sales regions. We
also support international markets by sponsoring speaking engagements and by
attending select exhibitions and trade shows. VISX Systems are installed in more
than 50 countries and we have contracts with more than 38 distributors worldwide
that are responsible for servicing those systems. The imposition of government
controls, export license requirements, political or economic instability, trade
restrictions, changes in tariffs, and difficulties in managing, staffing and
coordinating communications among international operations may limit or disrupt
future international sales.

                                        4
<PAGE>   6

MARKET ACCEPTANCE OF LASER VISION CORRECTION

     VISX's profitability and continued growth depend upon broad acceptance of
LVC in the United States and key international markets. Although our results of
operations since receiving the first FDA approval in 1996 reflect an initial
level of market acceptance, procedure growth rates have slowed in recent years
as the market for LVC has become more mature. Our future results of operations
will be largely dependent on increasing levels of market acceptance and
procedure growth. Should either the ophthalmic community or the general
population turn away from LVC as an alternative to existing methods of treating
refractive vision disorders, or if future technologies replaced LVC, our
business, financial position and results of operations could be materially
adversely affected.

     Consumers may be slow to adopt laser vision correction for many reasons,
including the cost of the procedure, concerns relating to its safety and
efficacy, general resistance to surgery, the effectiveness of alternative
methods of correcting refractive vision disorders, the lack of long-term
follow-up data beyond ten years, the possibility of unknown side effects, the
lack of third-party reimbursement for the procedure, and the decision to spend
their disposable income in other ways. Any future reported adverse events or
other unfavorable publicity involving patient outcomes from use of laser vision
correction systems manufactured by any participant in the LVC market could also
adversely affect acceptance of the procedure.

     Although laser vision correction has a more predictable outcome and
precision of results than other surgical methods used to correct refractive
disorders, it is not without risk. Potential complications and side effects
include: post-operative discomfort, corneal haze (an increase in the light
scattering properties of the cornea) during healing, glare/halos (undesirable
visual sensations produced by bright lights), decreases in contrast sensitivity,
temporary increases in intraocular pressure in reaction to procedure medication,
modest fluctuations in refractive capabilities during healing, modest decrease
in best corrected vision (i.e., with corrective eyewear), unintended over- or
under-corrections, regression of effect, disorders of corneal healing, corneal
scars, corneal ulcers, and induced astigmatism (which may result in blurred or
double vision and/or shadow images). It is also possible that longer term
follow-up data might reveal additional complications. A decrease in market
acceptance of laser vision correction could have a material adverse effect on
VISX's business, financial position and results of operations.

MAJOR CUSTOMERS

     Laser Vision Centers, Inc. accounted for 10%, 13% and 10% of total revenues
in 2000, 1999 and 1998, respectively. TLC Laser Eye Centers, Inc. accounted for
9%, 12% and 11% of total revenues in 2000, 1999 and 1998, respectively. No other
customer accounted for 10% or more of sales during any of the three years ended
December 31, 2000.

RELIANCE ON PATENTS AND PROPRIETARY TECHNOLOGY

     VISX owns over 175 United States and foreign patents and has 99 patent
applications pending. We believe that our patents provide a substantial
proprietary position in system and application technology relating to the use of
lasers for vision correction. We are committed to protecting our proprietary
technology, however, it is possible that one or more of our patents will be
found to be invalid or unenforceable, or that a party against whom we are
asserting claims of patent infringement will be found not to be infringing our
patents. Such an outcome could have a material adverse effect on our business,
financial position and results of operation. See "-- Uncertain Outcome of
Antitrust and Patent Proceedings" below.

     Cross License between VISX and Bausch & Lomb. In January 2001, VISX and
Bausch & Lomb signed an agreement by which they settled all pending disputes and
litigation between the two companies. In the agreement, VISX licensed its
patents relating to refractive excimer lasers to Bausch & Lomb. As
consideration, Bausch & Lomb licensed its patents relating to refractive excimer
lasers to VISX and will pay a royalty to VISX for each procedure performed in
the United States using Bausch & Lomb's refractive excimer laser.

     Cross License between VISX and Summit. In June 1998, VISX and Summit
Technology, Inc. ("Summit") signed an agreement by which they dissolved Pillar
Point Partners ("Pillar Point") and settled

                                        5
<PAGE>   7

all pending disputes and litigation between the two companies. In the agreement,
VISX and Summit each granted the other a fully-paid license to its patents
relating to laser ablation of corneal tissue. The licenses cover, with certain
exceptions, technology acquired by the recipient of the license.

     Other Licensing Agreements. We have licensed certain patents issued outside
of the United States to the following companies: Chiron Vision Corporation
("Chiron"), now owned by Bausch & Lomb, Aesculap-Meditec GmbH, now known as
Asclepion ("Asclepion"), Herbert Schwind GmbH & Co. KG ("Schwind"), Autonomous
Technologies Corporation ("Autonomous"), previously owned by Summit and now
owned by Alcon, and LaserSight Incorporated ("LaserSight"). Under these
agreements, we receive royalties for international sales of Bausch & Lomb,
Asclepion, Schwind, and LaserSight equipment that is covered by VISX's
international patents. In addition, Summit has taken a fully-paid license to
VISX's non-U.S. patents that covers sales of the Summit and Autonomous laser
systems.

     In 1992, International Business Machines Corporation ("IBM") granted VISX
nonexclusive rights under United States and foreign IBM patents that include
claims that cover ultraviolet laser technology for removal of human tissue. In
1997, IBM advised VISX that it assigned the contract to LaserSight. Under the
terms of this license, VISX has agreed to pay a royalty on VISX Systems made,
used, sold or otherwise transferred by or for VISX in the United States and
certain other countries. We also have entered into a nonexclusive, worldwide
license agreement with Patlex Corporation ("Patlex") which holds certain patents
on lasers. Under this agreement, we pay a royalty on certain laser components of
the VISX System to Patlex.

     Confidentiality Arrangements. We protect our proprietary technology, in
part, through confidentiality and nondisclosure agreements with employees,
consultants and other parties. Our confidentiality agreements with employees and
consultants generally contain standard provisions requiring those individuals to
assign to VISX, without additional consideration, inventions conceived or
reduced to practice by them while employed or retained by VISX, subject to
customary exceptions. We cannot give any assurance that employees, consultants
and others will not breach these confidentiality agreements, that we would have
adequate remedies for any breach, or that our competitors will not learn of or
independently develop our trade secrets.

UNCERTAIN OUTCOME OF ANTITRUST AND PATENT PROCEEDINGS

     The medical device industry, including the ophthalmic laser sector, has
been characterized by substantial litigation, both in the United States and
internationally, regarding patents and proprietary rights. Any successful
challenge to our patents or ruling that VISX infringes patents held by another
could have a material adverse effect on our business, financial position and
results of operations.

     Currently, several legal proceedings are pending in which the validity and
enforceability of our patents is being challenged. These proceedings include a
number of antitrust actions, and patent infringement litigation with
manufacturers of excimer laser systems and their users. During the course of one
or more of these proceedings, patents held by VISX could be found to be invalid
or unenforceable. In addition, in response to a patent lawsuit filed by VISX and
other parties, the defendants petitioned the United States Patent and Trademark
Office ("PTO") to reexamine two patents owned by VISX. In April 1998 the PTO
granted the requests. We received PTO office actions rejecting certain claims of
the patents. One of the patents has survived reexamination with amendments and
was reissued by the PTO in September 2000. Although we believe the remaining
patent will survive the reexamination with amendments, we do not yet know the
final outcome of this reexamination proceeding.

     In the event that patents held by VISX are found to be invalid or
unenforceable, or in the event that parties against whom VISX is asserting
patent infringement are found not to be infringing VISX's patents, our ability
to collect license fees from the parties to the litigation or from other sellers
or users of laser vision correction equipment in the United States could be
adversely affected. In either event, VISX's future results of operations could
be materially adversely affected. For additional information and detail
regarding the patent-related legal proceedings to which VISX is a party, see
"Item 3 -- Legal Proceedings."

     In addition, other companies own United States and foreign patents covering
methods and apparatus for performing corneal surgery with ultraviolet lasers.
LaserSight has filed a lawsuit alleging that VISX infringes a

                                        6
<PAGE>   8

United States patent licensed to LaserSight. Nidek has filed lawsuits alleging
that VISX infringes three of its United States patents and one of its Japanese
patents. Additional claims of patent infringement may be asserted against VISX
in the future. The defense and prosecution of patent proceedings is costly and
involves substantial commitments of management time. Adverse determinations in
litigation or other patent proceedings could subject VISX to significant
liability to third parties. Although patent and intellectual property disputes
in the medical device field have often been settled through licensing or similar
arrangements, the costs associated with such arrangements may be substantial and
there is no guarantee that licenses would be available to VISX. If VISX were
found to infringe a patent held by another, VISX's future results of operations
could be materially adversely affected. For additional information and detail
regarding the patent-related legal proceedings to which VISX is a party, see
"Item 3 -- Legal Proceedings."

GOVERNMENT REGULATION

     U.S. Food and Drug Administration. The VISX STAR(TM) Excimer Laser System
and VISX WaveScan(TM) Wave Front System are medical devices, and as such are
subject to regulation by the FDA under the Food Drug and Cosmetic Act and by
similar agencies outside of the United States. Products manufactured or
distributed by VISX are subject to pervasive and continuing regulation by the
FDA, including, among other things, postmarket surveillance and adverse event
reporting requirements. Labeling and promotional activities are subject to
scrutiny by the FDA and, in certain instances, by the FTC. Noncompliance with
applicable requirements can result in, among other things, warning letters,
fines, injunctions, penalties, recall or seizure of products, total or partial
suspension of production, denial or withdrawal of pre-market approval of
devices, and criminal prosecution.

     We manufacture our products in accordance with Good Manufacturing Practices
("GMP") regulations, which impose certain procedural and documentation
requirements with respect to manufacturing and quality assurance activities. Our
manufacturing facilities, procedures and practices have undergone and continue
to be subject to GMP compliance inspections conducted by the FDA.

     The FDA's Quality System Regulation ("QSR") went into effect on June 1,
1997. The goal of QSR is to make the existing GMP regulations consistent, to the
extent possible, with the requirements for quality systems contained in
applicable international standards, primarily, the International Organization
for Standardization (ISO) 9001:1994 "Quality Systems -- Model for Quality
Assurance in Design, Development, Production, Installation, and Servicing." On
February 3, 1998, we were certified to ISO 9001/EN46001. To ensure continuing
compliance with ISO standards, VISX undergoes annual recertification audits, the
most recent of which was completed on September 28, 2000. These recertification
audits are carried out by registered certification agencies. VISX has
successfully passed each annual recertification audit since its initial
certification.

     Other Government Regulation. VISX is regulated under the Radiation Control
for Health and Safety Act, which requires laser products to comply with
performance standards, and manufacturers to certify in product labeling and in
reports to the FDA that their products comply with all such standards. In
addition, VISX is subject to California regulations governing the manufacture of
medical devices, including an annual licensing requirement, and VISX's
facilities have been inspected by, and are subject to ongoing, periodic
inspections by, California regulatory authorities. Sales, manufacturing and
further development of the VISX System also may be subject to additional federal
regulations pertaining to export controls and environmental and worker
protection, as well as to state and local health, safety and other regulations
that vary by locality, which may require obtaining additional permits. The
impact of such regulations cannot be predicted. VISX products have been tested
and certified to comply with all applicable safety requirements for medical
devices in the United States and Canada, and bear the ETL-c Mark as evidence of
compliance.

     International. Many countries outside the United States do not impose
safety and efficacy testing or regulatory approval requirements for medical
laser systems. International regulatory requirements vary by country, however,
and failure to receive approval in, or meet the requirements of, any country
would prevent VISX from selling its products in that country.

                                        7
<PAGE>   9

     In Europe, the member countries of the European Union have promulgated
rules which require that medical products receive the certifications necessary
to affix the CE Mark to the device. The CE Mark is an international symbol of
adherence to quality assurance standards and compliance with applicable European
medical device directives. Certification under the ISO standards for quality
assurance and manufacturing processes is one of the CE Mark requirements. VISX
is licensed to apply the CE Mark to the VISX System and VISX WaveScan(TM) in
accordance with the European Medical Device Directives.

     In Japan, we received regulatory approval for PTK from the Japanese
Ministry of Health and Welfare in May 1998 and for myopia, or nearsightedness,
with astigmatism in January 2000. VISX is the only United States manufacturer to
receive approval for its laser vision correction system in Japan.

MANUFACTURING, COMPONENTS AND RAW MATERIALS

     The manufacture of VISX Systems is a complex operation involving numerous
procedures, and the completed system must pass a series of quality control and
reliability tests before shipment. We buy from various independent suppliers
many components that are either standard or built to our proprietary
specifications, and then assemble these components at our California facility.
We also contract with third parties for the manufacture or assembly of certain
components. Several of these components are currently provided by a single
vendor. If any of these suppliers were to cease providing components, we would
be required to locate and contract with a substitute supplier. We could have
difficulty identifying a substitute supplier in a timely manner or on
commercially reasonable terms. If we were unable to produce the VISX System in a
cost-effective or timely manner, or if the manufacturing of VISX Systems were
interrupted, our business, financial position and results of operations could be
materially adversely affected.

COMPETITION

     The medical device and ophthalmic laser industries are subject to intense
competition and technological change. Laser vision correction for treatment of
refractive disorders competes with eyeglasses, contact lenses and Radial
Keratotomy (RK), as well as with other technologies and surgical techniques,
such as corneal implants, interocular lenses, and surgery using different types
of lasers. In addition, the market for laser vision correction systems has
become increasingly competitive in recent years as a result of FDA approval of
several new laser systems.

     The VISX System also competes with products marketed or under development
by other laser and medical equipment manufacturers, many of which may have
greater financial and other resources. Competitors may be able to offer laser
systems at a lower price, may price their laser systems as part of a bundle of
products or services, may develop procedures that involve a lower per procedure
cost, or may offer products that are perceived as preferable to the VISX System.
In addition, medical companies, academic and research institutions and others
could develop new therapies, including new medical devices or surgical
procedures, for the conditions targeted by VISX, which therapies could be more
medically effective and less expensive than LVC, and could potentially render
LVC obsolete. Any such developments could have a material adverse effect on
VISX's business, financial position and results of operations.

     In the United States, there are five companies whose excimer laser systems
have received FDA approval, namely, those of VISX, Alcon (which purchased Summit
Autonomous, Inc.), Nidek, LaserSight and Bausch & Lomb. Alcon and Nidek received
FDA approval to commercialize their laser systems at the end of 1998, LaserSight
at the end of 1999 and Bausch & Lomb in February 2000. While Bausch & Lomb took
a per procedure license from VISX in January 2001, Nidek and LaserSight are
actively engaged in commercializing their laser systems in the United States and
do not have a license to VISX's patents. Nidek is currently offering laser
systems for sale in the United States without requiring purchasers to pay
license fees upon use of the system. LaserSight has said they will collect a
per-procedure fee from their customers. VISX is pursuing several actions against
Nidek and certain of its users for patent infringement in the United States,
Canada and France. VISX has also filed a lawsuit alleging patent infringement
against LaserSight. See "Legal Proceedings -- Patent and Antitrust Proceedings"
below.

                                        8
<PAGE>   10

     VISX's principal international competitors are Alcon, Asclepion, Bausch &
Lomb, LaserSight, Nidek, and Schwind. VISX has licensed certain of its patents
to Asclepion, Bausch & Lomb, LaserSight, and Schwind, each of which is obligated
to pay VISX royalties when it sells a system covered by VISX's patents outside
of the United States. In addition, Alcon has taken a fully-paid license to
VISX's non-U.S. patents which covers sales of its systems.

     The proliferation of competitors, both in the United States and
internationally, has resulted in a significant increase in pricing and other
competitive pressures faced by VISX. VISX is also currently not collecting
license fees from competitors that have not entered into licenses with VISX.
Increased competition, particularly from competitors that are not licensed under
VISX's patent portfolio, may have a material adverse effect on VISX's business,
financial position and results of operations.

RESEARCH AND DEVELOPMENT AND REGULATORY

     VISX's research efforts have been the primary source of our products. We
intend to maintain our strong commitment to research as an essential component
of our product development effort. Toward this end, we incurred research and
development expenses, including clinical trial expenses, of $14.9 million in
2000, $15.5 million in 1999, and $11.3 million in 1998. Licensed technology
developed by outside parties is an additional source of potential products. We
anticipate that research, development and regulatory expenses could be
approximately $19 million in 2001.

PRODUCT LIABILITY AND INSURANCE

     The testing and use of human health care devices carry the potentially
significant risk of physical injury to patients. The VISX System includes
high-voltage power supplies, cryogenic subsystems, high-pressure gases, toxic
gases, and other potentially hazardous factors. We could be liable for injuries
or damage resulting from use of the VISX System, and any such liability could
exceed our resources. In addition, a claim that an injury resulted from a defect
in the VISX System, even if successfully defended, could damage our reputation.
While we have taken, and intend to continue to take, what we believe are
appropriate precautions to minimize exposure to product liability claims, there
can be no assurance that we will avoid liability. We believe that we possess
product liability, general liability and certain other types of insurance
customarily obtained by business organizations of our type, including insurance
against product liability risks associated with the testing, manufacturing, and
marketing of our products. However, a product liability or other claim in excess
of our insurance coverage could have a material adverse effect on our business,
financial position and results of operations. Additionally, we have agreed to
indemnify certain medical institutions where research was sponsored by VISX,
certain medical institutions participating in VISX's clinical studies, and
certain consultants who train Physician Trainers on behalf of VISX.

EMPLOYEES

     As of December 31, 2000, VISX had 326 regular employees, 25 temporary
employees and 39 consultants. Of the regular employees, 194 are employed in
manufacturing and service, 54 in research and development and regulatory, and 78
in general administrative and marketing and sales positions. None of VISX's
employees is covered by a collective bargaining agreement. We believe that our
relations with employees are good.

FINANCIAL INFORMATION ABOUT SEGMENTS AND GEOGRAPHIC AREAS

     Financial information relating to VISX's segments and information on
revenues generated in different geographic areas are set forth in Note 2, titled
"Segment Reporting," of Notes to Consolidated Financial Statements in Item 8 of
this report.

ITEM 2. PROPERTIES

     VISX's operations are currently located in a 108,844 square foot leased
facility in Santa Clara, California. The lease for the facility expires in May
2003 with an option to extend the term an additional five years. We sublease
33,579 square feet of the facility to another company. This sublease will expire
in May 2001, and we
                                        9
<PAGE>   11

currently intend to reoccupy the space at that time. We also lease approximately
10,000 square feet of warehouse space in Santa Clara under a lease that expires
in March 2002.

     VISX also leases warehouse and office space in Tokyo and Osaka, Japan. The
two warehouse leases each cover 355 square feet. The first lease expires on
March 31, 2001 and the second lease expires on December 31, 2001. The two leases
for office space are for 871 and 1,835 square feet and expire on January 31,
2002 and September 30, 2002, respectively.

     We believe our facilities are sufficient to meet our current and reasonably
anticipated future requirements. See Note 8 of Notes to Consolidated Financial
Statements.

ITEM 3. LEGAL PROCEEDINGS

     VISX is involved in a variety of legal proceedings that affect its
business. These include proceedings relating to patents and intellectual
property rights, proceedings relating to claims that VISX's activities have
violated antirust laws, including proceedings brought by private plaintiffs and
governmental agencies, class actions filed under federal securities laws and
other litigation proceedings. The nature of these proceedings, and the affect
that adverse determinations in the proceedings could have on VISX and its
business, financial condition and results of operations, are described below.

PATENT AND ANTITRUST PROCEEDINGS

OVERVIEW

     The patents owned by VISX are being challenged on several fronts.
Generally, the litigation and other proceedings center on the validity or
enforceability of the patents, and on whether infringement of the patents has
occurred. In addition, VISX's use of patents and its business practices are
being contested in several proceedings as violations of antitrust and securities
laws. The results of these complex legal proceedings are very difficult to
predict with certainty. Because a number of the proceedings have issues in
common, an adverse determination in one proceeding could lead to adverse
determinations in one or more of the other pending proceedings. Adverse
determinations in any of these proceedings could limit our ability to collect
equipment and use fees in certain markets, could give rise to significant
monetary damages, could prevent VISX from manufacturing and selling the VISX
System, and therefore could have a material adverse effect on VISX's business,
financial position and results of operations.

PATENT LITIGATION: NIDEK AND USERS OF NIDEK LASERS

  United States.

     In December 1998, Nidek received approval to market its laser vision
correction systems in the United States and VISX filed a lawsuit in the United
States District Court in Northern California alleging that Nidek's laser systems
infringe certain VISX patents (USDC ND Cal C98-04842). VISX is seeking
injunctive relief and monetary damages in that case. Nidek filed a lawsuit
against VISX on March 30, 1999 in the United States District Court in Northern
California alleging, among other things, that VISX's use of patents allegedly
obtained through inequitable conduct violates certain antitrust laws. This case
was consolidated with VISX's action against Nidek for patent infringement.

     In February 2000, four lawsuits filed during 1999 by VISX against certain
users of the Nidek laser system were transferred to Multi-District Litigation in
the United States District Court in Northern California for the purpose of
consolidating them with the actions between VISX and Nidek for pre-trial
proceedings (MDL Docket No. 1319, the "California MDL"). In these cases
(captioned VISX, Incorporated v. Farmington Eye Center PLLC and Donald C.
Fiander, MD (USDC ED Mich 99-60139); VISX, Incorporated v. OR Providers, Inc.,
Refractive Support, Inc., and Robert G. Wiley, M.D. (USDC ND Ohio 1:99CV00508);
VISX, Incorporated v. Southwest Eye Care Center, Inc. et al. (USDC SD Cal 99 CV
1029L); and VISX, Incorporated v. Antoine L. Garabet et al. (USDC CD Cal
99-05284)), VISX has alleged, among other things, that the defendants' use of
the Nidek laser system infringes one or more of VISX's patents and is seeking an
injunction against the defendants prohibiting the use of the Nidek laser system
and monetary damages. The

                                        10
<PAGE>   12

defendants in these actions have filed counterclaims seeking, among other
things, a declaration of non-infringement, invalidity and unenforceability of
the patents asserted by VISX.

     In October 2000, VISX amended its suits against Nidek and certain users of
the Nidek laser system to assert only VISX United States Patents Nos. B1
5,108,388 (the "'388 patent") and 5,735,843. In October 2000, VISX also
initiated a new proceeding against Antoine L. Garabet in the United States
District Court in Northern California (USDC ND Cal CA No. C00-3633-CRB). In
December 2000, that case was dismissed without prejudice because it contained
parties and claims which were substantially similar to the parties and claims in
VISX's lawsuit against Dr. Garabet in the California MDL. The court has entered
a scheduling order in the California MDL with respect to patent claims
construction issues, but has not otherwise entered a scheduling order for these
cases. Discovery is ongoing in the California MDL.

     In January 2001, Nidek filed a lawsuit against VISX in the United States
District Court in Northern California alleging infringement of Nidek United
States Patents Nos. 5,445,633, 5,624,436 and 6,136,012 and seeking monetary
damages and injunctive relief. VISX has filed an answer to this complaint
denying infringement and asserting certain other defenses.

     At present we are unable to predict either the outcome or estimate the
potential adverse financial and operational impact, if any, that might arise
from these cases. However, adverse determinations in these lawsuits could limit
VISX's ability to collect equipment and license fees in the United States from
Nidek as well as from other sellers and users of laser vision correction
systems, could give rise to significant monetary damages and could result in an
order enjoining the manufacture and sale of the VISX System. Any such adverse
determination could therefore have a material adverse effect on VISX's business,
financial position and future results of operations.

  International.

     VISX is a plaintiff in patent-related litigation against Nidek in Canada
and France. These proceedings, which allege patent infringement by Nidek and
certain of its users, were filed by VISX in February 1994 (Canada) and May 1997
(France). The defendants have contested VISX's infringement claims as well as
the validity of VISX's patents. Trial in the Canadian proceeding took place in
September 1999 and, in December 1999, the Canadian Federal Court ruled that
Nidek and the other defendants had not infringed the VISX patents asserted in
the case. The court also found that VISX's patents were valid despite the
defendants' claims to the contrary. VISX, Nidek and the other defendants have
filed appeals of this decision. The proceeding in France is currently in the
pleading stage.

     In August 2000, Nidek filed an action in Japan against VISX's Japanese
subsidiary and others alleging infringement of Nidek's Japanese Patent No.
2,809,959 and seeking monetary damages and injunctive relief (Tokyo District
Court, the 47th Civil Division, Case No. (WA) 16531/2000). VISX thereafter
initiated proceedings in the Japanese Patent Office challenging the validity of
that Nidek patent.

     At present we are unable to predict either the outcome or estimate the
potential adverse financial and operational impact, if any, that might arise
from these cases. However, adverse determinations in any of these suits could
limit VISX's ability to collect license fees in certain markets and could give
rise to significant monetary damages. Moreover, an adverse determination in the
Japanese proceedings could result in an order enjoining the importation and sale
of VISX products to Japan. Any such adverse determinations could have a material
adverse effect on VISX's license revenues and its business, financial position
and future results of operations.

PATENT LITIGATION: LASERSIGHT

     In November 1999, VISX filed an action alleging that LaserSight had
infringed VISX United States Patent No. 4,718,418 (the " '418 patent") in the
United States District Court in Delaware (USDC Del. 99-789). In February 2000,
LaserSight filed a lawsuit against VISX in the same District Court seeking a
declaration of non-infringement and invalidity of the '418 patent and alleging
that VISX infringes United States Patent No. 5,630,810 (USDC Del. 00-059) which
is licensed to LaserSight. Both parties are seeking

                                        11
<PAGE>   13

monetary damages and injunctive relief. In March 2000, the two actions were
consolidated. Discovery is ongoing, and trial is currently scheduled for June
2001. At present we are unable to predict either the outcome or estimate the
potential adverse financial and operational impact, if any, that might arise
from this case. However, adverse determinations in this action could give rise
to monetary damages, could limit VISX's ability to collect license fees, and
could result in an order enjoining the manufacture and sale of the VISX System
in the United States, any of which, in turn, could have a material adverse
effect on VISX's business, financial position and future results of operations.

PATENT LITIGATION: BAUSCH & LOMB

     In September 2000, VISX filed an action against Bausch & Lomb in the United
States District Court in Delaware alleging that Bausch & Lomb infringed the '388
patent (USDC Del. CA No 00-849 JJF). In January 2001, the parties reached a
settlement of this action which provided, among other things, for the licensing
of the '388 patent and other VISX United States patents to Bausch & Lomb.

FEDERAL TRADE COMMISSION ANTITRUST PROCEEDINGS

     On March 24, 1998, the Federal Trade Commission ("FTC") filed an
administrative complaint (Docket No. 9286) challenging the existence of Pillar
Point, a now-dissolved partnership between VISX Partner, Inc. ("VISX Partner")
and Summit Partner, Inc. ("Summit Partner"), and challenging the enforceability
of certain patents owned by VISX. On July 8, 1998 VISX reached a settlement with
the FTC and entered into a consent decree regarding the dissolution of Pillar
Point. On March 4, 1999, the FTC entered an order finalizing that consent
decree. The consent decree did not address the portion of the FTC's complaint
directed towards the enforceability of certain VISX patents. On June 4, 1999,
the FTC released the initial decision of its administrative law judge dismissing
the remaining portions of the FTC's complaint against VISX and, on June 21,
1999, the FTC attorneys filed notice that they would appeal the judge's decision
to the full Commission. On December 1, 1999, the FTC attorneys filed a
conditional motion to dismiss the FTC's complaint. The Commission dismissed the
remaining portions of the FTC's complaint on February 7, 2001. As a result, the
FTC proceedings against VISX have been concluded.

ANTITRUST CLASS ACTIONS

     Since the commencement of the FTC administrative proceeding on March 24,
1998, a large number of purported class actions have been filed against VISX,
Summit and, in some cases, also against their affiliates, VISX Partner, Summit
Partner, and Pillar Point. These actions allege, among other things, violations
of various state and federal antitrust and unfair competition laws. These cases
can be divided into two categories based on the type of class alleged: one on
behalf of purported classes of patients, and the other on behalf of purported
classes of direct purchasers.

  Patient Class Actions Filed in State Court.

     Several actions filed in California state court on behalf of purported
classes of patients have been consolidated into one case in the Superior Court
of the State of California for the County of Santa Clara, captioned In re
PRK/LASIK Consumer Litigation, No. CV772894 ("In re PRK") filed on June 12,
1998, and naming VISX, VISX Partner, Summit, and Summit Partner as defendants.
The plaintiffs in the consolidated action allege violations of the California
Business and Professions Code (under the Cartwright Act and the Unfair Business
Practices Act) on behalf of a putative nationwide class of patients. On May 12,
1999, the court entered an order to which the parties had stipulated
conditionally certifying that the class shall include patients in 17 states and
the District of Columbia. Discovery is ongoing in this action.

     In addition to the In re PRK action pending in California, VISX has been
named in several duplicative actions in other states on behalf of purported
classes of patients:

     Florida. In Marks v. Summit Technology Inc., et al., filed on April 27,
1998 in Florida state court, plaintiff brought suit on behalf of a purported
class of patients in several states alleging violations of the

                                        12
<PAGE>   14

Florida antitrust and unfair competition laws. On December 15, 1999, the Marks
case was stayed pending the final resolution of the In re PRK action.

     Wisconsin. Worcester v. Summit Technology, Inc. et al. was filed on June
11, 1998 in Wisconsin state court on behalf of a purported class of Wisconsin
patients alleging violations of the Wisconsin antitrust and unfair competition
laws. In December 1998, the Worcester action was removed to federal court and
transferred to the Multi-District Litigation pending in Arizona described below.

     Minnesota. In May 1999, Brisson v. Summit Technology, Inc., VISX, Inc.,
Summit Partner, Inc., VISX Partner, Inc. and Pillar Point Partners was filed by
plaintiff on behalf of a purported class of Minnesota patients alleging
violations of Minnesota antitrust laws, seeking unspecified damages and
injunctive relief. In June 2000, the court stayed this proceeding pending
resolution of the In re PRK action.

  Direct Purchaser Class Actions Filed in Federal Court.

     In addition to the state court actions discussed above, a number of
purported class actions alleging violations of federal antitrust laws on behalf
of a purported class of direct purchasers have been filed in federal court
against VISX, Summit, and, in some cases, Pillar Point. All of these actions
have been transferred to the Multi-District Litigation in Arizona described
below. In October 1998, the United States District Court in Arizona entered an
order for consolidation of these class actions into a case captioned The
Antitrust Class Actions (USDC AZ Oct. 21, 1998). In August 2000, the Magistrate
Judge issued her Report and Recommendation supporting certification of a
nationwide class of direct purchasers who paid per procedure license fees to
VISX or Summit between September 1995 and the date of trial. Defendants have
objected to this determination and the District Court has not yet issued its
final ruling. Discovery is ongoing in this action.

     In each of the antitrust class actions described above the plaintiffs are
seeking unspecified damages and injunctive relief for alleged violations of
state and/or federal antitrust laws. Although we believe we have meritorious
defenses to the claims presented in these actions and intend to defend them
vigorously, at this point we are unable to predict either the outcome or
estimate the potential adverse financial and operational impact, if any, that
might arise from these cases. However, adverse determinations in one or more of
these cases could give rise to significant monetary damages and could limit
VISX's ability to collect license fees which, in turn, could have a material
adverse effect on VISX's business, financial position and future results of
operations.

MULTI-DISTRICT ANTITRUST LITIGATION INVOLVING PILLAR POINT PARTNERS

     On June 4, 1998 VISX and Summit agreed to dissolve Pillar Point and settle
all pending disputes and litigation between them. However, Pillar Point
continues to be a party in a number of cases. VISX and Summit share Pillar
Point's ongoing litigation expenses and each pursues its own interests in such
litigation.

     To consolidate conflicting discovery requests and save resources and
management time with respect to certain litigation involving Pillar Point, a
number of cases have been transferred to Multi-District Litigation in the United
States District Court in Arizona for pretrial proceedings under the caption In
re Pillar Point Partners Antitrust and Patent Litigation (MDL No. 1202, the
"Arizona MDL"). In addition to the antitrust class actions described above, the
following cases are pending in the Arizona MDL:

     Burlingame v. Pillar Point Partners, et al.; John R. Shepherd, M.D., Ltd.
v. Pillar Point Partners, et al. In June 1996, Dr. Burlingame filed suit against
Pillar Point, Summit, Summit Partner, VISX, and VISX Partner. In September 1996,
a corporation controlled by Dr. Shepherd filed suit against the same parties.
Both actions were filed in the United States District Court in Northern
California. Generally, the plaintiffs allege that the per procedure license fee
charged by Pillar Point was a violation of the Sherman Act or of corresponding
state antitrust laws and seek injunctions against alleged violations of such
laws, as well as monetary damages.

     Freedom Vision Laser Center, LP v. VISX, Incorporated et al. On May 28,
1999, Freedom Vision Laser Center filed an action on behalf of certain
physicians, which has been transferred to the Arizona MDL. In that

                                        13
<PAGE>   15

case, the plaintiffs allege, among other things, violations of federal and state
antitrust laws and are seeking unspecified damages and injunctive relief.

     Although we believe VISX and Pillar Point have meritorious defenses to the
claims presented in these actions and intend to defend them vigorously, at this
point we are unable to predict either the outcome or estimate the potential
adverse financial and operational impact, if any, that might arise from these
cases. However, adverse determinations in one or more of these cases could give
rise to significant monetary damages and could limit VISX's ability to collect
license fees which, in turn, could have a material adverse effect on VISX's
business, financial position and future results of operations.

UNFAIR COMPETITION ACTION FILED IN CALIFORNIA STATE COURT

     On January 24, 2000, a case captioned Antoine L. Garabet, M.D. and Abraham
v. Shammas, M.D. v. Summit Technology, Inc. and VISX (CV 787359) was filed in
the Superior Court of the State of California for the County of Santa Clara.
Plaintiffs brought this action purportedly on behalf of the public under Section
17200 of the Business and Professions Code, California's unfair competition law.
The complaint alleges various purported anticompetitive activities, similar to
the allegations made in the antitrust class actions described above. Plaintiffs
seek injunctive relief, disgorgement of profits, a constructive trust, and
attorneys' fees. On December 26, 2000, the court granted defendants' motion to
stay the action pending further court action or final resolution of the suits in
the In re PRK action and the Arizona MDL. Plaintiffs have appealed this decision
to the California Court of Appeal. At this point we are unable to predict either
the outcome or estimate the potential adverse financial and operational impact,
if any, that might arise from this case. However, an adverse determination in
this action could give rise to significant monetary damages and could have a
material adverse effect on VISX's business, financial position and future
results of operations.

SECURITIES CLASS ACTIONS AND DERIVATIVE LITIGATION

     VISX and certain of its officers were named as defendants in several
substantially similar securities class action lawsuits filed in February and
March 2000 in the United States District Court in Northern California. The
plaintiffs in these actions purport to represent a class of all persons who
purchased VISX's common stock between March 1, 1999 and February 22, 2000. The
complaints allege that the defendants made misleading statements in violation of
the federal securities laws, including Section 10(b) of the Securities Exchange
Act of 1934. In April 2000, the court consolidated the various actions under the
caption In re VISX, Inc. Securities Litigation C-00-0649-CRB, and appointed a
lead plaintiff. The lead plaintiff thereafter filed his consolidated amended
complaint, and the parties stipulated to the certification of a plaintiff class.
On September 20, 2000, defendants filed a motion to dismiss the consolidated
amended complaint, and on February 27, 2001, the District Court granted
defendants' motion and dismissed the consolidated amended complaint with
prejudice. Plaintiffs have appealed this decision to the United States Court of
Appeals for the Ninth Circuit.

     On April 24, 2000, a purported stockholder derivative action was filed in
the Superior Court of the State of California for the County of Santa Clara
(CV789364). The complaint alleges that certain of VISX's officers and directors
breached fiduciary duties owed to VISX in connection with the circumstances
alleged in the securities class action complaints described above. VISX is a
nominal defendant in the action and no damages are sought against it. On May 30,
2000, the defendants and nominal defendant filed demurrers to the derivative
complaint. On October 3, 2000, the court sustained the demurrers, with leave
granted to file an amended derivative complaint. The court also permitted the
derivative plaintiffs to conduct limited discovery, which discovery is presently
ongoing. An amended derivative complaint must be filed within 30 days after the
completion of the limited discovery. There can be no assurance that these suits
will be resolved favorably to VISX or will not have a material adverse effect on
VISX's business, financial position and future results of operations.

OTHER LITIGATION

     VISX is involved in various other legal proceedings which arise in the
normal course of business. These matters include product liability actions,
contract disputes and other matters. We could incur significant legal

                                        14
<PAGE>   16

fees in connection with these matters but based on currently available
information, VISX believes that the resolution of these cases is not likely to
have a material adverse effect on our business, financial position or future
results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matters were submitted to a vote of security holders during the fourth
quarter of 2000.

ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT

     The principal executive officers of VISX are:

<TABLE>
<CAPTION>
             NAME                AGE                              POSITION
             ----                ---                              --------
<S>                              <C>   <C>
Mark B. Logan..................  62    Chairman of the Board
Elizabeth H. Davila............  56    President and Chief Executive Officer
Timothy R. Maier...............  52    Executive Vice President, Chief Financial Officer and Treasurer
Douglas H. Post................  49    Executive Vice President, Operations
Derek A. Bertocci..............  47    Vice President, Controller
Carol F.H. Harner, Ph.D. ......  57    Vice President, Research and Development
Frances L. Henville-Shannon....  51    Vice President, Human Resources
John F. Runkel, Jr. ...........  45    Vice President, General Counsel and Secretary
Donald L. Fagen................  47    Vice President, Sales
Joaquin V. Wolff...............  43    Vice President, Marketing
</TABLE>

     Mark B. Logan. Mr. Logan is currently Chairman of the Board of VISX and has
been since November 1994. He also served as Chief Executive Officer from
November 1994 to January 2001 and as President from November 1994 to February
1999. From January 1992 to October 1994, Mr. Logan was Chairman of the Board,
President and Chief Executive Officer of Insmed Pharmaceuticals, Inc., a
development-stage biopharmaceutical company based in Charlottesville, Virginia.
From 1967 to 1992, Mr. Logan held various senior management positions with
Bausch & Lomb Incorporated, Becton Dickinson & Company, and American Home
Products Corporation. His responsibilities included both medical devices and
pharmaceuticals, and domestic and international assignments.

     Elizabeth H. Davila. Ms. Davila has served as Chief Executive Officer since
February 2001 and as President since February 1999. She also served as Chief
Operating Officer from February 1999 to January 2001, and as Executive Vice
President and Chief Operating Officer from May 1995 to February 1999. From 1977
to 1994, Ms. Davila held senior management positions with Syntex Corporation
which included Vice President of Quality and Reengineering, Vice President and
Director of the company's Drug Development Optimization Program, Vice President
of Marketing and Sales for the Syva Company Diagnostics Division and Vice
President of Marketing and Sales of the Syntex Ophthalmics Division.

     Timothy R. Maier. Mr. Maier has been Executive Vice President, Chief
Financial Officer and Treasurer since December 1999, prior to which he had been
Vice President, Chief Financial Officer and Treasurer since June 1995. From 1991
to June 1995, he served as Vice President, Chief Financial Officer of GenPharm
International, Inc., a privately held international biotechnology company. From
1976 to 1991, Mr. Maier held various positions with Spectra-Physics, Inc., an
international manufacturer of scientific and commercial laser products. His
positions included Vice President of Finance, Operations Manager, and
International Finance and Administration Manager.

     Douglas H. Post. Mr. Post has been Executive Vice President, Operations
since January 2001. Prior to that time he was Vice President, Operations and
Customer Support from September 1996 to February 2001. He served as Senior
Director, Customer Support from December 1992 to September 1996 and was Senior
Vice President, Sales & Customer Support, with VISX Massachusetts Inc. (formerly
Questek, Inc.) from February 1985 to December 1992.

                                        15
<PAGE>   17

     Derek A. Bertocci. Mr. Bertocci has been Vice President, Controller since
December 1998. He served as Controller from November 1995 until December 1998.
Prior to joining VISX, Mr. Bertocci was Controller for Time Warner Interactive
from 1993 to 1995 and Controller and Assistant Treasurer for Datron Systems,
Inc. from 1987 to 1993.

     Carol F. H. Harner, Ph.D. Dr. Harner has been Vice President, Research and
Development since December 1997. Prior to joining VISX, she was Vice President,
Scientific Affairs of Collagen Corporation, and President of CollOptics, Inc., a
subsidiary of Collagen Corporation. Before joining Collagen Corporation, Dr.
Harner held senior management and scientific positions at Chiron Ophthalmics
Inc. from 1986 to 1993, and CooperVision Surgical, from 1984 to 1986. Prior to
that time, she was in academia for 13 years.

     Frances L. Henville-Shannon. Ms. Henville-Shannon has been Vice President,
Human Resources since June 1998. From March 1997 until June of 1998, Ms.
Henville-Shannon held the position of Senior Human Resources Business
Partner/Director at Fairchild Semiconductor. Fairchild is a spin off from
National Semiconductor Corporation where Ms. Henville-Shannon had been employed
since April 1992, with her last position as Human Resources Director. Prior to
National Semiconductor Corporation, Ms. Henville-Shannon held various human
resources positions (including the areas of compensation, operations, staffing,
and benefits) during her eleven years with Xerox Corporation.

     John F. Runkel, Jr. Mr. Runkel has been Vice President, General Counsel and
Secretary since January 2001. Before joining VISX, Mr. Runkel was a partner in
the law firm of Sheppard, Mullin, Richter & Hampton, where he practiced law for
17 years.

     Donald L. Fagen. Mr. Fagen has been Vice President, Sales since February
2001. Prior to joining VISX, Mr. Fagen was Vice President, Sales and Marketing
for The Hillside Group from 2000 to 2001. From 1999 to 2000, Mr. Fagen was
Executive Vice President, Sales and Marketing with ClearVision, Inc. From 1995
to 1999, Mr. Fagen held the position of Director of Sales and Group Purchasing
Organizations with Alcon Laboratories. Prior to that time, Mr. Fagen directed
sales organizations at CooperVision Surgical from 1985 to 1993 and Sci Med from
1993 to 1995.

     Joaquin V. Wolff. Mr. Wolff has been Vice President of Marketing since July
2000. Mr. Wolff held the position of Director of Marketing with responsibilities
in both the Cataract and Vitreoretinal business units of the Surgical Division
at Alcon Laboratories from 1990 to 2000. From 1983 to 1990, he held a variety of
sales and marketing positions for CooperVision Surgical.

                                        16
<PAGE>   18

                                    PART II

ITEM 5. MARKET FOR VISX'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     Our common stock is traded on the New York Stock Exchange under the symbol
"EYE". Prior to September 7, 2000 our stock was traded on the Nasdaq National
Market tier of The Nasdaq Stock Market(SM) under the symbol "VISX." The
following table sets forth the high and low closing prices of our common stock,
after giving effect for the 2 for 1 stock splits distributed in January and May
1999.

<TABLE>
<CAPTION>
                                                             HIGH       LOW
                                                            -------    ------
<S>                                                         <C>        <C>
1999
  First Quarter...........................................  $ 53.78    $22.16
  Second Quarter..........................................    83.00     49.44
  Third Quarter...........................................   103.75     79.09
  Fourth Quarter..........................................    88.13     50.88

2000
  First Quarter...........................................  $ 53.50    $15.50
  Second Quarter..........................................    32.94     14.38
  Third Quarter...........................................    35.00     22.00
  Fourth Quarter..........................................    26.13      9.31
</TABLE>

     On March 19, 2001 the last reported sale price of the Common Stock on the
New York Stock Exchange was $17.05 per share. We had approximately 765 holders
of record of our common stock on that date.

     We have never declared or paid any cash dividends on our common stock. We
presently intend to retain all future earnings for use in our business and do
not anticipate paying any cash dividends on our common stock in the foreseeable
future.

                                        17
<PAGE>   19

ITEM 6. SELECTED FINANCIAL DATA

     We derived the following selected financial data from our audited
consolidated financial statements. This historical financial data should be read
in conjunction with our consolidated financial statements and notes thereto.

                  SELECTED CONSOLIDATED FINANCIAL INFORMATION
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                           YEAR ENDED DECEMBER 31,
                                            -----------------------------------------------------
                                              2000        1999       1998       1997       1996
                                            --------    --------   --------   --------   --------
<S>                                         <C>         <C>        <C>        <C>        <C>
STATEMENT OF OPERATIONS DATA:
Total revenues............................  $200,248    $271,252   $133,750   $ 68,631   $ 69,664
Cost of revenues..........................    62,684      57,513     31,109     20,598     28,876
Total costs and expenses..................   144,256     129,154     74,530     53,111     55,318
Income from operations....................    55,992     142,098     59,220     15,520     14,346
Litigation settlement.....................    11,856          --     35,000      4,500         --
Net income................................  $ 35,221    $ 91,768   $ 25,590   $ 14,097   $ 17,308
Earnings per share:(A)
  Basic...................................  $   0.57    $   1.45   $   0.42   $   0.23   $   0.28
  Diluted.................................  $   0.55    $   1.35   $   0.39   $   0.22   $   0.27
Shares used for earnings per share:(A)
  Basic...................................    61,431      63,474     61,014     61,716     61,244
  Diluted.................................    63,778      68,119     65,398     63,272     63,896

BALANCE SHEET DATA:
Cash and short-term investments...........  $229,453    $258,359   $116,539   $100,833   $ 88,990
Working capital...........................   245,662     303,546    129,008    103,880     92,878
Total assets..............................   321,507     362,721    176,619    130,352    119,689
Retained earnings (accumulated deficit)...   132,416      97,195      5,427    (20,163)   (34,260)
Stockholders' equity......................  $268,772    $316,793   $138,989   $110,299   $ 99,272
</TABLE>

---------------

(A) All share and per share amounts have been adjusted to give effect for the 2
    for 1 stock splits effected as 100% stock dividends in January and May 1999.

                                        18
<PAGE>   20

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

     In our Management's Discussion and Analysis of Financial Condition and
Results of Operations we review our past performance and, where appropriate,
state our expectations about future activity in forward-looking statements. Our
future results may differ from our expectations. We have described our business
and the challenges and risks we may face in the future in Items 1 and 3 of this
Form 10-K. Please read these items carefully.

OVERVIEW

     We develop products and procedures to improve people's vision with laser
vision correction. Our principal product, the VISX STAR Laser System ("VISX
System"), is designed to correct the shape of a person's eyes to reduce or
eliminate their need for eyeglasses or contact lenses. The FDA has approved the
VISX System for use in the treatment of most types of refractive vision
disorders including nearsightedness, farsightedness, and astigmatism. The FDA
has also approved our WaveScan(TM) Wavefront System ("WaveScan System") which
provides a complete refractive analysis of the eye's entire optical system. In
the future, we anticipate that doctors will be able to use this analysis to
enhance treatments with the VISX System. We sell VisionKey(R) cards to control
the use of the VISX System and to collect license fees for the use of our
patents.

     The laser vision correction industry is evolving rapidly. New developments
and changes in market conditions frequently affect VISX and could harm our
business in the future. We may face increased competition from manufacturers and
users of other laser vision correction systems or new competition from non-laser
methods for correcting a person's vision. Patients' and doctors' desire for
laser vision correction using VISX Systems may not grow or may decline in the
future. Prices for our products and services may change as the result of new
developments in our market. If adverse determinations were rendered in current
or future patent and antitrust litigation, damages might be assessed against us
and we may not be able to enforce our current patent rights or collect license
fees. All of these factors could cause orders and revenues for VISX Systems and
VisionKey(R) cards to fluctuate or even decline. Accordingly, our past results
may not be useful in predicting our future results.

RESULTS OF OPERATIONS

2000 Compared to 1999

<TABLE>
<CAPTION>
                                                         (000'S)
                                                 YEAR ENDED DECEMBER 31,
                                            ----------------------------------
                 REVENUE                      2000          1999        CHANGE
                 -------                    --------      --------      ------
<S>                                         <C>           <C>           <C>
System sales..............................  $ 60,678      $ 74,415       (18)%
  Percent of revenue......................      30.3%         27.4%
License, service and other revenue........  $139,570      $196,837       (29)%
  Percent of revenue......................      69.7%         72.6%
Total.....................................  $200,248      $271,252       (26)%
</TABLE>

     Our laser system unit sales and revenue in international markets increased
in 2000 over 1999, however in the United States they declined from the prior
year. In international markets, the increases were most significant in Asian and
Latin American countries. We believe this was due to a combination of factors
including customers' enthusiasm for VISX's new products and technology, new
distributors, and additional marketing programs. We believe the decline in
United States' sales was due principally to increased competition, the slowdown
in the economy, and customers deferring purchases until we began production of
our next generation STAR S3(TM) Excimer Laser System in the fourth quarter of
2000. Average selling prices during 2000 were lower than in the prior year as
the result of increased competition and the anticipated introduction of our next
generation STAR S3(TM) Excimer Laser System and our WaveScan System.

     Our U.S. license revenue declined due to our reduction in February 2000 of
our U.S. license fee to $100 per procedure from the $250 we had charged since we
first entered the U.S. market in 1996. Based on our

                                        19
<PAGE>   21

analysis of sales data and developments in the U.S. laser vision correction
market during the first quarter of 2000, we concluded that consumer concerns
about the pricing of laser vision correction were dampening the industry's
potential for growth. In an effort to address these concerns and to help broaden
the appeal for laser vision correction, we reduced our U.S. license fee. Sales
of VisionKey(R) cards for licensed procedures in the U.S. increased in 2000 over
1999, however the increase in unit volume was not sufficient to offset the
reduction in the per procedure license fee. We believe the lower procedure fee
will, in the future, help increase laser vision correction procedures performed
in the U.S. using VISX Systems. However, we cannot predict with certainty when
or whether growth in procedures will offset the decline in procedure fee, nor
even that procedures will increase.

<TABLE>
<CAPTION>
                                                          (000'S)
                                                  YEAR ENDED DECEMBER 31,
                                              --------------------------------
             COSTS AND EXPENSES                2000         1999        CHANGE
             ------------------               -------      -------      ------
<S>                                           <C>          <C>          <C>
Cost of revenues............................  $62,684      $57,513         9%
  Percent of revenue........................     31.3%        21.2%
Marketing, general and administrative.......  $66,613      $56,166        19%
  Percent of revenue........................     33.3%        20.7%
Research, development and regulatory........  $14,959      $15,475        (3)%
  Percent of revenue........................      7.5%         5.7%
</TABLE>

     Cost of revenues increased in 2000 over 1999 primarily because we serviced
a larger installed base of systems. Our gross profit margin was lower in 2000
than in 1999 due to lower license fees and lower average selling prices of laser
systems as discussed in the preceding section on revenue. Our marketing, general
and administrative expenses increased in 2000 over 1999 due to our addition, in
the fourth quarter of 2000, of approximately $18 million to our reserves against
accounts receivable and other assets due from customers. We were concerned that
one or more of our customers would be unable to meet their financial obligations
as a result of the dramatic softening in demand in the overall U.S. economy in
the fourth quarter of 2000 and increased competition in the laser vision
correction industry. Excluding additions to reserves against amounts due from
customers, our marketing, general and administrative expenses were 14% lower in
2000 than in 1999. Legal expenses declined because settlements were reached and
trials were completed in several cases in the first half of 2000. This contrasts
with 1999 during which we incurred substantial legal expenses due to the
International Trade Commission ("ITC") trial regarding its investigation of
Nidek Co., Ltd., the FTC administrative action, and other patent litigation.
Marketing expenses declined principally because we eliminated our direct
consumer advertising campaign and focused on other marketing programs in the
U.S. Administrative expenses decreased due to lower payments to employees under
performance based incentive programs. We increased spending in research and
development. Our efforts were focused on developing new capabilities for the
VISX STAR Excimer Laser platform, designing new products such as our WaveScan
System, and researching new technologies. Our regulatory expenses were lower,
mainly due to reduced work outside the U.S. We continued to conduct clinical
studies and prepared submissions to obtain additional approvals from the FDA and
regulatory authorities in other countries. We anticipate that research,
development and regulatory expenses could be approximately $19 million in 2001.

     Interest income increased because interest rates and the average balance of
cash invested in interest bearing securities have been higher in 2000 than in
1999. We accrued income taxes based on our expected effective income tax rate of
39.5% for all of 2000, net of credits anticipated. We expect that our effective
income tax rate will continue at approximately this level in the future.

                                        20
<PAGE>   22

  1999 Compared to 1998

<TABLE>
<CAPTION>
                                                         (000'S)
                                                 YEAR ENDED DECEMBER 31,
                                            ----------------------------------
                 REVENUE                      1999          1998        CHANGE
                 -------                    --------      --------      ------
<S>                                         <C>           <C>           <C>
System sales..............................  $ 74,415      $ 40,799        82%
  Percent of revenue......................      27.4%         30.5%
License, service and other revenue........  $196,837      $ 92,951       112%
  Percent of revenue......................      72.6%         69.5%
Total.....................................  $271,252      $133,750       103%
</TABLE>

     We sold substantially more VISX Systems in 1999 than in 1998. The increase
occurred primarily in the United States, though sales in international markets
also rose from the prior year. We believe that U.S. doctors and laser centers
increased purchases of VISX Systems in response to rising consumer demand for
laser vision correction and popular acceptance of the VISX System. Partially
offsetting the increase in unit sales, our average U.S. selling price for a VISX
System was lower than in the prior year. This was due to a variety of factors
including allowances for the trade-in of a competitor's laser, discounts for a
second laser at an existing location, volume purchase incentives, and general
price reductions. The overall average selling price of a system in international
markets declined from the prior year due mainly to trade-in allowances.

     Our customers in the United States purchased significantly more
VisionKey(R) cards for laser vision correction surgery in 1999 than in 1998. The
license fees associated with these cards generated most of the increase in
license, service and other revenues in 1999 over 1998. We believe that card
purchases increased because laser vision correction became increasingly well
known and popular among consumers and because the VISX System is well regarded.

<TABLE>
<CAPTION>
                                                          (000'S)
                                                  YEAR ENDED DECEMBER 31,
                                              --------------------------------
             COSTS AND EXPENSES                1999         1998        CHANGE
             ------------------               -------      -------      ------
<S>                                           <C>          <C>          <C>
Cost of revenues............................  $57,513      $31,109        85%
  Percent of revenue........................     21.2%        23.3%
Marketing, general and administrative.......  $56,166      $32,138        75%
  Percent of revenue........................     20.7%        24.0%
Research, development and regulatory........  $15,475      $11,283        37%
  Percent of revenue........................      5.7%         8.4%
</TABLE>

     Cost of revenues increased in 1999 over 1998 because we sold more systems
and serviced a larger installed base of systems. Marketing, general and
administrative expenses grew in 1999 due to a variety of factors. We increased
spending on marketing programs directed towards eye care professionals. We also
spent approximately $10.5 million on a direct to consumer marketing campaign
during the second half of 1999. Further, our legal expenses increased
significantly in 1999 over the prior year due to the ITC proceeding regarding
the investigation of Nidek Co., Ltd., the FTC administrative action, and other
patent litigation. In research and development, our efforts were directed mainly
at developing new products and new capabilities for existing products. We
continued to conduct clinical studies and prepare submissions designed to obtain
additional approvals from the FDA and regulatory authorities in other countries.

     Interest income increased because we generated cash from operations and
invested this in additional interest bearing securities. Our effective income
tax rate for 1999 was 40%, up from 14% in 1998 when losses and tax credits
carried forward from prior years reduced taxes otherwise due on income earned in
1998.

                                        21
<PAGE>   23

QUARTERLY RESULTS OF OPERATIONS

     In the following table we present selected items from our quarterly
financial results (in 000's except earnings per share).

<TABLE>
<CAPTION>
                                                    1999                                        2000
                                  ----------------------------------------    ----------------------------------------
                                  1ST QTR    2ND QTR    3RD QTR    4TH QTR    1ST QTR    2ND QTR    3RD QTR    4TH QTR
                                  -------    -------    -------    -------    -------    -------    -------    -------
<S>                               <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
Total revenues..................  $53,949    $62,503    $79,668    $75,132    $63,997    $48,005    $45,714    $42,532
                                  -------    -------    -------    -------    -------    -------    -------    -------
Cost of revenues................   10,597     12,496     17,480     16,940     16,969     16,929     13,905     14,881
Total costs and expenses........   23,325     28,780     41,314     35,735     35,067     32,866     29,232     47,091
Income (loss) from operations...   30,624     33,723     38,354     39,397     28,930     15,139     16,482     (4,559)
Litigation settlement...........       --         --         --         --         --     11,856         --         --
Income (loss) before provision
  (benefit) for income taxes....   32,506     36,255     41,240     42,945     32,597      6,594     19,899       (874)
Provision (benefit) for income
  taxes.........................   12,775     14,729     16,497     17,177     13,039      2,441      7,861       (346)
                                  -------    -------    -------    -------    -------    -------    -------    -------
Net income (loss)...............  $19,731    $21,526    $24,743    $25,768    $19,558    $ 4,153    $12,038    $  (528)
                                  =======    =======    =======    =======    =======    =======    =======    =======
Earnings (loss) per share,
  diluted(A)....................  $  0.29    $  0.32    $  0.36    $  0.38    $  0.30    $  0.07    $  0.19    $ (0.01)
                                  =======    =======    =======    =======    =======    =======    =======    =======
Shares used for earnings (loss)
  per share, diluted(A).........   68,330     68,185     68,727     68,582     66,147     62,910     63,248     60,800
                                  =======    =======    =======    =======    =======    =======    =======    =======
</TABLE>

---------------
(A) All share and per share amounts have been adjusted to give effect for the 2
    for 1 stock splits distributed in January and May 1999.

BUSINESS RISKS AND FLUCTUATIONS IN RESULTS

     Our results of operations have varied widely in the past, and they could
continue to vary significantly due to a number of factors, including:

     - Patients' and doctors' acceptance of laser vision correction as a
       preferred means of vision correction;

     - Competition from manufacturers and users of other laser vision correction
       systems;

     - Introduction of new methods for vision correction which render our
       products less competitive or obsolete;

     - Changes in prices for our products and services as the result of new
       developments in our markets;

     - Developments in antitrust litigation to which we are currently a party;

     - Developments in patent litigation that we have initiated, particularly to
       the extent that adverse developments in these proceedings could limit our
       ability to collect license fees from sellers and users of laser vision
       correction equipment; and

     - Developments in patent litigation in which we are a defendant,
       particularly to the extent that adverse developments in these proceedings
       result in damages being assessed against VISX, prevent us from
       manufacturing or selling our products, or render certain of our patents
       invalid or unenforceable which would reduce the scope of proprietary
       protection available to us and could limit our ability to collect license
       fees from sellers and users of laser vision correction equipment.

     In the future, our revenue may fluctuate significantly. Any shortfall in
revenues below expectations would likely have an immediate impact on our
earnings per share, which could adversely affect the market price of our common
stock. Our operating expenses, which include sales and marketing, research and
development and general and administrative expenses, are based on our
expectations of future revenues and are relatively fixed in the short term.
Accordingly, if revenues fall below expectations, we will not be able to reduce
our spending rapidly in response to such a shortfall. This will adversely affect
our operating results. We devote significant resources to research and
development. We anticipate that the resulting new products and capabilities will
be well received by customers and generate future revenue, however the actual
results may vary from expectations. Due to the foregoing factors, we believe
that our results of operations in any given period may not be a good indicator
of our future performance.

                                        22
<PAGE>   24

LIQUIDITY AND CAPITAL RESOURCES

     Cash, cash equivalents and short-term investments ("cash") and working
capital were as follows:

<TABLE>
<CAPTION>
                                                               (000'S)
                                                             DECEMBER 31,
                                                         --------------------
                                                           2000        1999
                                                         --------    --------
<S>                                                      <C>         <C>
Cash, cash equivalents and short-term investments......  $229,453    $258,359
Working capital........................................   245,662     303,546
</TABLE>

     Cash decreased by $29 million in 2000 because we used more cash to buy back
stock on the open market ($91 million) than we generated from operations and
received from the exercise of stock options.

     In 1997 the board of directors authorized management to repurchase up to
8,000,000 shares of VISX common stock. In February 2000 the board of directors
replaced this plan with a new authorization for management to repurchase up to
10,000,000 shares of VISX common stock. Through purchases on the open market in
accordance with these authorizations and applicable securities laws, we
repurchased 7,306,000 shares at a total cost of $122,203,000 from 1998 through
2000. From January 1 through March 19, 2001, we repurchased 3,146,000 shares at
a total cost of $51,930,000. As of March 19, 2001, 3,008,000 shares remain
available for repurchase under the board of directors' February 2000
authorization. These share figures have been adjusted for the 2 for 1 stock
splits distributed in January and May 1999. Before repurchasing shares, we
consider a number of factors including market conditions, the market price of
the stock, and the number of shares needed for employee benefit plans. As a
result, we cannot predict the number of shares that we may repurchase in the
future.

     Purchases of short-term investments represent reinvestment into short-term
investments of the proceeds from short-term investments that matured and
investment of cash and cash equivalents. As of December 31, 2000 we did not have
any borrowings outstanding nor any credit agreements. We believe that our
current cash, cash equivalents and short-term investments plus anticipated cash
flows from operations will be sufficient to cover our working capital and
capital equipment needs at least through the next twelve months.

NEW ACCOUNTING PRONOUNCEMENTS

     In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"). It establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments imbedded in other contracts, and for hedging activities. It requires
that we recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. We
are required to adopt SFAS No. 133 in the first quarter of 2001. We do not
expect the impact of adopting SFAS No. 133 to have a material adverse effect on
our financial position or results of operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Interest Rate Risk. We invest our cash, beyond that needed for daily
operations, in high quality debt securities. We seek primarily to preserve the
value and liquidity of our capital, and secondarily to safely earn income from
these investments. To accomplish these goals, we invest only in debt securities
issued by (1) the U.S. Treasury and U.S. government agencies and corporations
and (2) U.S. corporations that meet the following criteria:

     - Rated investment grade "A" or higher by the major rating services

     - Can readily be resold for cash

     - Mature no more than 3 years from our date of purchase

                                        23
<PAGE>   25

     The following table shows the expected cash flows at maturity from our
investments in debt securities ($000's).

<TABLE>
<CAPTION>
                                               2001      2002      2003     2004   2005   BEYOND
                                             --------   -------   -------   ----   ----   ------
<S>                                          <C>        <C>       <C>       <C>    <C>    <C>
Cash equivalents and short-term investments
  (amortized cost as of December 31,
  2000)....................................  $128,364   $63,514   $25,665   $--    $--     $--
Weighted average effective interest rate...       6.2%      7.0%      7.0%   --     --      --
</TABLE>

     Foreign Currency Exchange Rate Risk. We sell products in various
international markets. Virtually all of these sales are contracted and paid for
in U.S. Dollars. As of December 31, 2000 we have no outstanding foreign currency
hedge contracts. Accordingly, we have no material foreign currency exchange risk
as of December 31, 2000.

                                        24
<PAGE>   26

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                      VISX, INCORPORATED AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
               (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

                                     ASSETS

<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                              --------------------
                                                                2000        1999
                                                              --------    --------
<S>                                                           <C>         <C>
CURRENT ASSETS
  Cash and cash equivalents.................................  $ 19,686    $ 25,842
  Short-term investments....................................   209,767     232,517
  Accounts receivable, net of allowances for doubtful
     accounts of $5,771 and $1,773, respectively............    34,540      51,254
  Inventories...............................................    14,762      10,669
  Deferred tax assets and prepaid expenses..................    19,642      29,192
                                                              --------    --------
          Total current assets..............................   298,397     349,474
PROPERTY AND EQUIPMENT, NET.................................     4,996       5,681
LONG-TERM DEFERRED TAX AND OTHER ASSETS.....................    18,114       7,566
                                                              --------    --------
                                                              $321,507    $362,721
                                                              ========    ========

                       LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
  Accounts payable..........................................  $  7,353    $  5,156
  Accrued liabilities.......................................    45,382      40,772
                                                              --------    --------
          Total current liabilities.........................    52,735      45,928
                                                              --------    --------
COMMITMENTS AND CONTINGENCIES (NOTES 8 AND 9)
STOCKHOLDERS' EQUITY:
  Common stock -- $.01 par value, 180,000,000 shares
     authorized; 64,990,089 and 64,890,946 shares issued at
     December 31, 2000 and 1999, respectively...............       650         649
  Additional paid-in capital................................   214,668     220,049
  Less: 4,233,989 and 2,939 common stock treasury shares at
     December 31, 2000 and 1999, respectively, at cost......   (79,946)       (153)
  Accumulated other comprehensive income (loss).............       984        (947)
  Retained earnings.........................................   132,416      97,195
                                                              --------    --------
          Total stockholders' equity........................   268,772     316,793
                                                              --------    --------
                                                              $321,507    $362,721
                                                              ========    ========
</TABLE>

   The accompanying notes are an integral part of these financial statements.
                                        25
<PAGE>   27

                      VISX, INCORPORATED AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                             --------------------------------
                                                               2000        1999        1998
                                                             --------    --------    --------
<S>                                                          <C>         <C>         <C>
REVENUES:
  System sales.............................................  $ 60,678    $ 74,415    $ 40,799
  License, service and other revenue.......................   139,570     196,837      92,951
                                                             --------    --------    --------
          Total revenues...................................   200,248     271,252     133,750
                                                             --------    --------    --------
COSTS AND EXPENSES:
  Cost of revenues.........................................    62,684      57,513      31,109
  Marketing, general and administrative....................    66,613      56,166      32,138
  Research, development and regulatory.....................    14,959      15,475      11,283
                                                             --------    --------    --------
          Total costs and expenses.........................   144,256     129,154      74,530
                                                             --------    --------    --------
INCOME FROM OPERATIONS.....................................    55,992     142,098      59,220
                                                             --------    --------    --------
OTHER INCOME (EXPENSE):
  Interest income..........................................    14,080      10,848       5,536
  Litigation settlement....................................   (11,856)         --     (35,000)
                                                             --------    --------    --------
     Other income (expense), net...........................     2,224      10,848     (29,464)
                                                             --------    --------    --------
INCOME BEFORE PROVISION FOR INCOME TAXES...................    58,216     152,946      29,756
  Provision for income taxes...............................    22,995      61,178       4,166
                                                             --------    --------    --------
NET INCOME.................................................  $ 35,221    $ 91,768    $ 25,590
                                                             ========    ========    ========
EARNINGS PER SHARE
  Basic....................................................  $   0.57    $   1.45    $   0.42
                                                             ========    ========    ========
  Diluted..................................................  $   0.55    $   1.35    $   0.39
                                                             ========    ========    ========
SHARES USED FOR EARNINGS PER SHARE
  Basic....................................................    61,431      63,474      61,014
                                                             ========    ========    ========
  Diluted..................................................    63,778      68,119      65,398
                                                             ========    ========    ========
</TABLE>

   The accompanying notes are an integral part of these financial statements.
                                        26
<PAGE>   28

                      VISX, INCORPORATED AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                      FOREIGN
                                                    COMMON                           CURRENCY/    COMPRE-   RETAINED    TOTAL
                                           COMMON   STOCK    ADDITIONAL              UNREALIZED   HENSIVE   EARNINGS    STOCK-
                                           SHARES    PAR      PAID-IN     TREASURY    HOLDING     INCOME    (ACCUM.    HOLDERS'
                                           ISSUED   VALUE     CAPITAL      STOCK       GAINS      (LOSS)    DEFICIT)    EQUITY
                                           ------   ------   ----------   --------   ----------   -------   --------   --------
<S>                                        <C>      <C>      <C>          <C>        <C>          <C>       <C>        <C>
BALANCE, DECEMBER 31, 1997...............  62,070    $620     $133,231    $ (3,442)   $    53               $(20,163)  $110,299
Repurchases of common stock..............     --       --           --     (18,645)        --                     --    (18,645)
Exercise of stock options................     --       --       (5,187)     16,995         --                     --     11,808
Common stock issued under the Employee
  Stock Purchase Plan....................     --       --           15         511         --                     --        526
Income tax benefit arising from employee
  stock option plans.....................     --       --        9,276          --         --                     --      9,276
Comprehensive income:
  Net income.............................     --       --           --          --         --     $25,590     25,590     25,590
  Adjustment for unrealized holding gain
    on available-for-sale securities.....     --       --           --          --        135         135         --        135
                                                                                                  -------
  Comprehensive income...................                                                         $25,725
                                           ------    ----     --------    --------    -------     =======   --------   --------
BALANCE, DECEMBER 31, 1998...............  62,070     620      137,335      (4,581)       188                  5,427    138,989
Repurchases of common stock..............     --       --           --     (12,785)        --                     --    (12,785)
Exercise of stock options................  2,789       28        7,070      17,213         --                     --     24,311
Common stock issued under the Employee
  Stock Purchase Plan....................     32        1          761          --         --                     --        762
Income tax benefit arising from employee
  stock option plans.....................     --       --       74,883          --         --                     --     74,883
Comprehensive income:
  Net income.............................     --       --           --          --         --     $91,768     91,768     91,768
  Foreign currency translation
    adjustment...........................     --       --           --          --         68          68         --         68
  Adjustment for unrealized holding loss
    on available-for-sale securities.....     --       --           --          --     (1,203)     (1,203)        --     (1,203)
                                                                                                  -------
  Comprehensive income...................                                                         $90,633
                                           ------    ----     --------    --------    -------     =======   --------   --------
BALANCE, DECEMBER 31, 1999...............  64,891     649      220,049        (153)      (947)                97,195    316,793
Repurchases of common stock..............     --       --           --     (90,772)        --                     --    (90,772)
Exercise of stock options................     99        1       (5,583)      9,871         --                     --      4,289
Common stock issued under the Employee
  Stock Purchase Plan....................     --       --         (222)      1,108         --                     --        886
Income tax benefit arising from employee
  stock option plans.....................     --       --          424          --         --                     --        424
Comprehensive income:
  Net income.............................     --       --           --          --         --     $35,221     35,221     35,221
  Foreign currency translation
    adjustment...........................     --       --           --          --        (67)        (67)        --        (67)
  Adjustment for unrealized holding gain
    on available-for-sale securities.....     --       --           --          --      1,998       1,998         --      1,998
                                                                                                  -------
  Comprehensive income...................                                                         $37,152
                                           ------    ----     --------    --------    -------     =======   --------   --------
BALANCE, DECEMBER 31, 2000...............  64,990    $650     $214,668    $(79,946)   $   984               $132,416   $268,772
                                           ======    ====     ========    ========    =======               ========   ========
</TABLE>

   The accompanying notes are an integral part of these financial statements.
                                        27
<PAGE>   29

                      VISX, INCORPORATED AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                YEAR ENDED DECEMBER 31,
                                                           ----------------------------------
                                                             2000        1999         1998
                                                           --------    ---------    ---------
<S>                                                        <C>         <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income.............................................  $ 35,221    $  91,768    $  25,590
  Adjustments to reconcile net income to net cash
     provided by operating activities:
     Depreciation and amortization.......................     3,515        3,132        2,083
     Income tax benefit from exercise of stock options...       424       74,883        9,276
     Reserve for doubtful accounts receivable, net
       increase..........................................     3,998          153          806
     Increase (decrease) in cash flows from changes in
       operating assets and liabilities:
       Accounts receivable...............................    12,716      (23,585)     (12,150)
       Inventories.......................................    (4,093)      (3,849)      (2,073)
       Deferred tax assets and prepaid expenses..........     9,550      (13,735)     (13,582)
       Long-term deferred tax and other assets...........    (7,148)      (2,441)      (4,096)
       Accounts payable..................................     2,197        1,474       (1,771)
       Accrued liabilities...............................     4,610        6,824       19,348
                                                           --------    ---------    ---------
       Net cash provided by operating activities.........    60,990      134,624       23,431
                                                           --------    ---------    ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Capital expenditures, net..............................    (2,830)      (3,957)      (1,549)
  Equity investments, technology.........................    (3,400)          --           --
  Short-term investments
     Available-for-sale securities:
       Purchases.........................................   (96,367)    (240,322)    (114,900)
       Proceeds from maturities..........................   121,115       93,271       99,247
                                                           --------    ---------    ---------
  Net cash provided by (used in) investing activities....    18,518     (151,008)     (17,202)
                                                           --------    ---------    ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Exercise of stock options..............................     5,108       25,141       12,334
  Repurchases of common stock............................   (90,772)     (12,785)     (18,645)
                                                           --------    ---------    ---------
  Net cash provided by (used in) financing activities....   (85,664)      12,356       (6,311)
                                                           --------    ---------    ---------
Net decrease in cash and cash equivalents................    (6,156)      (4,028)         (82)
Cash and cash equivalents, beginning of year.............    25,842       29,870       29,952
                                                           --------    ---------    ---------
Cash and cash equivalents, end of year...................  $ 19,686    $  25,842    $  29,870
                                                           ========    =========    =========
</TABLE>

   The accompanying notes are an integral part of these financial statements.
                                        28
<PAGE>   30

                      VISX, INCORPORATED AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     VISX, Incorporated. We develop products and procedures to improve people's
vision with laser vision correction. Our current principal product, the VISX
System, is designed to correct the shape of a person's eyes to reduce or
eliminate their need for eyeglasses or contact lenses. The FDA has approved the
VISX System for use in the treatment of most types of vision problems including
nearsightedness, farsightedness, and astigmatism. We sell VisionKey(R) cards to
control the use of the VISX System and to collect license fees for the use of
our patents.

     Use of Estimates. In order to prepare financial statements in conformity
with generally accepted accounting principles ("GAAP"), we are required to make
estimates and assumptions. Examples include estimates of our tax liabilities,
the amount of our accounts receivable that we will be unable to collect, the
potential for inventory obsolescence, or the expenses we will incur to provide
service under warranty obligations. These affect the value of the assets and
liabilities, contingent assets and liabilities, and revenues and expenses that
we report in our financial statements. Our actual results could differ from our
estimates.

     Principles of Consolidation. Our consolidated financial statements include
the accounts of VISX, Incorporated and its wholly owned subsidiaries (the
"Company" or "VISX") after the elimination of significant intercompany accounts
and transactions.

     Translation of Foreign Currencies. The local currency is the functional
currency for our foreign operations in Japan. Gains and losses from translation
of our Japanese foreign operations are included as a component of stockholders'
equity. Foreign currency transaction gains and losses are recognized in the
statement of operations and have not been material.

     Cash, Cash Equivalents and Short-term Investments. Cash equivalents are
debt securities that mature within 90 days after we purchase them and can be
resold for cash before they mature. Short-term investments are debt securities
that mature more than 90 days after we purchase them. Our short-term investments
are all classified as current available-for-sale securities because we may sell
them before they reach maturity. They are carried at fair market value, with
unrealized holding gains and losses recorded in stockholders' equity. The cost
of securities sold is based on the specific identification method.

     Fair Value of Financial Instruments. The values we show for our financial
assets and liabilities as of December 31, 2000 and 1999 (including cash and cash
equivalents, accounts receivable, accounts payable, and accrued liabilities)
approximate the fair market value of these assets and liabilities due to their
short maturity.

     Inventories. Inventories consist of purchased parts, subassemblies and
finished systems and are stated at the lower of cost or market, using the
first-in, first-out method. Inventory costs include material, labor, and
overhead. Inventories consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                           ------------------
                                                            2000       1999
                                                           -------    -------
<S>                                                        <C>        <C>
Raw Materials and Subassemblies..........................  $ 9,278    $ 5,310
Work-in-Process..........................................    4,099      4,756
Finished Goods...........................................    1,385        603
                                                           -------    -------
                                                           $14,762    $10,669
                                                           =======    =======
</TABLE>

     Property and Equipment. Property and equipment is depreciated using the
straight-line method over the estimated useful lives of the assets, generally
two to seven years, or the term of the related lease in the case of

                                        29
<PAGE>   31
                      VISX, INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

leasehold improvements. Property and equipment is stated at cost and consisted
of the following (in thousands):

<TABLE>
<CAPTION>
                                                             DECEMBER 31,
                                                          -------------------
                                                            2000       1999
                                                          --------    -------
<S>                                                       <C>         <C>
Furniture and fixtures..................................  $  2,822    $ 2,745
Machinery and equipment.................................    12,366      9,913
Leasehold improvements..................................     1,904      1,610
                                                          --------    -------
                                                            17,092     14,268
Less: accumulated depreciation and amortization.........   (12,096)    (8,587)
                                                          --------    -------
Property and equipment, net.............................  $  4,996    $ 5,681
                                                          ========    =======
</TABLE>

     Revenue Recognition. We record revenue and the cost of installation,
training, and warranty services when we ship and, where applicable, install
products. Software that is used in our systems is included at the time of
shipment. We recognize service revenue when we provide service. We recognize
license revenue when we ship VisionKey(R) cards in the United States and when we
receive payments from international licensees.

     In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements" ("SAB
No. 101"). It provides guidance on applying generally accepted accounting
principles to revenue recognition issues in financial statements. We adopted SAB
No. 101 as required in the fourth quarter of 2000 and there was no material
impact to our financial statements as a result.

     Earnings Per Share. Basic earnings per share ("EPS") equals net income
available to common stockholders divided by the weighted average number of
common shares outstanding. Diluted EPS equals net income available to common
stockholders divided by the weighted average number of common shares outstanding
plus dilutive potential common shares calculated in accordance with the treasury
stock method. All amounts in the following table are in thousands, except per
share data.

<TABLE>
<CAPTION>
                                                           YEAR ENDED DECEMBER 31,
                                                        -----------------------------
                                                         2000       1999       1998
                                                        -------    -------    -------
<S>                                                     <C>        <C>        <C>
NET INCOME............................................  $35,221    $91,768    $25,590
                                                        =======    =======    =======
BASIC EARNINGS PER SHARE
  Income available to common shareholders.............  $35,221    $91,768    $25,590
  Weighted average common shares outstanding..........   61,431     63,474     61,014
                                                        -------    -------    -------
  Basic earnings per share............................  $  0.57    $  1.45    $  0.42
                                                        =======    =======    =======
DILUTED EARNINGS PER SHARE
  Income available to common shareholders.............  $35,221    $91,768    $25,590
                                                        -------    -------    -------
  Weighted average common shares outstanding..........   61,431     63,474     61,014
  Dilutive potential common shares from stock
     options..........................................    2,347      4,645      4,384
                                                        -------    -------    -------
  Weighted average common shares and dilutive
     potential common shares..........................   63,778     68,119     65,398
                                                        -------    -------    -------
  Diluted earnings per share..........................  $  0.55    $  1.35    $  0.39
                                                        =======    =======    =======
</TABLE>

     Options to purchase 2,756,000, 125,000 and 214,000 weighted shares
outstanding during 2000, 1999 and 1998, respectively, were excluded from the
computation of diluted EPS because the options' exercise prices were greater
than the average market price of the Company's common stock during those years.

     New Accounting Pronouncements. In June 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standard No. 133
"Accounting for Derivative Instruments and Hedging

                                        30
<PAGE>   32
                      VISX, INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Activities" ("SFAS No. 133"). It establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments imbedded in
other contracts, and for hedging activities. It requires that we recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. We are required to adopt
SFAS No. 133 in the first quarter of 2001. We do not expect the impact of
adopting SFAS No. 133 to have a material adverse effect on our financial
position or results of operations.

NOTE 2. SEGMENT REPORTING

     Segments. Statement of Financial Accounting Standards No. 131, "Disclosures
About Segments of an Enterprise and Related Information," ("SFAS No. 131")
established standards for reporting information about operating segments in
financial statements. Operating segments are defined as components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief decision maker, or chief decision making group,
in deciding how to allocate resources and in assessing performance. Our
President and CEO is our chief decision maker. Our business is focused on one
industry segment, products and procedures to improve people's vision with laser
vision correction. All of our revenues and profits are generated through the
sale, licensing, and service of products for this one segment.

     Export Revenues. Export revenues accounted for 17%, 8% and 12% of total
revenues for the years ended December 31, 2000, 1999 and 1998, respectively. We
did not generate export revenues to any country that equaled or exceeded 10% of
our total revenues for any of the three years ended December 31, 2000. In the
following table we have presented our export revenues by geographic region (in
thousands):

<TABLE>
<CAPTION>
                                                           YEAR ENDED DECEMBER 31,
                                                        -----------------------------
                                                         2000       1999       1998
                                                        -------    -------    -------
<S>                                                     <C>        <C>        <C>
Europe................................................  $ 6,056    $ 4,554    $ 3,355
Americas (excluding the United States)................    5,221      3,287      4,810
Asia and Other........................................   22,256     14,640      8,406
                                                        -------    -------    -------
                                                        $33,533    $22,481    $16,571
                                                        =======    =======    =======
</TABLE>

     Major Customers. Laser Vision Centers, Inc. accounted for 10%, 13% and 10%
of total revenues in 2000, 1999 and 1998, respectively. TLC Laser Eye Centers,
Inc. accounted for 9%, 12% and 11% of total revenues in 2000, 1999 and 1998,
respectively. No other customer accounted for 10% or more of sales during any of
the three years ended December 31, 2000.

                                        31
<PAGE>   33
                      VISX, INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 3. INVESTMENTS

     Investments in securities consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                             DECEMBER 31, 2000                    DECEMBER 31, 1999
                                     ----------------------------------   ----------------------------------
                                                   GROSS                                GROSS
                                                 UNREALIZED   AGGREGATE               UNREALIZED   AGGREGATE
                                     AMORTIZED      GAIN        FAIR      AMORTIZED      GAIN        FAIR
                                       COST        (LOSS)       VALUE       COST        (LOSS)       VALUE
                                     ---------   ----------   ---------   ---------   ----------   ---------
<S>                                  <C>         <C>          <C>         <C>         <C>          <C>
SHORT-TERM INVESTMENTS
  Available-for-Sale Securities
     Debt securities of the U.S
       Treasury and U.S. government
       agencies and corporations...  $ 53,607       $ 93      $ 53,700    $ 97,714     $  (604)    $ 97,110
     Debt securities of U.S.
       corporations................   155,177        890       156,067     135,818        (411)     135,407
                                     --------       ----      --------    --------     -------     --------
                                      208,784        983       209,767     233,532      (1,015)     232,517
CASH EQUIVALENTS
  Available-for-Sale Securities
     Debt securities of U.S.
       corporations................     8,759         --         8,759      20,309          --       20,309
                                     --------       ----      --------    --------     -------     --------
          Total investments........  $217,543       $983      $218,526    $253,841     $(1,015)    $252,826
                                     ========       ====      ========    ========     =======     ========
</TABLE>

     There were no gross realized gains or losses on available-for-sale
securities. All available-for-sale securities held at December 31, 2000 mature
within three years of that date.

NOTE 4. ACCRUED LIABILITIES

     Accrued liabilities consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                           ------------------
                                                            2000       1999
                                                           -------    -------
<S>                                                        <C>        <C>
Payroll and related accruals.............................  $ 3,898    $ 5,869
Accrued warranty and training expenses...................    5,930      6,391
Accrued royalties........................................      363      1,850
Deposits and deferred revenue............................   11,974     10,216
Accrued sales promotions and distributor commissions.....   10,535      5,019
Accrued income and sales taxes...........................    9,419      8,367
Accrued legal expenses...................................    1,143      2,330
Other....................................................    2,120        730
                                                           -------    -------
                                                           $45,382    $40,772
                                                           =======    =======
</TABLE>

NOTE 5. STOCK BASED COMPENSATION PLANS

     We have two open stock option plans, the 2000 Stock Plan (the "2000 Plan")
and the 1995 Director Option Plan (the "Director Plan"), and an Employee Stock
Purchase Plan (the "Purchase Plan"). In addition, we have five terminated stock
option plans with options still outstanding.

     We may account for these plans following either Accounting Principles Board
Opinion No. 25 ("APB No. 25") or Statement of Financial Accounting Standards No.
123 ("SFAS No. 123"). We have elected to follow APB No. 25 and, accordingly,
have recorded no compensation expense associated with these plans. If we had
elected to follow SFAS No. 123, we would have recorded compensation expense for
options granted

                                        32
<PAGE>   34
                      VISX, INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

under these plans and our net income and earnings per share would have been
adjusted to the following pro forma amounts (in thousands, except per share
data).

<TABLE>
<CAPTION>
                                                            YEAR ENDED DECEMBER 31,
                                                         -----------------------------
                                                          2000       1999       1998
                                                         -------    -------    -------
<S>                                       <C>            <C>        <C>        <C>
Net Income..............................  As Reported    $35,221    $91,768    $25,590
                                          Pro Forma       12,830     69,868     18,733
Diluted Earnings Per Share..............  As Reported    $  0.55    $  1.35    $  0.39
                                          Pro Forma         0.20       1.03       0.29
</TABLE>

     Under SFAS No. 123 the fair value of each option is estimated on the date
of grant using the Black-Scholes option pricing model. The following weighted
average assumptions were used for grants issued in 2000, 1999 and 1998,
respectively: risk-free interest rates of 6.3, 5.4 and 5.4 percent, expected
volatility of 78, 68 and 51 percent, no expected dividends, and an expected life
of 0.97, 1.15 and 1.70 years beyond the vest date for each year's vesting
increment of an option.

     Under the Purchase Plan, we may sell up to 2,000,000 shares of common stock
to our eligible, full-time employees who do not own 5% or more of our
outstanding common stock. Employees can allocate up to 10% of their wages to
purchase our stock at 85% of the fair market value of the stock on the first day
or the end of each six month segment of a two year offering period, whichever is
lower. We sold 58,198 shares, 31,675 shares and 69,680 shares in 2000, 1999 and
1998, respectively, and 592,377 shares cumulatively through December 31, 2000.
Accordingly, 1,407,623 shares were available for grant under the Purchase Plan
at December 31, 2000. The weighted average fair market value of shares sold in
2000 was $17.91 per share.

     As of December 31, 2000 we were authorized to grant options for up to
3,000,000 shares under the 2000 Plan and 1,000,000 shares under the Director
Plan. Through December 31, 2000 we have granted options on 334,025 shares and
315,000 shares, respectively, under these two plans and 2,686,125 and 685,000
shares, respectively, were available for grant under these two plans at December
31, 2000. Under both plans the option exercise price equals the stock's market
price on the date of grant, options generally vest 25% one year after the date
of grant and ratably thereafter over three years, and options expire ten years
from the date of grant. Options outstanding under the four terminated stock
option plans have generally the same eligibility and vesting terms as those
described for the 2000 Plan, though no further options may be granted under
these terminated plans.

     A summary of the status of the Company's stock option plans at December 31,
2000, 1999 and 1998 and changes during the years then ended is presented in the
following tables. Share amounts are shown in thousands.

<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                           --------------------------------------------------------------
                                                  2000                 1999                  1998
                                           ------------------   -------------------   -------------------
                                                    WTD. AVG.             WTD. AVG.             WTD. AVG.
                ACTIVITY                   SHARES   EX. PRICE   SHARES    EX. PRICE   SHARES    EX. PRICE
                --------                   ------   ---------   -------   ---------   -------   ---------
<S>                                        <C>      <C>         <C>       <C>         <C>       <C>
Outstanding, start of year...............   6,759    $17.61       8,308    $ 7.34       7,866     $5.69
Granted..................................   2,260     22.80       2,048     41.70       3,314      9.36
Exercised................................    (597)     7.19      (3,499)     7.10      (2,358)     4.93
Forfeited................................    (484)    26.64         (98)    25.30        (514)     6.26
                                           ------               -------               -------
Outstanding, end of year.................   7,938     19.32       6,759     17.61       8,308      7.34
                                           ======               =======               =======
Exercisable, end of year.................   4,033    $16.02       2,229    $11.33       2,736     $5.77
                                           ======               =======               =======
Weighted average fair value per option
  granted................................  $11.31               $ 17.16               $  4.27
                                           ======               =======               =======
</TABLE>

                                        33
<PAGE>   35
                      VISX, INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

<TABLE>
<CAPTION>
                                         DECEMBER 31, 2000
                  ---------------------------------------------------------------
                           OPTIONS OUTSTANDING              OPTIONS EXERCISABLE
                  -------------------------------------   -----------------------
                                             WTD. AVG.
                             WTD. AVG.      YEARS LEFT               WTD. AVG.
EXERCISE PRICES   SHARES   EXERCISE PRICE   TO EXERCISE   SHARES   EXERCISE PRICE
---------------   ------   --------------   -----------   ------   --------------
<S>               <C>      <C>              <C>           <C>      <C>
$ 2.81 - $  5.58    892        $ 4.96           5.7         808        $ 4.92
  5.63 -    5.88  1,499          5.72           7.0         972          5.72
  5.91 -   11.94  1,037          8.46           6.4         773          8.49
 12.00 -   18.25  1,099         17.05           8.8         137         14.80
 18.56 -   25.81  1,496         23.43           8.8         216         19.04
 26.13 -   30.50  1,307         30.19           8.3         874         30.50
 30.56 -  100.75    608         63.07           8.5         253         62.13
                  -----                                   -----
$ 2.81 - $100.75  7,938        $19.32           7.7       4,033        $16.02
                  =====                                   =====
</TABLE>

NOTE 6. STOCKHOLDERS' EQUITY

     In 1997 the board of directors authorized management to repurchase up to
8,000,000 shares of VISX common stock. In February 2000 the board of directors
replaced this plan with a new authorization for management to repurchase up to
10,000,000 shares of VISX common stock. Through purchases on the open market in
accordance with these authorizations and applicable securities laws, we
repurchased 7,306,000 shares at a total cost of $122,203,000 from 1998 through
2000. From January 1 through March 19, 2001, we repurchased 3,146,000 shares at
a total cost of $51,930,000. Accordingly, 3,008,000 shares remain available as
of March 19, 2001 for repurchase under the board of directors' February 2000
authorization. These share figures have been adjusted for the 2 for 1 stock
splits distributed in January and May 1999. Before repurchasing shares, we
consider a number of factors including market conditions, the market price of
the stock, and the number of shares needed for employee benefit plans. As a
result, we cannot predict the number of shares that we may repurchase in the
future.

NOTE 7. INCOME TAXES

     Our provision for income taxes consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                  YEAR ENDED DECEMBER 31,
                                              -------------------------------
                                               2000        1999        1998
                                              -------    --------    --------
<S>                                           <C>        <C>         <C>
Current:
  Federal...................................  $15,431    $ 60,764    $ 13,929
  State.....................................    5,930      14,340       4,350
                                              -------    --------    --------
                                               21,361      75,104      18,279
                                              -------    --------    --------
Deferred, net
  Federal...................................    3,315     (11,891)    (12,309)
  State.....................................   (1,681)     (2,035)     (1,804)
                                              -------    --------    --------
                                                1,634     (13,926)    (14,113)
                                              -------    --------    --------
Net tax provision...........................  $22,995    $ 61,178    $  4,166
                                              =======    ========    ========
</TABLE>

                                        34
<PAGE>   36
                      VISX, INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     Our provision for income taxes is comprised of the following elements, all
expressed as a percentage of income before provision for income taxes.

<TABLE>
<CAPTION>
                                                        YEAR ENDED DECEMBER 31,
                                                        ------------------------
                                                        2000     1999      1998
                                                        -----    -----    ------
<S>                                                     <C>      <C>      <C>
Statutory Federal income tax rate.....................  35.0%    35.0%     35.0%
State income taxes, net of Federal benefit............   5.6      5.2       5.6
R&D credit and foreign sales corporation benefit......  (1.1)    (0.2)     (0.7)
Change in valuation allowance.........................    --       --     (25.9)
                                                        ----     ----     -----
Effective income tax rate.............................  39.5%    40.0%     14.0%
                                                        ====     ====     =====
</TABLE>

     We paid $19,319,000 and $1,556,000 in income taxes during 2000 and 1998,
respectively. We received $171,000 in net income tax refunds during 1999.

     Our net deferred income tax assets were as follows (in thousands):

<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                           ------------------
                                                            2000       1999
                                                           -------    -------
<S>                                                        <C>        <C>
Net operating loss carryforwards
  Federal................................................  $    --    $ 8,400
  State..................................................       --        800
Cumulative temporary differences
  Allowance for doubtful receivables.....................    9,000        800
  Inventory reserves.....................................    1,500        900
  Warranty reserves......................................    2,300      2,400
  Accrued sales promotions and commissions...............      600      1,800
  Deferred revenue.......................................    6,500      1,700
  State income taxes.....................................    1,500      4,600
  Patent amortization....................................    1,000        700
  Other temporary differences............................    4,000      2,800
Tax credit carryforwards.................................      300      3,400
                                                           -------    -------
Net deferred income tax asset............................  $26,700    $28,300
                                                           =======    =======
</TABLE>

     We believe it is more likely than not that we will generate sufficient
taxable income in the future to take full benefit for temporary differences and
the tax credit carryforwards. Therefore, in accordance with GAAP, we have no
valuation allowance for our deferred income tax assets. However, given that the
laser vision correction industry is still evolving rapidly, we can provide no
assurance that our expectation for future taxable income will be realized. As of
December 31, 2000 we had Federal tax credit carryforwards of approximately
$300,000 that expire in 2019.

                                        35
<PAGE>   37
                      VISX, INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 8. COMMITMENTS

     We lease facilities and equipment under operating leases that expire
through 2005. Our expense under these leases was $1,074,000, $1,040,000 and
$1,027,000 for the years ended December 31, 2000, 1999 and 1998, respectively.
Our future minimum lease commitments, net of subleases, are as follows (all
amounts are shown in thousands).

<TABLE>
<CAPTION>
                                                       GROSS    SUBLEASE    NET
                                                       ------   --------   ------
<S>                                                    <C>      <C>        <C>
YEAR ENDED DECEMBER 31,
2001.................................................  $1,725    $(215)    $1,510
2002.................................................   1,609       --      1,609
2003.................................................     679       --        679
2004.................................................      47       --         47
2005.................................................      43       --         43
Thereafter...........................................      --       --         --
                                                       ------    -----     ------
          Total minimum lease payments...............  $4,103    $(215)    $3,888
                                                       ======    =====     ======
</TABLE>

NOTE 9. LITIGATION

     VISX is involved in a variety of legal proceedings that affect its
business. These include proceedings relating to patents and intellectual
property rights, proceedings relating to claims that VISX's activities have
violated antirust laws, including proceedings brought by private plaintiffs and
governmental agencies, class actions filed under federal securities laws and
other litigation proceedings. The nature of these proceedings, and the affect
that adverse determinations in the proceedings could have on VISX and its
business, financial condition and results of operations, are described below.

PATENT AND ANTITRUST PROCEEDINGS

OVERVIEW

     The patents owned by VISX are being challenged on several fronts.
Generally, the litigation and other proceedings center on the validity or
enforceability of the patents, and on whether infringement of the patents has
occurred. In addition, VISX's use of patents and its business practices are
being contested in several proceedings as violations of antitrust and securities
laws. The results of these complex legal proceedings are very difficult to
predict with certainty. Because a number of the proceedings have issues in
common, an adverse determination in one proceeding could lead to adverse
determinations in one or more of the other pending proceedings. Adverse
determinations in any of these proceedings could limit our ability to collect
equipment and use fees in certain markets, could give rise to significant
monetary damages, could prevent VISX from manufacturing and selling the VISX
System, and therefore could have a material adverse effect on VISX's business,
financial position and results of operations.

PATENT LITIGATION: NIDEK AND USERS OF NIDEK LASERS

  United States.

     In December 1998, Nidek received approval to market its laser vision
correction systems in the United States and VISX filed a lawsuit in the United
States District Court in Northern California alleging that Nidek's laser systems
infringe certain VISX patents (USDC ND Cal C98-04842). VISX is seeking
injunctive relief and monetary damages in that case. Nidek filed a lawsuit
against VISX on March 30, 1999 in the United States District Court in Northern
California alleging, among other things, that VISX's use of patents allegedly
obtained through inequitable conduct violates certain antitrust laws. This case
was consolidated with VISX's action against Nidek for patent infringement.

                                        36
<PAGE>   38
                      VISX, INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     In February 2000, four lawsuits filed during 1999 by VISX against certain
users of the Nidek laser system were transferred to Multi-District Litigation in
the United States District Court in Northern California for the purpose of
consolidating them with the actions between VISX and Nidek for pre-trial
proceedings (MDL Docket No. 1319, the "California MDL"). In these cases
(captioned VISX, Incorporated v. Farmington Eye Center PLLC and Donald C.
Fiander, MD (USDC ED Mich 99-60139); VISX, Incorporated v. OR Providers, Inc.,
Refractive Support, Inc., and Robert G. Wiley, M.D. (USDC ND Ohio 1:99CV00508);
VISX, Incorporated v. Southwest Eye Care Center, Inc. et al. (USDC SD Cal 99 CV
1029L); and VISX, Incorporated v. Antoine L. Garabet et al. (USDC CD Cal
99-05284)), VISX has alleged, among other things, that the defendants' use of
the Nidek laser system infringes one or more of VISX's patents and is seeking an
injunction against the defendants prohibiting the use of the Nidek laser system
and monetary damages. The defendants in these actions have filed counterclaims
seeking, among other things, a declaration of non-infringement, invalidity and
unenforceability of the patents asserted by VISX.

     In October 2000, VISX amended its suits against Nidek and certain users of
the Nidek laser system to assert only VISX United States Patents Nos. B1
5,108,388 (the "'388 patent") and 5,735,843. In October 2000, VISX also
initiated a new proceeding against Antoine L. Garabet in the United States
District Court in Northern California (USDC ND Cal CA No. C00-3633-CRB). In
December 2000, that case was dismissed without prejudice because it contained
parties and claims which were substantially similar to the parties and claims in
VISX's lawsuit against Dr. Garabet in the California MDL. The court has entered
a scheduling order in the California MDL with respect to patent claims
construction issues, but has not otherwise entered a scheduling order for these
cases. Discovery is ongoing in the California MDL.

     In January 2001, Nidek filed a lawsuit against VISX in the United States
District Court in Northern California alleging infringement of Nidek United
States Patents Nos. 5,445,633, 5,624,436 and 6,136,012 and seeking monetary
damages and injunctive relief. VISX has filed an answer to this complaint
denying infringement and asserting certain other defenses.

     At present we are unable to predict either the outcome or estimate the
potential adverse financial and operational impact, if any, that might arise
from these cases. However, adverse determinations in these lawsuits could limit
VISX's ability to collect equipment and license fees in the United States from
Nidek as well as from other sellers and users of laser vision correction
systems, could give rise to significant monetary damages and could result in an
order enjoining the manufacture and sale of the VISX System. Any such adverse
determination could therefore have a material adverse effect on VISX's business,
financial position and future results of operations.

  International.

     VISX is a plaintiff in patent-related litigation against Nidek in Canada
and France. These proceedings, which allege patent infringement by Nidek and
certain of its users, were filed by VISX in February 1994 (Canada) and May 1997
(France). The defendants have contested VISX's infringement claims as well as
the validity of VISX's patents. Trial in the Canadian proceeding took place in
September 1999 and, in December 1999, the Canadian Federal Court ruled that
Nidek and the other defendants had not infringed the VISX patents asserted in
the case. The court also found that VISX's patents were valid despite the
defendants' claims to the contrary. VISX, Nidek and the other defendants have
filed appeals of this decision. The proceeding in France is currently in the
pleading stage.

     In August 2000, Nidek filed an action in Japan against VISX's Japanese
subsidiary and others alleging infringement of Nidek's Japanese Patent No.
2,809,959 and seeking monetary damages and injunctive relief (Tokyo District
Court, the 47th Civil Division, Case No. (WA) 16531/2000). VISX thereafter
initiated proceedings in the Japanese Patent Office challenging the validity of
that Nidek patent.

                                        37
<PAGE>   39
                      VISX, INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     At present we are unable to predict either the outcome or estimate the
potential adverse financial and operational impact, if any, that might arise
from these cases. However, adverse determinations in any of these suits could
limit VISX's ability to collect license fees in certain markets and could give
rise to significant monetary damages. Moreover, an adverse determination in the
Japanese proceedings could result in an order enjoining the importation and sale
of VISX products to Japan. Any such adverse determinations could have a material
adverse effect on VISX's license revenues and its business, financial position
and future results of operations.

PATENT LITIGATION: LASERSIGHT

     In November 1999, VISX filed an action alleging that LaserSight had
infringed VISX United States Patent No. 4,718,418 (the "'418 patent") in the
United States District Court in Delaware (USDC Del. 99-789). In February 2000,
LaserSight filed a lawsuit against VISX in the same District Court seeking a
declaration of non-infringement and invalidity of the '418 patent and alleging
that VISX infringes United States Patent No. 5,630,810 (USDC Del. 00-059) which
is licensed to LaserSight. Both parties are seeking monetary damages and
injunctive relief. In March 2000, the two actions were consolidated. Discovery
is ongoing, and trial is currently scheduled for June 2001. At present we are
unable to predict either the outcome or estimate the potential adverse financial
and operational impact, if any, that might arise from this case. However,
adverse determinations in this action could give rise to monetary damages, could
limit VISX's ability to collect license fees, and could result in an order
enjoining the manufacture and sale of the VISX System in the United States, any
of which, in turn, could have a material adverse effect on VISX's business,
financial position and future results of operations.

FEDERAL TRADE COMMISSION ANTITRUST PROCEEDINGS

     On March 24, 1998, the Federal Trade Commission ("FTC") filed an
administrative complaint (Docket No. 9286) challenging the existence of Pillar
Point, a now-dissolved partnership between VISX Partner, Inc. ("VISX Partner")
and Summit Partner, Inc. ("Summit Partner"), and challenging the enforceability
of certain patents owned by VISX. On July 8, 1998 VISX reached a settlement with
the FTC and entered into a consent decree regarding the dissolution of Pillar
Point. On March 4, 1999, the FTC entered an order finalizing that consent
decree. The consent decree did not address the portion of the FTC's complaint
directed towards the enforceability of certain VISX patents. On June 4, 1999,
the FTC released the initial decision of its administrative law judge dismissing
the remaining portions of the FTC's complaint against VISX and, on June 21,
1999, the FTC attorneys filed notice that they would appeal the judge's decision
to the full Commission. On December 1, 1999, the FTC attorneys filed a
conditional motion to dismiss the FTC's complaint. The Commission dismissed the
remaining portions of the FTC's complaint on February 7, 2001. As a result, the
FTC proceedings against VISX have been concluded.

ANTITRUST CLASS ACTIONS

     Since the commencement of the FTC administrative proceeding on March 24,
1998, a large number of purported class actions have been filed against VISX,
Summit and, in some cases, also against their affiliates, VISX Partner, Summit
Partner, and Pillar Point. These actions allege, among other things, violations
of various state and federal antitrust and unfair competition laws. These cases
can be divided into two categories based on the type of class alleged: one on
behalf of purported classes of patients, and the other on behalf of purported
classes of direct purchasers.

  Patient Class Actions Filed in State Court.

     Several actions filed in California state court on behalf of purported
classes of patients have been consolidated into one case in the Superior Court
of the State of California for the County of Santa Clara,

                                        38
<PAGE>   40
                      VISX, INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

captioned In re PRK/LASIK Consumer Litigation, No. CV772894 ("In re PRK") filed
on June 12, 1998, and naming VISX, VISX Partner, Summit, and Summit Partner as
defendants. The plaintiffs in the consolidated action allege violations of the
California Business and Professions Code (under the Cartwright Act and the
Unfair Business Practices Act) on behalf of a putative nationwide class of
patients. On May 12, 1999, the court entered an order to which the parties had
stipulated conditionally certifying that the class shall include patients in 17
states and the District of Columbia. Discovery is ongoing in this action.

     In addition to the In re PRK action pending in California, VISX has been
named in several duplicative actions in other states on behalf of purported
classes of patients:

     Florida. In Marks v. Summit Technology Inc., et al., filed on April 27,
1998 in Florida state court, plaintiff brought suit on behalf of a purported
class of patients in several states alleging violations of the Florida antitrust
and unfair competition laws. On December 15, 1999, the Marks case was stayed
pending the final resolution of the In re PRK action.

     Wisconsin. Worcester v. Summit Technology, Inc. et al. was filed on June
11, 1998 in Wisconsin state court on behalf of a purported class of Wisconsin
patients alleging violations of the Wisconsin antitrust and unfair competition
laws. In December 1998, the Worcester action was removed to federal court and
transferred to the Multi-District Litigation pending in Arizona described below.

     Minnesota. In May 1999, Brisson v. Summit Technology, Inc., VISX, Inc.,
Summit Partner, Inc., VISX Partner, Inc. and Pillar Point Partners was filed by
plaintiff on behalf of a purported class of Minnesota patients alleging
violations of Minnesota antitrust laws, seeking unspecified damages and
injunctive relief. In June 2000, the court stayed this proceeding pending
resolution of the In re PRK action.

  Direct Purchaser Class Actions Filed in Federal Court.

     In addition to the state court actions discussed above, a number of
purported class actions alleging violations of federal antitrust laws on behalf
of a purported class of direct purchasers have been filed in federal court
against VISX, Summit, and, in some cases, Pillar Point. All of these actions
have been transferred to the Multi-District Litigation in Arizona described
below. In October 1998, the United States District Court in Arizona entered an
order for consolidation of these class actions into a case captioned The
Antitrust Class Actions (USDC AZ Oct. 21, 1998). In August 2000, the Magistrate
Judge issued her Report and Recommendation supporting certification of a
nationwide class of direct purchasers who paid per procedure license fees to
VISX or Summit between September 1995 and the date of trial. Defendants have
objected to this determination and the District Court has not yet issued its
final ruling. Discovery is ongoing in this action.

     In each of the antitrust class actions described above the plaintiffs are
seeking unspecified damages and injunctive relief for alleged violations of
state and/or federal antitrust laws. Although we believe we have meritorious
defenses to the claims presented in these actions and intend to defend them
vigorously, at this point we are unable to predict either the outcome or
estimate the potential adverse financial and operational impact, if any, that
might arise from these cases. However, adverse determinations in one or more of
these cases could give rise to significant monetary damages and could limit
VISX's ability to collect license fees which, in turn, could have a material
adverse effect on VISX's business, financial position and future results of
operations.

MULTI-DISTRICT ANTITRUST LITIGATION INVOLVING PILLAR POINT PARTNERS

     On June 4, 1998 VISX and Summit agreed to dissolve Pillar Point and settle
all pending disputes and litigation between them. However, Pillar Point
continues to be a party in a number of cases. VISX and Summit share Pillar
Point's ongoing litigation expenses and each pursues its own interests in such
litigation.

                                        39
<PAGE>   41
                      VISX, INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     To consolidate conflicting discovery requests and save resources and
management time with respect to certain litigation involving Pillar Point, a
number of cases have been transferred to Multi-District Litigation in the United
States District Court in Arizona for pretrial proceedings under the caption In
re Pillar Point Partners Antitrust and Patent Litigation (MDL No. 1202, the
"Arizona MDL"). In addition to the antitrust class actions described above, the
following cases are pending in the Arizona MDL:

     Burlingame v. Pillar Point Partners, et al.; John R. Shepherd, M.D., Ltd.
v. Pillar Point Partners, et al. In June 1996, Dr. Burlingame filed suit against
Pillar Point, Summit, Summit Partner, VISX, and VISX Partner. In September 1996,
a corporation controlled by Dr. Shepherd filed suit against the same parties.
Both actions were filed in the United States District Court in Northern
California. Generally, the plaintiffs allege that the per procedure license fee
charged by Pillar Point was a violation of the Sherman Act or of corresponding
state antitrust laws and seek injunctions against alleged violations of such
laws, as well as monetary damages.

     Freedom Vision Laser Center, LP v. VISX, Incorporated et al. On May 28,
1999, Freedom Vision Laser Center filed an action on behalf of certain
physicians, which has been transferred to the Arizona MDL. In that case, the
plaintiffs allege, among other things, violations of federal and state antitrust
laws and are seeking unspecified damages and injunctive relief.

     Although we believe VISX and Pillar Point have meritorious defenses to the
claims presented in these actions and intend to defend them vigorously, at this
point we are unable to predict either the outcome or estimate the potential
adverse financial and operational impact, if any, that might arise from these
cases. However, adverse determinations in one or more of these cases could give
rise to significant monetary damages and could limit VISX's ability to collect
license fees which, in turn, could have a material adverse effect on VISX's
business, financial position and future results of operations.

UNFAIR COMPETITION ACTION FILED IN CALIFORNIA STATE COURT

     On January 24, 2000, a case captioned Antoine L. Garabet, M.D. and Abraham
v. Shammas, M.D. v. Summit Technology, Inc. and VISX (CV 787359) was filed in
the Superior Court of the State of California for the County of Santa Clara.
Plaintiffs brought this action purportedly on behalf of the public under Section
17200 of the Business and Professions Code, California's unfair competition law.
The complaint alleges various purported anticompetitive activities, similar to
the allegations made in the antitrust class actions described above. Plaintiffs
seek injunctive relief, disgorgement of profits, a constructive trust, and
attorneys' fees. On December 26, 2000, the court granted defendants' motion to
stay the action pending further court action or final resolution of the suits in
the In re PRK action and the Arizona MDL. Plaintiffs have appealed this decision
to the California Court of Appeal. At this point we are unable to predict either
the outcome or estimate the potential adverse financial and operational impact,
if any, that might arise from this case. However, an adverse determination in
this action could give rise to significant monetary damages and could have a
material adverse effect on VISX's business, financial position and future
results of operations.

SECURITIES CLASS ACTIONS AND DERIVATIVE LITIGATION

     VISX and certain of its officers were named as defendants in several
substantially similar securities class action lawsuits filed in February and
March 2000 in the United States District Court in Northern California. The
plaintiffs in these actions purport to represent a class of all persons who
purchased VISX's common stock between March 1, 1999 and February 22, 2000. The
complaints allege that the defendants made misleading statements in violation of
the federal securities laws, including Section 10(b) of the Securities Exchange
Act of 1934. In April 2000, the court consolidated the various actions under the
caption In re VISX, Inc. Securities Litigation C-00-0649-CRB, and appointed a
lead plaintiff. The lead plaintiff thereafter filed his consolidated amended
complaint, and the parties stipulated to the certification of a plaintiff class.
On September 20, 2000, defendants filed a motion to dismiss the consolidated
amended complaint. The disposition of this motion is discussed below in Footnote
10.
                                        40
<PAGE>   42
                      VISX, INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     On April 24, 2000, a purported stockholder derivative action was filed in
the Superior Court of the State of California for the County of Santa Clara
(CV789364). The complaint alleges that certain of VISX's officers and directors
breached fiduciary duties owed to VISX in connection with the circumstances
alleged in the securities class action complaints described above. VISX is a
nominal defendant in the action and no damages are sought against it. On May 30,
2000, the defendants and nominal defendant filed demurrers to the derivative
complaint. On October 3, 2000, the court sustained the demurrers, with leave
granted to file an amended derivative complaint. The court also permitted the
derivative plaintiffs to conduct limited discovery, which discovery is presently
ongoing. An amended derivative complaint must be filed within 30 days after the
completion of the limited discovery. There can be no assurance that these suits
will be resolved favorably to VISX or will not have a material adverse effect on
VISX's business, financial position and future results of operations.

LITIGATION SETTLEMENTS IN 2000

     VISX settled a number of litigation matters during 2000. Among the claims
settled were the antitrust and other claims against VISX filed by Jon Dishler,
DTC Eye Surgery Center, Inc., DTC Eye Associates, PC, Laser Institute of the
Rockies, LLC, and TELCO The Excimer Laser Compay Pty, Ltd. in the United States
District Court in Colorado. The settlement also included a resolution of the
claims filed in 1996 by Pillar Point, Summit Partner, and VISX Partner against
those same parties.

     Also settled was the action filed by John Taboada against Stephen Trokel,
VISX, and VISX Partner in the United States District Court in West Texas (USDC
West. Dist. Tex. SA-97-CA-794-FB) seeking, among other things, a declaration
that Taboada was the inventor of the '388 patent and a payment of royalties
received by VISX for the '388 patent. In connection with the settlement, the
parties signed and filed with the court a stipulated judgment stating that Dr.
Trokel is the sole inventor of the '388 patent. A stipulated dismissal was also
filed in the proceeding initiated by Taboada in the United States District Court
in the District of Columbia in which Taboada had sought a stay of the
reexamination of the '388 patent.

     VISX also settled an action filed against it by a group of former clinical
investigators of the system made by Taunton Technologies Corporation in which
the plaintiffs alleged federal antitrust law violations, breach of contract, and
unjust enrichment.

     In connection with these settlements, VISX paid a total of $11,856,000 in
one-time payments and related costs and fees.

     In September 2000, VISX filed an action against Bausch & Lomb in the United
States District Court in Delaware alleging that Bausch & Lomb infringed the '388
patent (USDC Del. CA No 00-849 JJF). In January 2001, the parties reached a
settlement of this action which provided, among other things, for the licensing
of the '388 patent and other VISX United States patents to Bausch & Lomb.

OTHER LITIGATION

     VISX is involved in various other legal proceedings which arise in the
normal course of business. These matters include product liability actions,
contract disputes and other matters. We could incur significant legal fees in
connection with these matters but based on currently available information, VISX
believes that the resolution of these cases is not likely to have a material
adverse effect on our business, financial position or future results of
operations.

NOTE 10. SUBSEQUENT EVENTS (UNAUDITED)

     On February 27, 2001, the United States District Court in Northern
California dismissed the consolidated amended complaint filed under the caption
In re Visx, Inc. Securities Litigation (No. C-00-0649-CRB) with prejudice. On
March 6, 2001, plaintiffs filed a notice of appeal to the United States Court of
Appeals for the Ninth Circuit.

                                        41
<PAGE>   43

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To VISX, Incorporated:

     We have audited the accompanying consolidated balance sheets of VISX,
Incorporated (a Delaware corporation) and subsidiaries as of December 31, 2000
and 1999, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 2000. These financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

     We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of VISX, Incorporated and
subsidiaries as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2000 in conformity with accounting principles generally accepted in
the United States.

     Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed under Item 14(a) is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in our audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required therein in relation to the basic
financial statements taken as a whole.

                                          ARTHUR ANDERSEN LLP

San Jose, California
January 15, 2001

                                        42
<PAGE>   44

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

     There have been no disagreements with the independent public accountants on
accounting and financial disclosure.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF VISX

     The information required by this Item 10 regarding directors of VISX is
incorporated into this item by reference to the information set forth under
"Election of Directors" and "Further Information Concerning the Board of
Directors" in VISX's definitive Proxy Statement (the "2001 Proxy Statement") to
be filed with the SEC and relating to its Annual Meeting of Stockholders to be
held on May 4, 2001. For information regarding the executive officers of VISX,
reference is made to Part I, Item 4A of this report.

ITEM 11. EXECUTIVE COMPENSATION

     The information required by this Item 11 regarding compensation of VISX's
directors and executive officers is incorporated into this item by reference
(except to the extent allowed by Item 402(a)(8) of Regulation S-K) to the 2001
Proxy Statement sections "Further Information Concerning the Board of
Directors -- Director Compensation," "Executive Compensation" and "Performance
Graph".

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information required by this Item 12 regarding beneficial ownership of
the Common Stock by certain beneficial owners and by management of VISX is
incorporated into this item by reference to the 2001 Proxy Statement section
"Principal Stockholders."

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required by this Item 13 regarding certain relationships
and related transactions with management of VISX is incorporated into this item
by reference to the 2001 Proxy Statement sections "Further Information
Concerning the Board of Directors" and "Executive Compensation."

                                        43
<PAGE>   45

                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) 1. 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, 2000:

        FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Consolidated Balance Sheets.................................   25
Consolidated Statements of Operations.......................   26
Consolidated Statements of Stockholders' Equity.............   27
Consolidated Statements of Cash Flows.......................   28
Notes to Consolidated Financial Statements..................   29
Report of Independent Public Accountants....................   42
</TABLE>

     2. The following financial statement schedule is filed as part of this
report:

         SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

     3. The Exhibits filed as a part of this Report are listed in the Index to
Exhibits.

(b) REPORTS ON FORM 8-K.

     One report on Form 8-K was filed during the fourth quarter of 2000:

          (1) Form 8-K filed on December 13, 2000 under Item 5 (Other Events) to
     which we attached (i) a copy of a VISX Press Release dated December 8, 2000
     announcing the amendment of the Company's By-laws and (ii) a copy of a
     letter to stockholders dated December 8, 2000 announcing the continuing
     consideration of strategic alternatives.

(c) EXHIBITS.

     See Index to Exhibits.

(d) FINANCIAL STATEMENT SCHEDULES.

     See Item 14(a)2, above.

                                        44
<PAGE>   46

                      VISX, INCORPORATED AND SUBSIDIARIES

                         FINANCIAL STATEMENT SCHEDULES

     The following additional consolidated financial statement schedule should
be considered in conjunction with VISX's consolidated financial statements. All
other schedules have been omitted because the required information is either not
applicable, not sufficiently material to require submission of the schedule, or
is included in the consolidated financial statements or the notes thereto. All
amounts are shown in thousands.

                SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
                                                     BALANCE     ADDITIONS                   BALANCE
                                                        AT       CHARGED TO                    AT
                                                     START OF    COSTS AND                   END OF
                    DESCRIPTION                       PERIOD      EXPENSES     DEDUCTIONS    PERIOD
                    -----------                      --------    ----------    ----------    -------
<S>                                                  <C>         <C>           <C>           <C>
Year Ended December 31, 1998
  - Allowance for reserves against accounts
    receivable and other assets due from
    customers......................................   $  814      $   810         $  4       $1,620
Year Ended December 31, 1999
  - Allowance for reserves against accounts
    receivable and other assets due from
    customers......................................    1,620          166           13        1,773
Year Ended December 31, 2000
  - Allowance for reserves against accounts
    receivable and other assets due from
    customers(A)...................................    1,773       19,894          896       20,771
</TABLE>

---------------
(A) Addition in 2000 includes $5,771 as reserve against accounts receivable and
    $15,000 as reserve against long-term other assets.

                                        45
<PAGE>   47

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                          VISX, Incorporated
                                          a Delaware corporation

                                          By:    /s/ ELIZABETH H. DAVILA
                                            ------------------------------------
                                                    Elizabeth H. Davila
                                                  Chief Executive Officer

Date: March 21, 2001

                               POWER OF ATTORNEY

     Each person whose signature appears below hereby constitutes and appoints
Elizabeth H. Davila and Timothy R. Maier, and each of them, his or her
attorneys-in-fact, each with the power of substitution, for him or her in any
and all capacities, to sign any amendments to this Report on Form 10-K, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting to said
attorneys-in-fact, or his substitute or substitutes, the power and authority to
perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he or she might or
could do in person, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.

     Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
                     SIGNATURE                                     TITLE                     DATE
                     ---------                                     -----                     ----
<C>                                                  <C>                                <S>
           PRINCIPAL EXECUTIVE OFFICER:

              /s/ ELIZABETH H. DAVILA                  President and Chief Executive    March 21, 2001
---------------------------------------------------               Officer
                Elizabeth H. Davila

           PRINCIPAL FINANCIAL OFFICER:

               /s/ TIMOTHY R. MAIER                   Executive Vice President, Chief   March 21, 2001
---------------------------------------------------   Financial Officer and Treasurer
                 Timothy R. Maier

           PRINCIPAL ACCOUNTING OFFICER:

               /s/ DEREK A. BERTOCCI                    Vice President, Controller      March 21, 2001
---------------------------------------------------
                 Derek A. Bertocci
</TABLE>

                                        46
<PAGE>   48

<TABLE>
<CAPTION>
                     SIGNATURE                                     TITLE                     DATE
                     ---------                                     -----                     ----
<C>                                                  <C>                                <S>
                    DIRECTORS:

                 /s/ MARK B. LOGAN                         Chairman of the Board        March 21, 2001
---------------------------------------------------
                   Mark B. Logan

               /s/ GLENDON E. FRENCH                             Director               March 21, 2001
---------------------------------------------------
                 Glendon E. French

               /s/ JOHN W. GALIARDO                              Director               March 21, 2001
---------------------------------------------------
                 John W. Galiardo

                 /s/ JAY T. HOLMES                               Director               March 21, 2001
---------------------------------------------------
                   Jay T. Holmes

              /s/ RICHARD B. SAYFORD                             Director               March 21, 2001
---------------------------------------------------
                Richard B. Sayford
</TABLE>

                               VISX, INCORPORATED

                               INDEX TO EXHIBITS
                                  [ITEM 14(c)]

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                             DESCRIPTION
-------                            -----------
<C>        <S>
 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 13,
           1995 (previously filed as Exhibit 3 to Quarterly Report on
           Form 10-Q for the quarter ended June 30, 1996)
 4.1*      Reference is made to Exhibits 3.1 and 3.2
 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 (previously filed as
           Exhibit 4.1 to Current Report on Form 8-K filed August 3,
           2000)
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
           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 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 Form 8-K dated June 3, 1992)
</TABLE>

                                        47
<PAGE>   49

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                             DESCRIPTION
-------                            -----------
<C>        <S>
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
           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 Form 10-K for the year ended December 31, 1994)
10.11*     Complaint filed on September 26, 1994 in the Superior Court
           for the County of Santa Clara by CAP Advisers Limited, CAP
           Trust, and Osterfak, Ltd. (previously filed as Exhibit 5.1
           to Form 8-K dated September 26, 1994)
10.12*+    Agreement effective as of November 20, 1995, among the
           Company, Alcon Laboratories, Inc., and Alcon
           Pharmaceuticals, Ltd. (previously filed as Exhibit 10.28 to
           Form 10-K for the year ended December 31, 1995)
10.13*     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 Form 10-K for
           the year ended December 31, 1995)
10.14*     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 Form 10-K
           for the year ended December 31, 1995)
10.15*     1995 Stock Plan (previously filed as Exhibit 10.2 to
           Quarterly Report on Form 10-Q for the quarter ended June 30,
           1996)
10.16*     1995 Director Option Plan (previously filed as Exhibit 10.1
           to Quarterly Report on Form 10-Q for the quarter ended June
           30, 1996)
10.17*     1996 Supplemental Stock Plan (previously filed as Exhibit
           10.3 to Form S-8 Registration Statement No. 333-23999)
10.18*+    Settlement Agreement dated June 17, 1997 (previously filed
           as Exhibit 99.1 to Current Report on Form 8-K dated June 17,
           1997)
10.19*+    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 Form 8-K/A filed July 28, 1999).
10.20      2000 Stock Plan
21.1*      Subsidiaries (previously filed as Exhibit 21.1 to Annual
           Report on Form 10-K for the year ended December 31, 1999)
23.1       Consent of Independent Public Accountants
</TABLE>

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

+ Confidential Treatment has been requested and granted for certain portions of
  this exhibit.

                                        48