##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION


Washington, D. C. 20549




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FORM 10-Q

|      |                                                                                           
|----- | ------------------------------------------------------------------------------------------
|[X]   | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF    1934
|      |                                                                                           
|      | For the quarterly period ended September 30, 2001                                         
|      |                                                                                           
|      | or                                                                                        
|      |                                                                                           
|[   ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  

For the transition period from                      to

Commission File Number 1-10694



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VISX, INCORPORATED


(Exact name of registrant as specified in its charter)




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|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|Delaware                                                       |  | 06-1161793                       
|                                                               |  |                                  
|(State or other Jurisdiction of
Incorporation or Organization) |  | (IRS Employer
Identification No.)

|                                                               |           
|-------------------------------------------------------------- | ----------
|3400 Central Expressway, Santa Clara, California    95051-0703
|                                                              
|(Address of principal executive offices)                       | (Zip Code)

(Registrants telephone number, including area code):(408) 733-2020

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 [   ]

Total number of shares of common stock outstanding as of October 31, 2001:
54,926,581





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TABLE OF CONTENTS



|                              |                                                                                               |                                                              |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------------------------ |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              | Item 1. Condensed Consolidated Interim Financial Statements                                  
|                              |                                                                                               | CONDENSED CONSOLIDATED INTERIM BALANCE SHEETS               
|                              |                                                                                               | CONDENSED CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS     
|                              |                                                                                               | CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS     
|                              |                                                                                               | NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
|                              | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                              | Item 3. Quantitative and Qualitative Disclosures about Market Risk                           
|PART II. OTHER INFORMATION   
|                              | Item 1. Legal Proceedings                                                                    
|                              | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                   



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##### Table of Contents



VISX, INCORPORATED
TABLE OF CONTENTS

|           |                       |                                                                                                                                                                          |  |      |    | 
|---------- | --------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---- | -- | 
|           |                       |                                                                                                                                                                          |  | Page
|           |                       |                                                                                                                                                                          |  |     
|PART I.    | FINANCIAL INFORMATION |                                                                                                                                                                          |  |      |   
|           | Item 1.               | Condensed Consolidated Interim Financial Statements                                                                                                                      |  |      |    | 
|           |                       | Condensed Consolidated Interim Balance Sheets as
of September 30, 2001 and December 31, 2000                                                                             |  |      | 3  | 
|           |                       | Condensed Consolidated Interim Statements of Operations for
the Three Months Ended September 30, 2001 and 2000 and for
the Nine Months Ended September 30, 2001 and 2000 |  |      | 4  | 
|           |                       | Condensed Consolidated Interim Statements of Cash Flows for
the Nine Months Ended September 30, 2001 and 2000                                                            |  |      | 5  | 
|           |                       | Notes to Condensed Consolidated Interim Financial Statements                                                                                                             |  |      | 6  | 
|           | Item 2.               | Managements Discussion and Analysis of Financial Condition
and Results of Operations                                                                                    |  |      |    | 
|           |                       | Overview                                                                                                                                                                 |  |      | 9  | 
|           |                       | Results of Operations                                                                                                                                                    |  |      | 9  | 
|           |                       | Liquidity and Capital Resources                                                                                                                                          |  |      | 10 | 
|           |                       | Business Risks and Fluctuations in Quarterly Results                                                                                                                     |  |      | 11 | 
|           | Item 3.               | Quantitative and Qualitative Disclosure about Market Risk                                                                                                                |  |      | 12 | 
|PART II.   | OTHER INFORMATION     |                                                                                                                                                                          |  |      |   
|           | Item 1.               | Legal Proceedings                                                                                                                                                        |  |      | 12 | 
|           | Item 6.               | Exhibits and Reports on Form 8-K                                                                                                                                         |  |      | 13 | 
|SIGNATURES |                       |                                                                                                                                                                          |  | 14   |   

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##### Table of Contents






PART I. FINANCIAL INFORMATION




Item 1. Condensed Consolidated Interim Financial Statements




VISX, INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED INTERIM BALANCE SHEETS
(In thousands, except share and per share amounts)

ASSETS

|                                        |                                                                                                |                                                                         |                            |                           |     |               |         |              |     |         |         | 
|--------------------------------------- | ---------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------- | -------------------------- | ------------------------- | --- | ------------- | ------- | ------------ | --- | ------- | ------- | 
|                                        |                                                                                                |                                                                         |                            |                           |     | September 30, |         | December 31,
|                                        |                                                                                                |                                                                         |                            |                           |     | 2001          |         | 2000        
|                                        |                                                                                                |                                                                         |                            |                           |     |               |         |             
|                                        |                                                                                                |                                                                         |                            |                           |     | (unaudited)   |         |              |     |        
|Current Assets:                         |                                                                                                |                                                                         |                            |                           |     |               |         |             
|                                        | Cash and cash equivalents                                                                      |                                                                         | $                          | 6,950                     |     |               | $       | 19,686       |    
|                                        | Short-term investments                                                                         |                                                                         |                            | 125,295                   |     |               |         | 209,767      |    
|                                        | Accounts receivable, net of allowance for
doubtful accounts of $4,658 and $5,771,
respectively |                                                                         |                            | 35,483                    |     |               |         | 34,540       |    
|                                        | Inventories                                                                                    |                                                                         |                            | 15,577                    |     |               |         | 14,762       |    
|                                        | Deferred tax assets and prepaid expenses                                                       |                                                                         |                            | 20,649                    |     |               |         | 19,642       |    
|                                        |                                                                                                |                                                                         |                            |                           |     |               |         |             
|                                        |                                                                                                |                                                                         |                            | Total current assets      |     |               | 203,954 |              |     |         | 298,397 | 
|Property and Equipment, net             |                                                                                                |                                                                         | 3,859                      |                           |     |               | 4,996   |             
|Long-Term Deferred Tax and Other Assets |                                                                                                |                                                                         | 20,209                     |                           |     |               | 18,114  |             
|                                        |                                                                                                |                                                                         |                            |                           |     |               |         |             
|                                        |                                                                                                | $                                                                       | 228,022                    |                           |     | $             | 321,507 |             
|                                        |                                                                                                |                                                                         |                            |                           |     |               |         |             
|LIABILITIES AND STOCKHOLDERS EQUITY   
|Current Liabilities:                    |                                                                                                |                                                                         |                            |                           |     |               |         |             
|                                        | Accounts payable                                                                               |                                                                         | $                          | 5,447                     |     |               | $       | 7,353        |    
|                                        | Accrued liabilities                                                                            |                                                                         |                            | 43,570                    |     |               |         | 45,382       |    
|                                        |                                                                                                |                                                                         |                            |                           |     |               |         |             
|                                        |                                                                                                |                                                                         |                            | Total current liabilities |     |               | 49,017  |              |     |         | 52,735  | 
|                                        |                                                                                                |                                                                         |                            |                           |     |               |         |             
|Stockholders Equity:                   |                                                                                                |                                                                         |                            |                           |     |               |         |             
|                                        | Common stock:                                                                                  |                                                                         |                            |                           |     |               |         |              |    
|                                        |                                                                                                | $.01 par value, 180,000,000 shares authorized;
64,990,089 shares issued |                            |                           | 650 |               |         |              | 650 |        
|                                        | Additional paid-in capital                                                                     |                                                                         |                            | 208,923                   |     |               |         | 214,668      |    
|                                        | Treasury stock, at cost 9,850,264 and 4,233,989
shares, respectively                           |                                                                         |                            | (172,944                  | )   |               |         | (79,946      | )  
|                                        | Accumulated comprehensive income                                                               |                                                                         |                            | 3,282                     |     |               |         | 984          |    
|                                        | Retained earnings                                                                              |                                                                         |                            | 139,094                   |     |               |         | 132,416      |    
|                                        |                                                                                                |                                                                         |                            |                           |     |               |         |             
|                                        |                                                                                                |                                                                         | Total stockholders equity |                           |     | 179,005       |         |              |     | 268,772 |        
|                                        |                                                                                                |                                                                         |                            |                           |     |               |         |             
|                                        |                                                                                                | $                                                                       | 228,022                    |                           |     | $             | 321,507 |             
|                                        |                                                                                                |                                                                         |                            |                           |     |               |         |             

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

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VISX, INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)

|                                         |                                       |                          |       |                    |        |                   |        |        |        |   |        |         |         |   |        |         |         | 
|---------------------------------------- | ------------------------------------- | ------------------------ | ----- | ------------------ | ------ | ----------------- | ------ | ------ | ------ | - | ------ | ------- | ------- | - | ------ | ------- | ------- | 
|                                         |                                       |                          |       | Three months ended |        | Nine months ended
|                                         |                                       |                          |       | September 30,      |        | September 30,    
|                                         |                                       |                          |       |                    |        |                  
|                                         |                                       |                          | 2001  |                    | 2000   |                   | 2001   |        | 2000  
|                                         |                                       |                          |       |                    |        |                   |        |        |       
|                                         |                                       |                          |       | (unaudited)       
|Revenues:                                |                                       |                          |       |                    |        |                   |        |        |        |   |        |         |         |   |        |        
|                                         | System sales                          |                          | $     | 13,485             |        |                   | $      | 12,263 |        |   | $      | 47,820  |         |   | $      | 47,462  |        
|                                         | License, service and other revenues   |                          |       | 25,055             |        |                   |        | 33,451 |        |   |        | 91,678  |         |   |        | 110,254 |        
|                                         |                                       |                          |       |                    |        |                   |        |        |        |   |        |         |         |   |        |        
|                                         |                                       | Total revenues           |       |                    | 38,540 |                   |        |        | 45,714 |   |        |         | 139,498 |   |        |         | 157,716 | 
|                                         |                                       |                          |       |                    |        |                   |        |        |        |   |        |         |         |   |        |        
|Costs and Expenses:                      |                                       |                          |       |                    |        |                   |        |        |        |   |        |         |         |   |        |        
|                                         | Cost of revenues                      |                          |       | 14,463             |        |                   |        | 13,905 |        |   |        | 48,100  |         |   |        | 47,803  |        
|                                         | Marketing, general and administrative |                          |       | 13,191             |        |                   |        | 11,109 |        |   |        | 36,580  |         |   |        | 38,293  |        
|                                         | Research, development and regulatory  |                          |       | 5,344              |        |                   |        | 4,218  |        |   |        | 14,486  |         |   |        | 11,069  |        
|                                         |                                       |                          |       |                    |        |                   |        |        |        |   |        |         |         |   |        |        
|                                         |                                       | Total costs and expenses |       |                    | 32,998 |                   |        |        | 29,232 |   |        |         | 99,166  |   |        |         | 97,165  | 
|                                         |                                       |                          |       |                    |        |                   |        |        |        |   |        |         |         |   |        |        
|Income From Operations                   |                                       |                          | 5,542 |                    |        |                   | 16,482 |        |        |   | 40,332 |         |         |   | 60,551 |        
|                                         | Interest and other income             |                          |       | 2,331              |        |                   |        | 3,417  |        |   |        | 8,532   |         |   |        | 10,395  |        
|                                         | Litigation settlement                 |                          |       |                   |        |                   |        |       |        |   |        | (37,821 | )       |   |        | (11,856 | )      
|                                         |                                       |                          |       |                    |        |                   |        |        |        |   |        |         |         |   |        |        
|Income Before Provision For Income Taxes |                                       |                          | 7,873 |                    |        |                   | 19,899 |        |        |   | 11,043 |         |         |   | 59,090 |        
|                                         | Provision for income taxes            |                          |       | 3,113              |        |                   |        | 7,861  |        |   |        | 4,365   |         |   |        | 23,341  |        
|                                         |                                       |                          |       |                    |        |                   |        |        |        |   |        |         |         |   |        |        
|Net Income                               |                                       | $                        | 4,760 |                    |        | $                 | 12,038 |        |        | $ | 6,678  |         |         | $ | 35,749 |        
|                                         |                                       |                          |       |                    |        |                   |        |        |        |   |        |         |         |   |        |        
|Earnings Per Share                       |                                       |                          |       |                    |        |                   |        |        |        |   |        |         |         |   |        |        
|                                         | Basic                                 |                          | $     | 0.09               |        |                   | $      | 0.20   |        |   | $      | 0.12    |         |   | $      | 0.58    |        
|                                         |                                       |                          |       |                    |        |                   |        |        |        |   |        |         |         |   |        |        
|                                         | Diluted                               |                          | $     | 0.08               |        |                   | $      | 0.19   |        |   | $      | 0.11    |         |   | $      | 0.56    |        
|                                         |                                       |                          |       |                    |        |                   |        |        |        |   |        |         |         |   |        |        
|Shares Used For Earnings Per Share       |                                       |                          |       |                    |        |                   |        |        |        |   |        |         |         |   |        |        
|                                         | Basic                                 |                          |       | 55,755             |        |                   |        | 60,600 |        |   |        | 57,257  |         |   |        | 61,644  |        
|                                         |                                       |                          |       |                    |        |                   |        |        |        |   |        |         |         |   |        |        
|                                         | Diluted                               |                          |       | 57,141             |        |                   |        | 63,248 |        |   |        | 58,867  |         |   |        | 64,132  |        
|                                         |                                       |                          |       |                    |        |                   |        |        |        |   |        |         |         |   |        |        

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

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VISX, INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
(In thousands)

|                                                     |                                                                                   |                                                                                     |                                          |          |                   |        |        |         |         |         |  
|---------------------------------------------------- | --------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------- | ---------------------------------------- | -------- | ----------------- | ------ | ------ | ------- | ------- | ------- | -
|                                                     |                                                                                   |                                                                                     |                                          |          | Nine months ended
|                                                     |                                                                                   |                                                                                     |                                          |          | September 30,    
|                                                     |                                                                                   |                                                                                     |                                          |          |                  
|                                                     |                                                                                   |                                                                                     |                                          |          | 2001              |        | 2000  
|                                                     |                                                                                   |                                                                                     |                                          |          |                   |        |       
|                                                     |                                                                                   |                                                                                     |                                          |          | (unaudited)      
|Cash flows from operating activities:                |                                                                                   |                                                                                     |                                          |          |                   |        |        |        
|                                                     | Net income                                                                        |                                                                                     | $                                        | 6,678    |                   |        | $      | 35,749  |        
|                                                     | Adjustments to reconcile net income to net cash
provided by operating activities: |                                                                                     |                                          |          |                   |        |        |         |        
|                                                     |                                                                                   | Depreciation and amortization                                                       |                                          |          | 2,849             |        |        |         | 2,518   |        
|                                                     |                                                                                   | Provision for doubtful accounts receivable                                          |                                          |          | (1,113            | )      |        |         | 948     |        
|                                                     |                                                                                   | Increase (decrease) in cash flows from
changes in operating assets and liabilities: |                                          |          |                   |        |        |         |         |        
|                                                     |                                                                                   |                                                                                     | Accounts receivable                      |          |                   | 170    |        |         |         | 8,901   |  
|                                                     |                                                                                   |                                                                                     | Inventories                              |          |                   | (815   | )      |         |         | (2,270  | )
|                                                     |                                                                                   |                                                                                     | Deferred tax assets and prepaid expenses |          |                   | (1,007 | )      |         |         | 11,823  |  
|                                                     |                                                                                   |                                                                                     | Long-term deferred tax and other assets  |          |                   | (2,095 | )      |         |         | (16,287 | )
|                                                     |                                                                                   |                                                                                     | Accounts payable                         |          |                   | (1,906 | )      |         |         | 1,586   |  
|                                                     |                                                                                   |                                                                                     | Accrued liabilities                      |          |                   | (1,812 | )      |         |         | 3,026   |  
|                                                     |                                                                                   |                                                                                     |                                          |          |                   |        |        |        
|                                                     |                                                                                   | Net cash provided by operating activities                                           |                                          |          | 949               |        |        |         | 45,994  |        
|                                                     |                                                                                   |                                                                                     |                                          |          |                   |        |        |        
|Cash flows from investing activities:                |                                                                                   |                                                                                     |                                          |          |                   |        |        |        
|                                                     | Capital expenditures                                                              |                                                                                     |                                          | (1,712   | )                 |        |        | (1,703  | )      
|                                                     | Purchase of short-term investments                                                |                                                                                     |                                          | (33,290  | )                 |        |        | (59,880 | )      
|                                                     | Proceeds from maturities of short-term investments                                |                                                                                     |                                          | 119,876  |                   |        |        | 103,288 |        
|                                                     |                                                                                   |                                                                                     |                                          |          |                   |        |        |        
|                                                     |                                                                                   | Net cash provided by investing activities                                           |                                          |          | 84,874            |        |        |         | 41,705  |        
|                                                     |                                                                                   |                                                                                     |                                          |          |                   |        |        |        
|Cash flows from financing activities:                |                                                                                   |                                                                                     |                                          |          |                   |        |        |        
|                                                     | Exercise of stock options                                                         |                                                                                     |                                          | 5,411    |                   |        |        | 5,490   |        
|                                                     | Repurchase of common stock                                                        |                                                                                     |                                          | (103,970 | )                 |        |        | (87,807 | )      
|                                                     |                                                                                   |                                                                                     |                                          |          |                   |        |        |        
|                                                     |                                                                                   | Net cash used in financing activities                                               |                                          |          | (98,559           | )      |        |         | (82,317 | )      
|                                                     |                                                                                   |                                                                                     |                                          |          |                   |        |        |        
|Net increase (decrease) in cash and cash equivalents |                                                                                   |                                                                                     | (12,736                                  | )        |                   |        | 5,382  |        
|Cash and cash equivalents, beginning of period       |                                                                                   |                                                                                     | 19,686                                   |          |                   |        | 25,842 |        
|                                                     |                                                                                   |                                                                                     |                                          |          |                   |        |        |        
|Cash and cash equivalents, end of period             |                                                                                   | $                                                                                   | 6,950                                    |          |                   | $      | 31,224 |        
|                                                     |                                                                                   |                                                                                     |                                          |          |                   |        |        |        

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

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VISX, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
September 30, 2001
(Unaudited)

1. Basis of Presentation:

We prepared our Condensed Consolidated Interim Financial Statements in
conformity with Securities and Exchange Commission rules and regulations.
Accordingly, we condensed or omitted certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles. Please read our 2000 Annual
Report on Form 10-K to gain a more complete understanding of these interim
financial statements.

We included in these interim financial statements all adjustments
(consisting primarily only of normal recurring adjustments) necessary to
present fairly our results for the interim period. Our interim financial
statements have not been audited.

2. Revenue Recognition:

We record revenue and the cost of installation, training, and warranty
services when we ship and, where applicable, install products. We recognize
service revenue when we provide service. We recognize license revenue when we
ship VisionKey® cards in the United States. We recognize license revenue from
manufacturing licensees when we receive payments.

3. Earnings Per Share:

Basic earnings per share (EPS) equals net income divided by the weighted
average number of common shares outstanding. Diluted EPS equals net income
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, and are unaudited.

|                           |                                                                     |   |                    |        |                   |   |        |        |      |   |       |        |  |   |        |        | 
|-------------------------- | ------------------------------------------------------------------- | - | ------------------ | ------ | ----------------- | - | ------ | ------ | ---- | - | ----- | ------ |  | - | ------ | ------ | 
|                           |                                                                     |   | Three Months Ended |        | Nine Months Ended
|                           |                                                                     |   | September 30,      |        | September 30,    
|                           |                                                                     |   |                    |        |                  
|                           |                                                                     |   | 2001               |        | 2000              |   | 2001   |        | 2000
|                           |                                                                     |   |                    |        |                   |   |        |        |     
|NET INCOME                 |                                                                     | $ | 4,760              |        |                   | $ | 12,038 |        |      | $ | 6,678 |        |  | $ | 35,749 |       
|                           |                                                                     |   |                    |        |                   |   |        |        |      |   |       |        |  |   |        |       
|BASIC EARNINGS PER SHARE   |                                                                     |   |                    |        |                   |   |        |        |      |   |       |        |  |   |        |       
|                           | Income available to common shareholders                             |   | $                  | 4,760  |                   |   | $      | 12,038 |      |   | $     | 6,678  |  |   | $      | 35,749 | 
|                           | Weighted average common shares outstanding                          |   |                    | 55,755 |                   |   |        | 60,600 |      |   |       | 57,257 |  |   |        | 61,644 | 
|                           |                                                                     |   |                    |        |                   |   |        |        |      |   |       |        |  |   |        |       
|                           | Basic Earnings Per Share                                            |   | $                  | 0.09   |                   |   | $      | 0.20   |      |   | $     | 0.12   |  |   | $      | 0.58   | 
|                           |                                                                     |   |                    |        |                   |   |        |        |      |   |       |        |  |   |        |       
|DILUTED EARNINGS PER SHARE |                                                                     |   |                    |        |                   |   |        |        |      |   |       |        |  |   |        |       
|                           | Income available to common shareholders                             |   | $                  | 4,760  |                   |   | $      | 12,038 |      |   | $     | 6,678  |  |   | $      | 35,749 | 
|                           |                                                                     |   |                    |        |                   |   |        |        |      |   |       |        |  |   |        |       
|                           | Weighted average common shares outstanding                          |   |                    | 55,755 |                   |   |        | 60,600 |      |   |       | 57,257 |  |   |        | 61,644 | 
|                           | Dilutive potential common shares from stock options                 |   |                    | 1,386  |                   |   |        | 2,648  |      |   |       | 1,610  |  |   |        | 2,488  | 
|                           |                                                                     |   |                    |        |                   |   |        |        |      |   |       |        |  |   |        |       
|                           | Weighted average common shares and dilutive potential common shares |   |                    | 57,141 |                   |   |        | 63,248 |      |   |       | 58,867 |  |   |        | 64,132 | 
|                           |                                                                     |   |                    |        |                   |   |        |        |      |   |       |        |  |   |        |       
|                           | Diluted Earnings Per Share                                          |   | $                  | 0.08   |                   |   | $      | 0.19   |      |   | $     | 0.11   |  |   | $      | 0.56   | 
|                           |                                                                     |   |                    |        |                   |   |        |        |      |   |       |        |  |   |        |       

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Options to purchase 4,024,000 shares and 1,903,000 shares during the nine
month periods ended September 30, 2001 and 2000, 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
these periods.

4. Inventories(in thousands):

|                                |       |   |               |        |              |   |       |        | 
|------------------------------- | ----- | - | ------------- | ------ | ------------ | - | ----- | ------ | 
|                                |       |   | September 30, |        | December 31,
|                                |       |   | 2001          |        | 2000        
|                                |       |   |               |        |             
|                                |       |   | (unaudited)   |        |              |   |      
|Raw materials and subassemblies |       | $ | 9,990         |        |              | $ | 9,278 |       
|Work in process                 |       |   | 2,597         |        |              |   | 4,099 |       
|Finished goods                  |       |   | 2,990         |        |              |   | 1,385 |       
|                                |       |   |               |        |              |   |       |       
|                                | Total |   | $             | 15,577 |              |   | $     | 14,762 | 
|                                |       |   |               |        |              |   |       |       

5. Comprehensive Income(unaudited, in thousands):

|                           |                                                                     |   |                    |       |                   |   |        |     |      |   |       |       |  |   |        |     |  
|-------------------------- | ------------------------------------------------------------------- | - | ------------------ | ----- | ----------------- | - | ------ | --- | ---- | - | ----- | ----- |  | - | ------ | --- | -
|                           |                                                                     |   | Three Months Ended |       | Nine Months Ended
|                           |                                                                     |   | September 30,      |       | September 30,    
|                           |                                                                     |   |                    |       |                  
|                           |                                                                     |   | 2001               |       | 2000              |   | 2001   |     | 2000
|                           |                                                                     |   |                    |       |                   |   |        |     |     
|NET INCOME                 |                                                                     | $ | 4,760              |       |                   | $ | 12,038 |     |      | $ | 6,678 |       |  | $ | 35,749 |    
|OTHER COMPREHENSIVE INCOME |                                                                     |   |                    |       |                   |   |        |     |      |   |       |       |  |   |        |    
|                           | Change in unrealized holding gains on available-for-sale
securities |   |                    | 1,242 |                   |   |        | 735 |      |   |       | 2,114 |  |   |        | 652 |  
|                           | Change in accumulated foreign currency translation adjustment       |   |                    | 15    |                   |   |        | (84 | )    |   |       | 184   |  |   |        | (85 | )
|                           |                                                                     |   |                    |       |                   |   |        |     |      |   |       |       |  |   |        |    
|COMPREHENSIVE INCOME       |                                                                     | $ | 6,017              |       |                   | $ | 12,689 |     |      | $ | 8,976 |       |  | $ | 36,316 |    
|                           |                                                                     |   |                    |       |                   |   |        |     |      |   |       |       |  |   |        |    

6. New Accounting Pronouncements

On June 29, 2001, the Financial Accounting Standard Board (FASB)
approved for issuance Statement of Financial Accounting Standards No. 141,
Business Combinations (SFAS 141), and Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142). Major
provisions of these statements are as follows:



| | (i)   |  | All business combinations initiated after June 30, 2001 must
use the purchase method of accounting;                                                                                                                                                                                                                                 
| | ----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (ii)  |  | The pooling of interest method of accounting is prohibited
except for transactions initiated before July 1, 2001;                                                                                                                                                                                                                   
|
| | (iii) |  | Intangible assets acquired in a business combination must be
recorded separately from goodwill if they arise from contractual or
other legal rights or are separable from the acquired entity and can
be sold, transferred, licensed, rented or exchanged, either
individually or as part of a related contract, asset or liability;

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| | (iv)   |  | Goodwill and intangible assets with indefinite lives are not
amortized but are tested for impairment annually using a fair value
approach, except in certain circumstances, and whenever there is an
impairment indicator;
| | ------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (v)    |  | Other intangible assets will continue to be valued and
amortized over their estimated lives;                                                                                                                              
|
| | (vi)   |  | In-process research and development will continue to be
written off immediately;                                                                                                                                          
|
| | (vii)  |  | All acquired goodwill must be assigned to reporting units
for purposes of impairment testing and segment reporting;                                                                                                       
|
| | (viii) |  | Effective January 1, 2002, goodwill existing as of June 30, 2001
will no longer be subject to amortization.                                                                                                               

Goodwill arising between June 29, 2001 and December 31, 2001 will not be
subject to amortization. Upon adoption of SFAS 142, on January 1, 2002, we
will no longer be required to amortize goodwill. However, since we have no
goodwill assets or amortization, adoption of these statements will have no
impact on our financial statements or results of operations.

In August 2001, the Financial Accounting Standard Board (FASB) issued
Statement of Financial Accounting Standards No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets (SFAS 144). An impairment loss
must be recognized if the net book value of long-lived assets exceeds:



| | (i)   |  | The future cash flows to be generated by these assets,
whether through continued operation or sale;
| | ----- |  | ---------------------------------------------------------------------------------------------------
|
| | (ii)  |  | The fair value of assets to be distributed to owners in a
spinoff;                                 
|
| | (iii) |  | The fair value of productive assets for which they are
exchanged.                                  

This statement applies to long-term leases, certain oil and gas properties, and
long-term prepaid assets. It does not apply to goodwill, intangible assets not
being amortized, investments in equity securities accounted for under the cost
or equity method, and certain other types of long-term assets. The provisions
of SFAS 144 are effective for financial statements issued for fiscal years
beginning after December 15, 2001. We believe this statement will not have any
material impact on VISXs financial statements or results of operations.

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Item 2. 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 our 2000 Annual Report and Form 10-K and under Business Risks and
Fluctuations In Results below. Please read these items carefully.

Overview

We develop products and procedures to improve peoples eyesight using
lasers. Our principal product, the VISX STAR Excimer 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 Food and Drug
Administration (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
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® 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. Economic,
market, and technology changes 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. Economic changes and new technologies or competition
may cause changes in prices for our products and services. 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® cards
to fluctuate or even decline. Accordingly, our past results may not be useful
in predicting our future results.

Results of Operations

|                                  |                           |   |                                  |      |                                 |   |        |      |      |  |      |    |        |   |         |      |   |   |         |      |   |  |     |    | 
|--------------------------------- | ------------------------- | - | -------------------------------- | ---- | ------------------------------- | - | ------ | ---- | ---- |  | ---- | -- | ------ | - | ------- | ---- | - | - | ------- | ---- | - |  | --- | -- | 
|                                  |                           |   | Three Months Ended September 30, |      | Nine Months Ended September 30,
|                                  |                           |   |                                  |      |                                
|                                  |                           |   | 2001                             |      | 2000                            |   | Change |      | 2001 |  | 2000 |    | Change
|                                  |                           |   |                                  |      |                                 |   |        |      |      |  |      |    |       
|REVENUES (000s)                  |                           |   |                                  |      |                                 |   |        |      |      |  |      |    |        |   |         |      |   |   |         |      |   |  |     |   
|System sales                      |                           | $ | 13,485                           |      |                                 | $ | 12,263 |      |      |  | 10   | %  |        | $ | 47,820  |      |   | $ | 47,462  |      |   |  | 1   | % 
|                                  | Percent of total revenues |   |                                  | 35.0 | %                               |   |        | 26.8 | %    |  |      |    |        |   |         | 34.3 | % |   |         | 30.1 | % |  |     |    | 
|License, service & other revenues |                           |   | 25,055                           |      |                                 |   | 33,451 |      |      |  | (25  | )% |        |   | 91,678  |      |   |   | 110,254 |      |   |  | (17 | )%
|                                  | Percent of total revenues |   |                                  | 65.0 | %                               |   |        | 73.2 | %    |  |      |    |        |   |         | 65.7 | % |   |         | 69.9 | % |  |     |    | 
|Total                             |                           | $ | 38,540                           |      |                                 | $ | 45,714 |      |      |  | (16  | )% |        | $ | 139,498 |      |   | $ | 157,716 |      |   |  | (12 | )%

We sold fewer laser systems in the third quarter and first nine months of
2001 than in the comparable periods of 2000. Sales of laser upgrades commenced
in the fourth quarter of 2000 and increased through the second quarter of 2001,
offsetting lower sales of new lasers. Since the majority of our customers have
already upgraded their laser systems, revenue from laser upgrades began to
decline in the third quarter. We expect this trend to continue. We believe
the decline in laser system sales was due to a number of factors including the
economic slowdown in the United States and increased competition.

Our License, Service & Other Revenue was lower in 2001 than in 2000 due
mainly to two factors. Customers in the U.S. purchased VisionKey® cards for
fewer procedures in the third quarter and first nine months of 2001 than in the
comparable periods of 2000. In addition, effective February 22,

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2000, we reduced our license fee from $250 to $100 per procedure in the
U.S. Laser vision correction is not generally covered by medical insurance.
The decision to have laser vision correction surgery is influenced by many
factors including consumers confidence in and perception of the health of the
economy. The U.S. economy has slowed and consumer confidence has declined this
year, worsening further in September. We believe that we have maintained our
share of the U.S. laser vision correction market, however the economic downturn
has caused a decline in our U.S. procedure volume and the U.S. laser vision
correction market as a whole. At present, it is hard to predict when the U.S.
economy and consumer confidence will rebound and provide renewed support for
the U.S. laser vision correction market.

|                           |                           |   |                                  |      |                                 |   |        |      |      |  |      |   |        |   |        |      |   |   |        |      |   |  |    |    | 
|-------------------------- | ------------------------- | - | -------------------------------- | ---- | ------------------------------- | - | ------ | ---- | ---- |  | ---- | - | ------ | - | ------ | ---- | - | - | ------ | ---- | - |  | -- | -- | 
|                           |                           |   | Three Months Ended September 30, |      | Nine Months Ended September 30,
|                           |                           |   |                                  |      |                                
|                           |                           |   | 2001                             |      | 2000                            |   | Change |      | 2001 |  | 2000 |   | Change
|                           |                           |   |                                  |      |                                 |   |        |      |      |  |      |   |       
|COSTS & EXPENSES (000s)   |                           |   |                                  |      |                                 |   |        |      |      |  |      |   |        |   |        |      |   |   |        |      |   |  |    |   
|Cost of revenues           |                           | $ | 14,463                           |      |                                 | $ | 13,905 |      |      |  | 4    | % |        | $ | 48,100 |      |   | $ | 47,803 |      |   |  | 1  | % 
|                           | Percent of total revenues |   |                                  | 37.5 | %                               |   |        | 30.4 | %    |  |      |   |        |   |        | 34.5 | % |   |        | 30.3 | % |  |    |    | 
|Marketing, genl and admin |                           |   | 13,191                           |      |                                 |   | 11,109 |      |      |  | 19   | % |        |   | 36,580 |      |   |   | 38,293 |      |   |  | (4 | )%
|                           | Percent of total revenues |   |                                  | 34.2 | %                               |   |        | 24.3 | %    |  |      |   |        |   |        | 26.2 | % |   |        | 24.3 | % |  |    |    | 
|R&D and regulatory         |                           |   | 5,344                            |      |                                 |   | 4,218  |      |      |  | 27   | % |        |   | 14,486 |      |   |   | 11,069 |      |   |  | 31 | % 
|                           | Percent of total revenues |   |                                  | 13.9 | %                               |   |        | 9.2  | %    |  |      |   |        |   |        | 10.4 | % |   |        | 7.0  | % |  |    |    | 

Cost of revenues for upgrades, first shipped in the fourth quarter of
2000, more than offset the decline in cost of revenues for fewer laser systems
shipped in 2001 compared to 2000. Our gross profit margin was lower in the
third quarter and in the first nine months of 2001 than in the comparable
periods of 2000 due predominately to the decline in our U.S. procedure volume
and the reduction in our license fee per procedure in February 2000.
Marketing, general and administrative expenses were higher in the third quarter
of 2001 than in the same period of the prior year due to increased expenses for
marketing and sales promotional programs, legal expenses and an increase in
reserves for bad debts. For the first nine months of 2001 marketing and sales
expenses were lower than in the prior year due to lower spending on marketing
promotional programs. In research and development, we increased spending in
our three main areas of focus: new capabilities for the VISX STAR Excimer Laser
platform, development of new products such as our WaveScan System and
wavefront-driven ablations, and research into new technologies. We anticipate
that our R&D and regulatory expenses will total approximately $19.5 million in
2001.

Our average cash balance invested in interest bearing securities declined
in 2001 from 2000 because we repurchased a significant amount of our common
stock. Accordingly, interest income declined in 2001 from 2000. We accrued
income taxes based on our expected effective income tax rate for all of 2001,
net of credits anticipated.

Liquidity and Capital Resources

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

|                |  |                    |                   |  |  |   |         | 
|--------------- |  | ------------------ | ----------------- |  |  | - | ------- | 
|                |  | (000's)           
|                |  | September 30, 2001 | December 31, 2000
|                |  |                    |                   | 
|Cash            |  | $                  | 132,245           |  |  | $ | 229,453 | 
|Working capital |  |                    | 154,937           |  |  |   | 245,662 | 

Cash decreased by $97 million in the first nine months of 2001 principally
because we spent $104 million to repurchase 6.2 million shares of VISX stock on
the open market. This was partially offset

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by $1 million of net cash provided by operating activities and $5 million
received upon the exercise of stock options.

On April 4, 2001 our Board of Directors authorized a new Stock Repurchase
Program under which up to 10 million shares of VISX common stock may be
repurchased. 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 September 30, 2001, we did not
have any borrowings outstanding nor any credit agreements.

Our normal payment terms are net 30 days. However, based on our evaluation
of customers, market conditions and industry practices, we have provided
installment payment terms beyond one year on some of our system sales in
certain markets. We believe that our current cash, cash equivalents and
short-term investments, as well as anticipated cash flows from operations, will
be sufficient to meet our working capital and capital equipment needs at least
through the next twelve months.

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:



| |  |  | Economic trends and consumer confidence in the U.S. and other key
markets;                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | 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

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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.




Item 3. Quantitative and Qualitative Disclosures about Market Risk

There were no material changes during the three months ended September 30,
2001 in our exposure to market risk for changes in interest rates and foreign
currency exchange rates.




PART II. OTHER INFORMATION




Item 1. Legal Proceedings

Overview

VISX is engaged in numerous legal proceedings. 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.

For a complete description of legal proceedings, see VISXs annual report
on Form 10-K for the year ended December 31, 2000, and report on Form 10-Q for
the quarters ended March 31, 2001 and June 30, 2001. During the quarter ended
September 30, 2001, there were no material developments with respect to such
previously existing proceedings and no new material proceedings not previously
disclosed, except as follows:

Patent Litigation: Nidek

In September 2001, VISX received a claims construction ruling in its
patent infringement lawsuits against Nidek and certain Nidek users pending in
Federal Court in the Northern District of California (MDL No. 1319). In the
ruling, the Court determined the scope of certain patent claims asserted by
VISX. Among other things, the Court found that the asserted claims of VISXs
United States Patent No. 5,735,843 cover laser vision correction systems using
a mask with an aperature to provide a graded intensity to the cornea. The
Court also found that the asserted claims of VISXs United States Patent No.
5,108,388 require ablation of layers above the stroma in addition to stroma.

While the results of this proceeding are difficult to predict, VISX
believes that Nidek and the Nidek users will be found to infringe. However,
patent proceedings are inherently complex and involve issues of infringement,
validity and enforceability. This proceeding is in the preliminary discovery
stage and there can be no assurance of a favorable outcome. An adverse
determination in this proceeding could limit VISXs ability to collect license
fees in the United States from Nidek as well as from other

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sellers of laser vision correction systems, and therefore could have a
material adverse effect on VISXs business, financial position and results of
operations.




Item 6. Exhibits and Reports on Form 8-K

a) Exhibits.

None

b) Reports on Form 8-K.

None

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

|                 |                                                                      
|---------------- | ---------------------------------------------------------------------
|                 | VISX, Incorporated(Registrant)                                       
|                
|November 8, 2001 | /s/Elizabeth H. Dávila                                               
|(Date)           |                                                                      
|                 | Elizabeth H. Davila
Chairman of the Board and
Chief Executive Officer

|                 |                                                                                                    
|---------------- | ---------------------------------------------------------------------------------------------------
|November 8, 2001 | /s/Timothy R. Maier                                                                                
|(Date)           |                                                                                                    
|                 | Timothy R. Maier
Executive Vice President and
Chief Financial Officer (principal
financial officer)

|                 |                                                                                            
|---------------- | -------------------------------------------------------------------------------------------
|November 8, 2001 | /s/Derek A. Bertocci                                                                       
|(Date)           |                                                                                            
|                 | Derek A. Bertocci
        Vice President, Controller (principal
        accounting officer)

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