##### 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 June 30, 2003

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

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

Indicate by check mark whether the
registrant is an accelerated filer (as defined in Rule 12b-2 of
the Exchange Act). Yes (X)  No ( )

Total number of shares of common stock outstanding as of July 25, 2003:
48,011,205





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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
|                              |                                                                                               | Overview                                                    
|                              |                                                                                               | Results of Operations                                       
|                              |                                                                                               | Liquidity and Capital Resources                             
|                              |                                                                                               | Critical Accounting Policies                                
|                              |                                                                                               | Risk Factors                                                
|                              | Item 3. Quantitative and Qualitative Disclosures about Market Risk                           
|                              | Item 4. Disclosure Controls and Procedures                                                   
|Part II. OTHER INFORMATION   
|                              | Item 1. Legal Proceedings                                                                    
|                              | Item 4. Submission of Matters to a Vote of Security Holders                                  
|                              | Item 5. Other Information                                                                    
|                              | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                   
|EXHIBIT INDEX                
|EXHIBIT 10.1                 
|EXHIBIT 10.2                 
|EXHIBIT 31.1                 
|EXHIBIT 31.2                 
|EXHIBIT 32.1                 



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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 June 30, 2003 and December 31, 2002                                                                       |    | 3   
|           |         |  | Condensed Consolidated Interim Statements of Operations for
the Three Months Ended June 30, 2003 and 2002 and for the
Six Months Ended June 30, 2003 and 2002 |    | 4   
|           |         |  | Condensed Consolidated Interim Statements of Cash Flows for
the Six Months Ended June 30, 2003 and 2002                                                       |    | 5   
|           |         |  | Notes to Condensed Consolidated Interim Financial Statements                                                                                                  |    | 6   
|           | Item 2. |  | Managements Discussion and Analysis of Financial Condition
and Results of Operations                                                                         |    |     
|           |         |  | Overview                                                                                                                                                      |    | 10  
|           |         |  | Results of Operations                                                                                                                                         |    | 11  
|           |         |  | Liquidity and Capital Resources                                                                                                                               |    | 14  
|           |         |  | Critical Accounting Policies                                                                                                                                  |    | 15  
|           |         |  | Risk Factors                                                                                                                                                  |    | 17  
|           | Item 3. |  | Quantitative and Qualitative Disclosure about Market Risk                                                                                                     |    | 22  
|           | Item 4. |  | Disclosure Controls and Procedures                                                                                                                            |    | 22  
|           | PART II |  | OTHER INFORMATION                                                                                                                                             |    |     
|           | Item 1. |  | Legal Proceedings                                                                                                                                             |    | 22  
|           | Item 4. |  | Submission of Matters to a Vote of Security Holders                                                                                                           |    | 23  
|           | Item 5. |  | Other Information                                                                                                                                             |    | 23  
|           | Item 6. |  | Exhibits and Reports on Form 8-K                                                                                                                              |    | 24  
|SIGNATURES |         |  |                                                                                                                                                               | 25

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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)

|                                        |                                                                                                |                            |         |          |         |             |         |              |         |  |  | 
|--------------------------------------- | ---------------------------------------------------------------------------------------------- | -------------------------- | ------- | -------- | ------- | ----------- | ------- | ------------ | ------- |  |  | 
|                                        |                                                                                                |                            |         |          |         | June 30,    |         | December 31,
|                                        |                                                                                                |                            |         |          |         | 2003        |         | 2002        
|                                        |                                                                                                |                            |         |          |         |             |         |             
|                                        |                                                                                                |                            |         |          |         | (unaudited) |         |              |         | 
|ASSETS                                  |                                                                                                |                            |         |          |         |             |        
|Current Assets:                         |                                                                                                |                            |         |          |         |             |         |             
|                                        | Cash and cash equivalents                                                                      |                            | $       | 16,554   |         |             | $       | 37,687       |        
|                                        | Short-term investments                                                                         |                            |         | 37,809   |         |             |         | 85,268       |        
|                                        | Accounts receivable, net of allowance
for doubtful accounts of $2,501 and
$2,563, respectively |                            |         | 27,146   |         |             |         | 24,559       |        
|                                        | Inventories                                                                                    |                            |         | 15,626   |         |             |         | 12,751       |        
|                                        | Deferred tax assets and prepaid expenses                                                       |                            |         | 17,871   |         |             |         | 23,488       |        
|                                        |                                                                                                |                            |         |          |         |             |         |              |        
|                                        |                                                                                                | Total current assets       |         |          | 115,006 |             |         |              | 183,753 | 
|Property and Equipment, net             |                                                                                                |                            | 7,600   |          |         |             | 6,498   |             
|Long-Term Deferred Tax and Other Assets |                                                                                                |                            | 14,081  |          |         |             | 10,341  |             
|                                        |                                                                                                |                            |         |          |         |             |         |              |        
|                                        |                                                                                                | $                          | 136,687 |          |         | $           | 200,592 |             
|                                        |                                                                                                |                            |         |          |         |             |         |              |        
|LIABILITIES AND STOCKHOLDERS EQUITY    |                                                                                                |                            |         |          |         |             |        
|Current Liabilities:                    |                                                                                                |                            |         |          |         |             |         |             
|                                        | Accounts payable                                                                               |                            | $       | 5,006    |         |             | $       | 4,341        |        
|                                        | Accrued liabilities                                                                            |                            |         | 30,319   |         |             |         | 41,061       |        
|                                        |                                                                                                |                            |         |          |         |             |         |              |        
|                                        |                                                                                                | Total current liabilities  |         |          | 35,325  |             |         |              | 45,402  | 
|                                        |                                                                                                |                            |         |          |         |             |         |             
|Stockholders Equity:                   |                                                                                                |                            |         |          |         |             |         |             
|                                        | Common stock: $.01 par value,
180,000,000 shares authorized;
64,990,089 shares issued          |                            |         | 650      |         |             |         | 650          |        
|                                        | Additional paid-in capital                                                                     |                            |         | 201,921  |         |             |         | 202,700      |        
|                                        | Treasury stock, at cost 17,040,762 and
13,652,256 shares, respectively                         |                            |         | (270,030 | )       |             |         | (208,748     | )      
|                                        | Accumulated comprehensive income                                                               |                            |         | 580      |         |             |         | 1,921        |        
|                                        | Retained earnings                                                                              |                            |         | 168,241  |         |             |         | 158,667      |        
|                                        |                                                                                                |                            |         |          |         |             |         |              |        
|                                        |                                                                                                | Total stockholders equity |         |          | 101,362 |             |         |              | 155,190 | 
|                                        |                                                                                                |                            |         |          |         |             |         |              |        
|                                        |                                                                                                | $                          | 136,687 |          |         | $           | 200,592 |             
|                                        |                                                                                                |                            |         |          |         |             |         |              |        

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 |        | Six months ended
|                                         |                                      |                          |       | June 30,           |        | June 30,        
|                                         |                                      |                          |       |                    |        |                 
|                                         |                                      |                          |       | 2003               |        | 2002             |       | 2003        |        | 2002
|                                         |                                      |                          |       |                    |        |                  |       |             |        |     
|                                         |                                      |                          |       |                    |        |                  |       | (unaudited) |        |      |        |       
|Revenues:                                |                                      |                          |       |                    |        |                  |       |             |        |      |        |        |        |   |        |       
|                                         | System revenues                      |                          | $     | 7,681              |        |                  | $     | 12,804      |        |      | $      | 17,607 |        |   | $      | 22,719 |       
|                                         | Service and parts revenues           |                          |       | 4,241              |        |                  |       | 4,844       |        |      |        | 9,071  |        |   |        | 9,934  |       
|                                         | License and other revenues           |                          |       | 20,064             |        |                  |       | 18,991      |        |      |        | 39,741 |        |   |        | 40,571 |       
|                                         |                                      |                          |       |                    |        |                  |       |             |        |      |        |        |        |   |        |        |       
|                                         |                                      | Total revenues           |       |                    | 31,986 |                  |       |             | 36,639 |      |        |        | 66,419 |   |        |        | 73,224 | 
|                                         |                                      |                          |       |                    |        |                  |       |             |        |      |        |        |        |   |        |        |       
|Costs and Expenses:                      |                                      |                          |       |                    |        |                  |       |             |        |      |        |        |        |   |        |       
|                                         | Cost of system revenues              |                          |       | 7,153              |        |                  |       | 7,232       |        |      |        | 15,448 |        |   |        | 15,413 |       
|                                         | Cost of service and parts revenues   |                          |       | 3,530              |        |                  |       | 3,502       |        |      |        | 7,227  |        |   |        | 6,718  |       
|                                         | Cost of license and other revenues   |                          |       | 707                |        |                  |       | 1,251       |        |      |        | 1,539  |        |   |        | 2,458  |       
|                                         | Selling, general, and administrative |                          |       | 10,854             |        |                  |       | 11,661      |        |      |        | 20,308 |        |   |        | 22,179 |       
|                                         | Research, development and regulatory |                          |       | 4,789              |        |                  |       | 4,779       |        |      |        | 8,835  |        |   |        | 9,024  |       
|                                         |                                      |                          |       |                    |        |                  |       |             |        |      |        |        |        |   |        |        |       
|                                         |                                      | Total costs and expenses |       |                    | 27,033 |                  |       |             | 28,425 |      |        |        | 53,357 |   |        |        | 55,792 | 
|                                         |                                      |                          |       |                    |        |                  |       |             |        |      |        |        |        |   |        |        |       
|Income From Operations                   |                                      |                          | 4,953 |                    |        |                  | 8,214 |             |        |      | 13,062 |        |        |   | 17,432 |       
|                                         | Interest and other income            |                          |       | 1,818              |        |                  |       | 1,561       |        |      |        | 2,761  |        |   |        | 3,092  |       
|                                         |                                      |                          |       |                    |        |                  |       |             |        |      |        |        |        |   |        |        |       
|Income Before Provision For Income Taxes |                                      |                          | 6,771 |                    |        |                  | 9,775 |             |        |      | 15,823 |        |        |   | 20,524 |       
|                                         | Provision for income taxes           |                          |       | (2,673             | )      |                  |       | (3,859      | )      |      |        | (6,249 | )      |   |        | (8,105 | )     
|                                         |                                      |                          |       |                    |        |                  |       |             |        |      |        |        |        |   |        |        |       
|Net Income                               |                                      | $                        | 4,098 |                    |        | $                | 5,916 |             |        | $    | 9,574  |        |        | $ | 12,419 |       
|                                         |                                      |                          |       |                    |        |                  |       |             |        |      |        |        |        |   |        |        |       
|Earnings Per Share                       |                                      |                          |       |                    |        |                  |       |             |        |      |        |        |        |   |        |       
|                                         | Basic                                |                          | $     | 0.08               |        |                  | $     | 0.11        |        |      | $      | 0.19   |        |   | $      | 0.23   |       
|                                         |                                      |                          |       |                    |        |                  |       |             |        |      |        |        |        |   |        |        |       
|                                         | Diluted                              |                          | $     | 0.08               |        |                  | $     | 0.11        |        |      | $      | 0.19   |        |   | $      | 0.23   |       
|                                         |                                      |                          |       |                    |        |                  |       |             |        |      |        |        |        |   |        |        |       
|Shares Used For Earnings Per Share       |                                      |                          |       |                    |        |                  |       |             |        |      |        |        |        |   |        |       
|                                         | Basic                                |                          |       | 50,076             |        |                  |       | 53,889      |        |      |        | 50,705 |        |   |        | 54,197 |       
|                                         |                                      |                          |       |                    |        |                  |       |             |        |      |        |        |        |   |        |        |       
|                                         | Diluted                              |                          |       | 51,406             |        |                  |       | 54,809      |        |      |        | 51,601 |        |   |        | 55,191 |       
|                                         |                                      |                          |       |                    |        |                  |       |             |        |      |        |        |        |   |        |        |       

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)

|                                                     |                                                                                   |                                              |                                          |         |                  |         |        |         |         |        |  
|---------------------------------------------------- | --------------------------------------------------------------------------------- | -------------------------------------------- | ---------------------------------------- | ------- | ---------------- | ------- | ------ | ------- | ------- | ------ | -
|                                                     |                                                                                   |                                              |                                          |         | Six months ended
|                                                     |                                                                                   |                                              |                                          |         | June 30,        
|                                                     |                                                                                   |                                              |                                          |         |                 
|                                                     |                                                                                   |                                              |                                          |         | 2003             |         | 2002  
|                                                     |                                                                                   |                                              |                                          |         |                  |         |       
|                                                     |                                                                                   |                                              |                                          |         | (unaudited)     
|Cash flows from operating activities:                |                                                                                   |                                              |                                          |         |                  |         |        |        
|                                                     | Net income                                                                        |                                              | $                                        | 9,574   |                  |         | $      | 12,419  |        
|                                                     | Adjustments to reconcile net income to net cash
provided by operating activities: |                                              |                                          |         |                  |         |        |         |        
|                                                     |                                                                                   | Depreciation and amortization                |                                          |         | 3,495            |         |        |         | 1,690   |       
|                                                     |                                                                                   | Provision for doubtful accounts receivable   |                                          |         | (53              | )       |        |         | 569     |       
|                                                     |                                                                                   | Changes in operating assets and liabilities: |                                          |         |                  |         |        |         |         |       
|                                                     |                                                                                   |                                              | Accounts receivable                      |         |                  | (2,534  | )      |         |         | 5,981  |  
|                                                     |                                                                                   |                                              | Inventories                              |         |                  | (6,501  | )      |         |         | (994   | )
|                                                     |                                                                                   |                                              | Deferred tax assets and prepaid expenses |         |                  | 5,617   |        |         |         | 7,079  |  
|                                                     |                                                                                   |                                              | Long-term deferred tax and other assets  |         |                  | 1,518   |        |         |         | 1,424  |  
|                                                     |                                                                                   |                                              | Accounts payable                         |         |                  | 665     |        |         |         | 1,677  |  
|                                                     |                                                                                   |                                              | Accrued liabilities                      |         |                  | (10,742 | )      |         |         | (3,677 | )
|                                                     |                                                                                   |                                              |                                          |         |                  |         |        |         |        
|                                                     |                                                                                   | Net cash provided by operating activities    |                                          |         | 1,039            |         |        |         | 26,168  |       
|                                                     |                                                                                   |                                              |                                          |         |                  |         |        |         |        
|Cash flows from investing activities:                |                                                                                   |                                              |                                          |         |                  |         |        |        
|                                                     | Capital expenditures                                                              |                                              |                                          | (329    | )                |         |        | (1,498  | )      
|                                                     | Cash paid for
acquisition of patents and technology assets                        |                                              |                                          | (5,900  | )                |         |        |        |        
|                                                     | Purchase of short-term investments                                                |                                              |                                          | (35,944 | )                |         |        | (33,398 | )      
|                                                     | Sales and maturities of short-term investments                                    |                                              |                                          | 82,071  |                  |         |        | 36,432  |        
|                                                     |                                                                                   |                                              |                                          |         |                  |         |        |         |        
|                                                     |                                                                                   | Net cash provided by investing activities    |                                          |         | 39,898           |         |        |         | 1,536   |       
|                                                     |                                                                                   |                                              |                                          |         |                  |         |        |         |        
|Cash flows from financing activities:                |                                                                                   |                                              |                                          |         |                  |         |        |        
|                                                     | Exercise of stock options                                                         |                                              |                                          | 939     |                  |         |        | 4,352   |        
|                                                     | Repurchase of common stock                                                        |                                              |                                          | (63,000 | )                |         |        | (23,707 | )      
|                                                     |                                                                                   |                                              |                                          |         |                  |         |        |         |        
|                                                     |                                                                                   | Net cash used in financing activities        |                                          |         | (62,061          | )       |        |         | (19,355 | )     
|                                                     |                                                                                   |                                              |                                          |         |                  |         |        |         |        
|Effect of exchange rate changes on cash              |                                                                                   |                                              | (9                                       | )       |                  |         | 20     |        
|                                                     |                                                                                   |                                              |                                          |         |                  |         |        |         |        
|Net increase (decrease) in cash and cash equivalents |                                                                                   |                                              | (21,133                                  | )       |                  |         | 8,369  |        
|Cash and cash equivalents, beginning of period       |                                                                                   |                                              | 37,687                                   |         |                  |         | 15,349 |        
|                                                     |                                                                                   |                                              |                                          |         |                  |         |        |         |        
|Cash and cash equivalents, end of period             |                                                                                   | $                                            | 16,554                                   |         |                  | $       | 23,718 |        
|                                                     |                                                                                   |                                              |                                          |         |                  |         |        |         |        
|Non-Cash Investing Activities:                       |                                                                                   |                                              |                                          |         |                  |         |        |        
|                                                     | Inventory transferred to property and equipment
under operating leases            |                                              | $                                        | 3,626   |                  |         | $      | 1,599   |        
|                                                     |                                                                                   |                                              |                                          |         |                  |         |        |         |        

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

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##### Table of Contents






VISX, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
June 30, 2003
(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 2002 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.

Reclassifications.Certain reclassifications were made to prior year financial
data to conform with current year presentation.



|2. |  | 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.

|                           |                                                                     |   |                    |        |                  |   |       |        |      |   |       |        |  |   |        |        | 
|-------------------------- | ------------------------------------------------------------------- | - | ------------------ | ------ | ---------------- | - | ----- | ------ | ---- | - | ----- | ------ |  | - | ------ | ------ | 
|                           |                                                                     |   | Three Months Ended |        | Six Months Ended
|                           |                                                                     |   | June 30,           |        | June 30,        
|                           |                                                                     |   |                    |        |                 
|                           |                                                                     |   | 2003               |        | 2002             |   | 2003  |        | 2002
|                           |                                                                     |   |                    |        |                  |   |       |        |     
|NET INCOME                 |                                                                     | $ | 4,098              |        |                  | $ | 5,916 |        |      | $ | 9,574 |        |  | $ | 12,419 |       
|                           |                                                                     |   |                    |        |                  |   |       |        |      |   |       |        |  |   |        |       
|BASIC EARNINGS PER SHARE   |                                                                     |   |                    |        |                  |   |       |        |      |   |       |        |  |   |        |       
|                           | Income available to common shareholders                             |   | $                  | 4,098  |                  |   | $     | 5,916  |      |   | $     | 9,574  |  |   | $      | 12,419 | 
|                           | Weighted average common shares outstanding                          |   |                    | 50,076 |                  |   |       | 53,889 |      |   |       | 50,705 |  |   |        | 54,197 | 
|                           |                                                                     |   |                    |        |                  |   |       |        |      |   |       |        |  |   |        |       
|                           | Basic Earnings Per Share                                            |   | $                  | 0.08   |                  |   | $     | 0.11   |      |   | $     | 0.19   |  |   | $      | 0.23   | 
|                           |                                                                     |   |                    |        |                  |   |       |        |      |   |       |        |  |   |        |       
|DILUTED EARNINGS PER SHARE |                                                                     |   |                    |        |                  |   |       |        |      |   |       |        |  |   |        |       
|                           | Income available to common shareholders                             |   | $                  | 4,098  |                  |   | $     | 5,916  |      |   | $     | 9,574  |  |   | $      | 12,419 | 
|                           |                                                                     |   |                    |        |                  |   |       |        |      |   |       |        |  |   |        |       
|                           | Weighted average common shares outstanding                          |   |                    | 50,076 |                  |   |       | 53,889 |      |   |       | 50,705 |  |   |        | 54,197 | 
|                           | Dilutive potential common shares from stock options                 |   |                    | 1,330  |                  |   |       | 920    |      |   |       | 896    |  |   |        | 994    | 
|                           |                                                                     |   |                    |        |                  |   |       |        |      |   |       |        |  |   |        |       
|                           | Weighted average common shares and dilutive potential common shares |   |                    | 51,406 |                  |   |       | 54,809 |      |   |       | 51,601 |  |   |        | 55,191 | 
|                           |                                                                     |   |                    |        |                  |   |       |        |      |   |       |        |  |   |        |       
|                           | Diluted Earnings Per Share                                          |   | $                  | 0.08   |                  |   | $     | 0.11   |      |   | $     | 0.19   |  |   | $      | 0.23   | 
|                           |                                                                     |   |                    |        |                  |   |       |        |      |   |       |        |  |   |        |       

Options to purchase 4,716,000 shares
and 6,257,000 shares during the three
months ended June 30, 2003 and 2002, respectively, were excluded from the
computation of diluted EPS because the weighted average exercise prices for
these options of $24.52 and $23.39, respectively, were greater than the
average market price of VISXs common stock during these periods.

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Options to purchase 6,095,000 shares
and 6,055,000 shares during the six months
ended June 30, 2003 and 2002, respectively, were excluded from the computation
of diluted EPS because the weighted average exercise prices for these options
of $22.35 and $23.79, respectively, were greater than the average market price
of VISXs common stock during these periods.



|3. |  | Stock-Based Employee Compensation
|-- |  | ---------------------------------

We account for stock-based employee compensation arrangements using the
intrinsic value method in accordance with the provisions of Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees
(APB 25) and Financial Accounting Standards Board (FASB) Interpretation No.
44 (FIN 44), Accounting for Certain Transactions Involving Stock
Compensation  an Interpretation of APB No. 25 and comply with the disclosure
provisions of Statement of Financial Accounting Standards No. 148, Accounting
For Stock-Based Compensation  Transition and Disclosure (SFAS 148). In
accordance with APB 25 and FIN 44, we record no stock-based employee
compensation cost in our net income because (1) all options granted under our
stock option plans have an exercise price equal to the market value of the
underlying common stock on the date of grant and (2) stock purchased through
our Employee Stock Purchase Plan (ESPP) is priced 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. The following table illustrates the effect on net
income and earnings per share if we had applied the fair value recognition
provisions of Statement of Financial Accounting Standards No. 123, Accounting
for Stock-Based Compensation (SFAS 123), to stock-based employee
compensation (unaudited, in thousands, except per share data).

|                                                                                                                                            |  |             |  |   |       |                    |        |                  |       |      |        |      |       |  |        |   |        |  |        |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------- |  | - | ----- | ------------------ | ------ | ---------------- | ----- | ---- | ------ | ---- | ----- |  | ------ | - | ------ |  | ------ | -
|                                                                                                                                            |  |             |  |   |       | Three Months Ended |        | Six Months Ended
|                                                                                                                                            |  |             |  |   |       | June 30,           |        | June 30,        
|                                                                                                                                            |  |             |  |   |       |                    |        |                 
|                                                                                                                                            |  |             |  |   |       | 2003               |        | 2002             |       | 2003 |        | 2002
|                                                                                                                                            |  |             |  |   |       |                    |        |                  |       |      |        |     
|Net Income                                                                                                                                  |  | As Reported |  | $ | 4,098 |                    |        | $                | 5,916 |      |        | $    | 9,574 |  |        | $ | 12,419 | 
|Deduct: Total stock-based
employee compensation
expense determined under
fair value based method
for all awards, net of
related tax effects |  |             |  |   |       |                    | (2,349 | )                |       |      | (2,618 | )    |       |  | (4,164 | ) |        |  | (4,870 | )
|                                                                                                                                            |  |             |  |   |       |                    |        |                  |       |      |        |      |       |  |        |   |        |  |        |  
|Net Income                                                                                                                                  |  | Pro Forma   |  | $ | 1,749 |                    |        | $                | 3,298 |      |        | $    | 5,410 |  |        | $ | 7,549  | 
|                                                                                                                                            |  |             |  |   |       |                    |        |                  |       |      |        |      |       |  |        |   |        |  |        |  
|Basic Earnings Per Share                                                                                                                    |  | As Reported |  | $ | 0.08  |                    |        | $                | 0.11  |      |        | $    | 0.19  |  |        | $ | 0.23   | 
|                                                                                                                                            |  | Pro Forma   |  |   | 0.03  |                    |        |                  | 0.06  |      |        |      | 0.11  |  |        |   | 0.14   | 
|Diluted Earnings Per Share                                                                                                                  |  | As Reported |  | $ | 0.08  |                    |        | $                | 0.11  |      |        | $    | 0.19  |  |        | $ | 0.23   | 
|                                                                                                                                            |  | Pro Forma   |  |   | 0.03  |                    |        |                  | 0.06  |      |        |      | 0.11  |  |        |   | 0.14   | 

For purposes of computing pro forma net income, we estimate the fair value of
each option grant and employee stock purchase plan purchase right on the date
of grant using the Black-Scholes option pricing model. The assumptions used to
value the option grants and purchase rights are stated as follows:

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|                                        |  |                    |      |                  |  |          |      |          |  |  |      |   |  |  |      |  
|--------------------------------------- |  | ------------------ | ---- | ---------------- |  | -------- | ---- | -------- |  |  | ---- | - |  |  | ---- | -
|                                        |  | Three Months Ended |      | Six Months Ended
|                                        |  |                    |      |                 
|                                        |  | June 30,           |      | June 30,         |  | June 30, |      | June 30,
|                                        |  | 2003               |      | 2002             |  | 2003     |      | 2002    
|                                        |  |                    |      |                  |  |          |      |         
|Expected life of options (in years)     |  |                    | 2.93 |                  |  |          | 4.22 |          |  |  | 4.27 |   |  |  | 4.22 |  
|Expected life of ESPP rights (in years) |  |                    | 1.25 |                  |  |          | 1.25 |          |  |  | 1.25 |   |  |  | 1.25 |  
|Volatility for options                  |  |                    | 61   | %                |  |          | 79   | %        |  |  | 75   | % |  |  | 79   | %
|Volatility for ESPP rights              |  |                    | 60   | %                |  |          | 65   | %        |  |  | 60   | % |  |  | 65   | %
|Risk free interest rate for options     |  |                    | 1.68 | %                |  |          | 3.95 | %        |  |  | 2.49 | % |  |  | 4.24 | %
|Risk free interest rate for ESPP rights |  |                    | 1.61 | %                |  |          | 2.04 | %        |  |  | 1.61 | % |  |  | 2.04 | %
|Dividend
yield                          |  |                    | 0.0  | %                |  |          | 0.0  | %        |  |  | 0.0  | % |  |  | 0.0  | %

These pro forma amounts may not be representative of the effects for future
years as options vest over several years and additional awards are generally
made each year.



|4. |  | Inventories(in thousands):
|-- |  | --------------------------

|                                |       |             |          |        |              |   |       |        | 
|------------------------------- | ----- | ----------- | -------- | ------ | ------------ | - | ----- | ------ | 
|                                |       |             | June 30, |        | December 31,
|                                |       |             | 2003     |        | 2002        
|                                |       |             |          |        |             
|                                |       | (Unaudited) |          |        |              |   |       |       
|Raw materials and subassemblies |       | $           | 7,877    |        |              | $ | 8,108 |       
|Work in process                 |       |             | 1,935    |        |              |   | 1,563 |       
|Finished goods                  |       |             | 5,814    |        |              |   | 3,080 |       
|                                |       |             |          |        |              |   |       |       
|                                | Total |             | $        | 15,626 |              |   | $     | 12,751 | 
|                                |       |             |          |        |              |   |       |       



|5. |  | Comprehensive Income(unaudited, in thousands):
|-- |  | ----------------------------------------------

|                                  |                                                                              |   |                    |        |                  |   |       |     |      |   |       |        |   |   |        |      |  
|--------------------------------- | ---------------------------------------------------------------------------- | - | ------------------ | ------ | ---------------- | - | ----- | --- | ---- | - | ----- | ------ | - | - | ------ | ---- | -
|                                  |                                                                              |   | Three Months Ended |        | Six Months Ended
|                                  |                                                                              |   | June 30,           |        | June 30,        
|                                  |                                                                              |   |                    |        |                 
|                                  |                                                                              |   | 2003               |        | 2002             |   | 2003  |     | 2002
|                                  |                                                                              |   |                    |        |                  |   |       |     |     
|NET INCOME                        |                                                                              | $ | 4,098              |        |                  | $ | 5,916 |     |      | $ | 9,574 |        |   | $ | 12,419 |     
|OTHER COMPREHENSIVE INCOME (LOSS) |                                                                              |   |                    |        |                  |   |       |     |      |   |       |        |   |   |        |     
|                                  | Change in unrealized holding gains (losses) on
available-for-sale securities |   |                    | (1,210 | )                |   |       | 261 |      |   |       | (1,332 | ) |   |        | (974 | )
|                                  | Change in accumulated foreign currency translation adjustment                |   |                    | (9     | )                |   |       | 11  |      |   |       | (9     | ) |   |        | 20   |  
|                                  |                                                                              |   |                    |        |                  |   |       |     |      |   |       |        |   |   |        |     
|COMPREHENSIVE INCOME              |                                                                              | $ | 2,879              |        |                  | $ | 6,188 |     |      | $ | 8,233 |        |   | $ | 11,465 |     
|                                  |                                                                              |   |                    |        |                  |   |       |     |      |   |       |        |   |   |        |     



|6. |  | Warranty Obligations
|-- |  | --------------------

Changes in product warranty obligations for the periods ended June 30, 2003 and
2002 are as follows (unaudited, in thousands):

|                                          |  |                    |       |                  |  |      |       |      |  |   |        |   |  |   |        |  
|----------------------------------------- |  | ------------------ | ----- | ---------------- |  | ---- | ----- | ---- |  | - | ------ | - |  | - | ------ | -
|                                          |  | Three Months Ended |       | Six Months Ended
|                                          |  | June 30,           |       | June 30,        
|                                          |  |                    |       |                 
|                                          |  | 2003               |       | 2002             |  | 2003 |       | 2002
|                                          |  |                    |       |                  |  |      |       |     
|Balance as of the beginning of the period |  | $                  | 1,980 |                  |  | $    | 1,645 |      |  | $ | 1,963  |   |  | $ | 1,768  |  
|Expense accrued for new warranties        |  |                    | 630   |                  |  |      | 471   |      |  |   | 1,398  |   |  |   | 1,397  |  
|Cost of services provided                 |  |                    | (947  | )                |  |      | (326  | )    |  |   | (1,698 | ) |  |   | (1,375 | )
|                                          |  |                    |       |                  |  |      |       |      |  |   |        |   |  |   |        |  
|Balance as of the end of the period       |  | $                  | 1,663 |                  |  | $    | 1,790 |      |  | $ | 1,663  |   |  | $ | 1,790  |  
|                                          |  |                    |       |                  |  |      |       |      |  |   |        |   |  |   |        |  



|7. |  | Stock Repurchase Program
|-- |  | ------------------------





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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. In accordance with the April 4, 2001 authorization and applicable
securities laws, through purchases on the open market we have repurchased 7.0
million shares cumulatively through June 30, 2003 at a total cost of $90.4
million. Additionally, under separate Board of Director authorization we
repurchased 3.5 million shares of VISX stock during the quarter ended June 30,
2003. Accordingly, 3.0 million shares remain available as of June 30, 2003 for
repurchase under the Board of Directors April 2001 authorization.

8.     Significant
Customers

A significant portion of our revenues is derived from sales to TLC Vision
Corporation (TLC), formed in May 2002 through the merger of TLC Laser Eye
Centers, Inc. and Laser Vision Centers, Inc., both long-term customers of ours.
Sales to the combined company, TLC, accounted for 10% and 17% of total
revenues in the second quarter of 2003 and 2002, respectively, and 11% and 17%
of total revenues in the first half of 2003 and 2002, respectively.

At June 30, 2003 TLC Vision
Corporation and DVI, Inc., a healthcare finance company, represented
24% and 14% of accounts receivable, respectively. At December 31,
2002 TLC Vision Corporation and DVI, Inc. represented 22% and 6% of
accounts receivable, respectively.

9.     New Accounting Pronouncements

In November 2002, the EITF reached a consensus on Issue No. 00-21, Revenue
Arrangements with Multiple Deliverables. EITF Issue No. 00-21 provides
guidance on how to account for arrangements that involve the delivery or
performance of multiple products, services and/or rights to use assets. The
provisions of EITF Issue No. 00-21 will apply to revenue arrangements entered
into in fiscal periods beginning after June 15, 2003. We are currently
evaluating the effect that the adoption of EITF Issue No. 00-21 but do not
expect a material impact on our financial position or results of operations.

In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.
FIN 46 requires certain variable interest entities to be consolidated by the
primary beneficiary of the entity if the equity investors in the entity do not
have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN 46 is
effective for all new variable interest entities created or acquired after
January 31, 2003. For variable interest entities created or acquired prior to
February 1, 2003, the provisions of FIN 46 must be applied for the first
interim or annual period beginning after June 15, 2003. The adoption of FIN 46
did not have a material impact on our financial position or results of
operations.

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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

This Report contains forward-looking statements, including but not limited to:
declining laser upgrade revenues; our belief that a rebound in the U.S. economy
and increases in consumer confidence will provide renewed support for the U.S.
laser vision correction market in the future; our belief that ongoing technical
advances (including our CustomVue procedure) have the potential to improve a
persons vision beyond that which can be obtained with contact lenses or
glasses and will reduce concerns perceived by some consumers; research and
development and regulatory expenditures; our belief that gross profit margin on
system revenues will remain lower than the comparative 2002 period throughout
the remainder of 2003; the sufficiency of our cash flow from operations
combined with our existing cash, cash equivalents and short-term investments to
meet our needs during the coming twelve months; our belief that our interest
and other income for the remainder of 2003 will be significantly lower than the
comparative 2002 periods; and our belief that legal actions will not materially
affect our business. These forward-looking statements are estimates reflecting
the best judgment of our senior management, and they involve a number of risks
and uncertainties that could cause actual results to differ materially from
those suggested by the forward-looking statements. The risks and uncertainties
include the potential reduction in demand for our equipment and upgrades, and
the potential decline in demand for procedures caused by the continued weakness
in the economy, consumer confidence and stock markets in the United States. In
addition, please see the disclosure under the caption Risk Factors at the end
of Item 2. Moreover, we caution you not to place undue reliance on these
forward-looking statements, which speak only as of the date they were made. We
do not undertake any obligation to publicly release any revisions to these
forward-looking statements to reflect events or circumstances after the date of
this report or to reflect the occurrence of unanticipated events.

The laser vision correction industry is evolving rapidly. Economic, market, and
technology changes frequently affect VISX and could harm our business in the
future. If any of the risks referred to above were to materialize, orders and
revenues for the VISX STAR Excimer Laser System (VISX STAR System),
WaveScan® System and/or VisionKey® Cards could fluctuate or decline.
Accordingly, our past results may not be useful in predicting our future
results.




Overview

VISX, Incorporated (VISX), a Delaware corporation organized in 1988, is a
worldwide leader in the design and development of proprietary technologies and
systems for laser vision correction. We sell products worldwide and generate
the majority of our revenues through the sale of VisionKey Cards that are
required to perform laser vision correction procedures on the VISX STAR System.
We have also licensed our technology to other excimer laser system companies
and generally receive royalties from the sale of their systems outside the U.S.
and from procedures that are performed in the U.S. using their systems.

The FDA and comparable international regulatory agencies have approved the VISX
STAR 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 System, a diagnostic device that measures
refractive errors in a persons vision more precisely than did previously
available technology. The WaveScan System is used in conjunction with our VISX
STAR System to perform CustomVue laser vision correction, which enhances laser
vision correction and potentially improves vision beyond that of contacts and
glasses. In the U.S., we received FDA approval of our CustomVue procedure in
May 2003.

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Results of Operations

|                           |                           |      |                             |      |                           |        |        |      |   |      |      |        |  |   |        |      |   |   |        |      |   |  |     |    | 
|-------------------------- | ------------------------- | ---- | --------------------------- | ---- | ------------------------- | ------ | ------ | ---- | - | ---- | ---- | ------ |  | - | ------ | ---- | - | - | ------ | ---- | - |  | --- | -- | 
|                           |                           |      | Three Months Ended June 30, |      | Six Months Ended June 30,
|                           |                           |      |                             |      |                          
|REVENUES (000s)           |                           | 2003 |                             | 2002 |                           | Change |        | 2003 |   | 2002 |      | Change
|                           |                           |      |                             |      |                           |        |        |      |   |      |      |       
|System revenues            |                           | $    | 7,681                       |      |                           | $      | 12,804 |      |   |      | (40  | )%     |  | $ | 17,607 |      |   | $ | 22,719 |      |   |  | (23 | )%
|                           | Percent of total revenues |      |                             | 24.0 | %                         |        |        | 35.0 | % |      |      |        |  |   |        | 26.5 | % |   |        | 31.0 | % |  |     |    | 
|Service and parts revenues |                           |      | 4,241                       |      |                           |        | 4,844  |      |   |      | (12) | %      |  |   | 9,071  |      |   |   | 9,934  |      |   |  | (9  | )%
|                           | Percent of total revenues |      |                             | 13.3 | %                         |        |        | 13.2 | % |      |      |        |  |   |        | 13.7 | % |   |        | 13.6 | % |  |     |    | 
|License and other revenues |                           |      | 20,064                      |      |                           |        | 18,991 |      |   |      | 6    | %      |  |   | 39,741 |      |   |   | 40,571 |      |   |  | (2  | )%
|                           | Percent of total revenues |      |                             | 62.7 | %                         |        |        | 51.8 | % |      |      |        |  |   |        | 59.8 | % |   |        | 55.4 | % |  |     |    | 
|Total                      |                           | $    | 31,986                      |      |                           | $      | 36,639 |      |   |      | (13  | )%     |  | $ | 66,419 |      |   | $ | 73,224 |      |   |  | (9  | )%



| |  | System revenues
| |  | ---------------

System revenues decreased $5.1 million, to $7.7 million for the three months
ended June 30, 2003 from $12.8 million for the three months ended June 30,
2002. System revenues decreased $5.1 million, to $17.6 million for the six
months ended June 30, 2003 from $22.7 million for the six months ended June 30,
2002. Sales of laser systems declined $3.4 million and $5.3 million in the
second quarter and first half of 2003, respectively, from the comparable
periods of the prior year. We believe the decline was due primarily to the
economic slowdown in the United States and many of our markets abroad.
Aggressive tactics by competitors also affected our sales. Additionally, we
experienced a decline in Far East system revenues primarily due to political
tensions in Korea and concerns with SARS in our other markets. Our average
selling price for laser systems was lower than in the prior year due to the
factors discussed above. Upgrade revenues declined $5.3 million and $6.2
million in the second quarter and first half of 2002, respectively, from the
comparable periods of the prior year. The decline in upgrade revenues was due
to the fact that approximately 80% of our lasers in active use in the U.S. have
already been upgraded. We anticipate that upgrade revenues throughout 2003
will be significantly lower than in 2002. WaveScan system sales increased $3.5
million and $6.3 million in the second quarter and first half of 2002,
respectively, over the comparable periods of the prior year due to CustomVue
approval in May that had been long anticipated by our customers.



| |  | Service and parts revenues
| |  | --------------------------

Service and parts revenues decreased $0.6 million for the three months ended
June 30, 2003, from $4.8 million for the three months ended June 30, 2002.
Service and parts revenues decreased $0.9 million for the six months ended June
30, 2003, from $9.9 million for the six months ended June 30, 2002. The
declines were due mainly to a new service plan introduced during 2002 that
reduced the price charged for service contracts on laser systems with lower
than average procedure volume.



| |  | License and other revenues
| |  | --------------------------

License and other revenues increased $1.1 million, to $20.1 million for the
three months ended June 30, 2003 from $19.0 million for the three months ended
June 30, 2002. The increase was attributable primarily to customers in the U.S.
purchasing VisionKey cards for CustomVue procedures during June. Our selling
price for CustomVue procedures is approximately double that for standard
procedures. License and other revenues decreased $0.9 million to $39.7 million
for the six months ended June 30, 2003 from $40.6 million for the six months
ended June 30, 2002. The decrease was attributable primarily to customers in
the U.S. purchasing VisionKey cards for fewer procedures in the first half of
2003 than in the comparable period of 2002.

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The U.S. economy has deteriorated over the last two years. One consequence has
been a decline in consumers discretionary spending. Since laser vision
correction surgery is elective and generally not covered by medical insurance,
it has been adversely impacted. The volume of laser vision correction surgeries
in the U.S. over the past two years has shown a correlation with changes in the
stock market and consumer confidence index, both of which have declined
significantly during this period. We believe
these are the main factors causing the decline in U.S. procedure volume. In
addition, consumers also consider perceptions about the safety and
effectiveness of the procedure. The lack of long-term follow-up studies of the
procedure combined with media coverage of selected unfavorable outcomes may
have contributed to uncertainty and delay by some potential consumers.

We believe that a rebound in the U.S. economy and increases in consumer
confidence will provide renewed support for the U.S. laser vision correction
market in the future. We also expect that ongoing technical advances (including
our CustomVue procedure), which have the potential to improve a persons vision
beyond that which can be obtained with contact lenses or glasses, will reduce
concerns perceived by some consumers regarding the safety of laser vision
correction. Notwithstanding, we cannot accurately predict when, or to what
extent, these anticipated changes in the economy and technology would impact
our license and other revenues.

|                                   |                             |      |                             |      |                           |        |        |      |   |      |     |        |  |   |        |      |   |   |        |      |   |  |     |    | 
|---------------------------------- | --------------------------- | ---- | --------------------------- | ---- | ------------------------- | ------ | ------ | ---- | - | ---- | --- | ------ |  | - | ------ | ---- | - | - | ------ | ---- | - |  | --- | -- | 
|                                   |                             |      | Three Months Ended June 30, |      | Six Months Ended June 30,
|                                   |                             |      |                             |      |                          
|COSTS & EXPENSES (000s)           |                             | 2003 |                             | 2002 |                           | Change |        | 2003 |   | 2002 |     | Change
|                                   |                             |      |                             |      |                           |        |        |      |   |      |     |       
|Cost of system revenues            |                             | $    | 7,153                       |      |                           | $      | 7,232  |      |   |      | (1  | )%     |  | $ | 15,448 |      |   | $ | 15,413 |      |   |  | 0   | % 
|                                   | Percent of related revenues |      |                             | 93.1 | %                         |        |        | 56.5 | % |      |     |        |  |   |        | 87.7 | % |   |        | 67.8 | % |  |     |    | 
|Cost of service and parts
revenues |                             |      | 3,530                       |      |                           |        | 3,502  |      |   |      | 1   | %      |  |   | 7,227  |      |   |   | 6,718  |      |   |  | 8   | % 
|                                   | Percent of related
revenues |      |                             | 83.2 | %                         |        |        | 72.3 | % |      |     |        |  |   |        | 79.7 | % |   |        | 67.6 | % |  |     |    | 
|Cost of license and other
revenues |                             |      | 707                         |      |                           |        | 1,251  |      |   |      | (43 | )%     |  |   | 1,539  |      |   |   | 2,458  |      |   |  | (37 | )%
|                                   | Percent of related revenues |      |                             | 3.5  | %                         |        |        | 6.6  | % |      |     |        |  |   |        | 3.9  | % |   |        | 6.1  | % |  |     |    | 
|Selling, genl and admin           |                             |      | 10,854                      |      |                           |        | 11,661 |      |   |      | (7  | )%     |  |   | 20,308 |      |   |   | 22,179 |      |   |  | (8  | )%
|                                   | Percent of total revenues   |      |                             | 33.9 | %                         |        |        | 31.8 | % |      |     |        |  |   |        | 30.6 | % |   |        | 30.3 | % |  |     |    | 
|Research, develop. and regulatory  |                             |      | 4,789                       |      |                           |        | 4,779  |      |   |      | 0   | %      |  |   | 8,835  |      |   |   | 9,024  |      |   |  | (2  | )%
|                                   | Percent of total revenues   |      |                             | 15.0 | %                         |        |        | 13.0 | % |      |     |        |  |   |        | 13.3 | % |   |        | 12.3 | % |  |     |    | 



| |  | Cost of system revenues
| |  | -----------------------

Cost of system revenues decreased slightly to $7.2 million for the three months
ended June 30, 2003 from $7.2 million for the three months ended June 30, 2002.
Cost of system revenues was largely unchanged in the six months ended June 30,
2003 from the corresponding period of the prior year. Sales of lasers and
upgrades decreased while shipments of WaveScan Systems increased. The decline
in cost of system revenues was due primarily to lower cost related to reduced
laser upgrade revenue. The gross profit margin on system revenues was higher
in 2002 than in 2003 due to more sales of lasers and upgrades in 2002 compared
to 2003. We anticipate that the gross profit margin on system revenues will
remain lower than the comparative 2002 period throughout the remainder of 2003.



| |  | Cost of service and parts revenues
| |  | ----------------------------------

Cost of service and parts revenues was largely unchanged in the second quarter
of 2003 from the corresponding period of the prior year. Cost of service and
parts revenues increased $0.5 million, to $7.2 million for the six months ended
June 30, 2003, from $6.7 million for the six months ended June 30, 2002. Cost
of service and parts revenues increased $0.5 million due to higher costs to
service a larger installed base of products in the United States.
The gross
profit margin on service and parts revenues

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was lower in 2003 than in 2002 due
primarily to the lower price associated with the new service plan introduced
during 2002.



| |  | Cost of license and other revenues
| |  | ----------------------------------

Cost of license and other revenues decreased $0.6 million to $0.7 million for
the three months ended June 30, 2003 from $1.3 million for the three months
ended June 30, 2002. Cost of revenues decreased $1.0
million to $1.5 million for the six months ended June 30, 2003 from $2.5
million for the six months ended June 30, 2002. These decreases were due to
the sale of fewer keycards in 2003 when compared to the related period in 2002.



| |  | Selling, general, and administrative expenses
| |  | ---------------------------------------------

Selling, general, and administrative expenses decreased $0.8 million to $10.9
million for the three months ended June 30, 2003 from $11.7 million for the
three months ended June 30, 2002. Selling, general, and administrative expenses
decreased $1.9 million to $20.3 million for the six months ended June 30, 2003
from $22.2 million for the six months ended June 30, 2002. Legal expenses
decreased by $5.1 million in 2003 compared to 2002 primarily as a result of the
Nidek settlement. In addition, legal expenses in the second quarter and first half of 2003
were lower as the result of $2.1 million in insurance reimbursements received
during 2003. This compares to a $1.5 million insurance reimbursement in the
second quarter of 2002. These decreases were offset by marketing costs
incurred in connection with our new CustomVue procedure plus $1.2 million
additional general expenses associated with the filing of the 2003
proxy statement and
stockholder vote.



| |  | Research, development and regulatory expenses
| |  | ---------------------------------------------

Research, development and regulatory expenses were consistent between the three
months ended June 30, 2003 and 2002. Research, development and regulatory
expenses decreased $0.2 million to $8.8 million for the six months ended June
30, 2003 from $9.0 million for the six months ended June 30, 2002. We continued
to focus on next generation technologies and developments for laser vision

correction. These included laser platforms such as our STAR S4 Excimer Laser
System, eye diagnostic units such as our WaveScan System, and new methods for
correcting vision disorders including our CustomVue procedure and early
research and clinical trials on treatments for presbyopia. We also continued
funding early stage research at Stanford University for future treatments for
age-related macular degeneration (AMD) and other advanced technologies. We
anticipate that our research, development and regulatory expenses in 2003 will
be consistent with our expenditures in 2002.



| |  | Interest and other income
| |  | -------------------------

Our average balance of cash invested in interest bearing securities was lowered
in 2003 from 2002 due to cash used to repurchase our stock. Additionally, our
average yields on our portfolio of cash and investments was lower in 2003
compared to 2002. Accordingly, interest income declined in 2003 from 2002
during the six months ended June 30, 2002. However, during the three months
ended June 30, 2003 we realized the holding gains on available-for-sale
securities when we sold our short-term investments which were previously
recorded in accumulated other comprehensive income. This caused interest
income to increase approximately $1.2 million during the three months ended
June 30, 2003. We anticipate that our interest and other income for the
remainder of 2003 will be significantly lower than during the comparative 2002
periods due to our reduced cash, cash equivalents and short-term investments
balance as of June 30, 2003 and lower market interest rates.

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Liquidity and Capital Resources

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

|                                                  |  |             |         |              |  |   |         | 
|------------------------------------------------- |  | ----------- | ------- | ------------ |  | - | ------- | 
|                                                  |  | (000s)    
|                                                  |  | June 30,    |         | December 31,
|                                                  |  | 2003        |         | 2002        
|                                                  |  |             |         |             
|                                                  |  | (Unaudited) |         |              |  |  
|Cash, cash equivalents and short-term investments |  | $           | 54,363  |              |  | $ | 122,955 | 
|Working capital                                   |  |             | 79,681  |              |  |   | 138,351 | 
|Stockholders equity                              |  |             | 101,362 |              |  |   | 155,190 | 

Our cash, cash equivalents, and short-term investments consist principally of
money market funds, and government and corporate bonds. All of our short-term
investments are classified as available-for-sale under the provisions of
Statement of Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities. The securities are carried at fair
market value with the unrealized gains and losses, net of tax, included in
accumulated other comprehensive income, which is reflected as a separate
component of stockholders equity. Realized gains and losses are recognized
when realized on the consolidated statements of operations.

Cash, cash equivalents, and short-term investments decreased by $68.6 million
in the first half of 2003 principally because of stock repurchases of $63.0
million for the six months ended June 30, 2003.

Net operating activities provided $1.0 million of cash in the first half of
2003, down from $26.2 million provided in the first half of 2002. The principal
factors that contributed to this difference are as follows. Net income
decreased by $2.8 million due mainly to lower license revenues. Accounts
receivable and inventories increased during 2003, whereas accounts receivable
decreased in 2002, resulting in a $14.0 million change in cash generation. Days
sales outstanding in accounts receivable was 77 days at the end of the second
quarter of 2003 as compared to 64 days at the comparable point in 2002.
Inventory increased in 2003 due to an increase in finished goods. Deferred
income tax assets and prepaid expenses decreased in both years due primarily to
the utilization of net operating loss carryforwards and a reduction of deferred
temporary tax timing differences. Combined, accounts payable and accrued
liabilities decreased $8.1 million more in 2003 than in 2002 due primarily to a
payment to Nidek as settlement for antitrust and related claims.

Net cash provided by investing activities was $39.9 million in the first half
of 2003, compared to net cash provided by investing activities of $1.5 million
in the first half of 2002. Net cash provided by investing activities in the
first half of 2003 consisted primarily of the proceeds from the sale of
short-term investments. This was partially offset by a payment of $5.9 million
for acquired patents and technology assets from 20/10 Perfect Vision Optische Gerate GmbH.

Net cash used in financing activities was $62.1 million in the first half of
2003, compared to net cash used in financing activities of $19.4 million in the
first half of 2002. This difference was due mainly to the fact that $23.7
million was used during the first half of 2002 to repurchase 1.6 million shares
of VISX stock in open market transactions, whereas 3.5 million shares of VISX
stock was repurchased during the first half of 2003 for $63.0 million.
Partially offsetting these cash expenditures in 2003 was $0.9 million received
upon the exercise of stock options. In comparison, $4.4 million was received
upon the exercise of stock options in the first half of 2002.

On April 4, 2001, our Board of Directors authorized a Stock Repurchase Program
under which up to 10 million shares of VISX common stock may be repurchased. In
accordance with this authorization and

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applicable securities laws, we have
purchased 7.0 million shares on the open market cumulatively through June 30,
2003. Additionally, under separate Board of Director authorization we
repurchased 3.5 million shares of VISX stock during the quarter ended June 30,
2003. Accordingly, 3.0 million shares remain available for purchase in the
future under current Board of Director authorization. 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 June 30, 2003, we did not have
any borrowings outstanding nor any credit agreements.

Our normal credit terms granted to customers are net 30 to 60 days. In an
effort to promote the growth of the laser vision correction industry and the
use of VISX STAR Systems, in certain markets we provide long-term financing to
customers for their purchase of our equipment. We consider a number of factors
including industry practice, competition, and our evaluation of customers
credit worthiness in determining when to offer such financing.

We believe that our operations will provide sufficient cash flow to meet our
working capital and capital equipment needs during the coming twelve months. In
addition, we have $54 million of cash, cash equivalents, and short-term
investments as of June 30, 2003 to provide for unforeseen contingencies and to
support strategic objectives including the development or acquisition of new
technologies and our Stock Repurchase Program.

In May 2002, VISX announced that it entered into an exclusive worldwide license
agreement for a portfolio of patents held by Luis Ruiz, MD, relating to the
treatment of presbyopia with multifocal ablations. VISX also signed an
agreement with Tracey Technologies, LLC for rights to Traceys ray tracing
technology for use in customized laser vision correction treatments. If
clinical and regulatory milestones specified in both agreements were achieved,
VISX would be committed to make additional payments of approximately $2 million
in connection with these two agreements. VISX could be obligated for royalties
in the future based on any future sales of the associated products.




Critical Accounting Policies

We follow accounting principles generally accepted in the United States
(GAAP) in preparing our financial statements. As part of this work, we must
make many estimates and judgments about future events. These affect the value
of the assets and liabilities, contingent assets and liabilities, and revenues
and expenses that we report in our financial statements. We believe these
estimates and judgments are reasonable and we make them in accordance with our
accounting policies based on information available at the time. However, actual
results could differ from our estimates and this could require us to record
adjustments to expenses or revenues that could be material to our financial
position and results of operations in future periods. Our critical accounting
policies used in making these estimates and judgments are as follows.



| |  | Revenue Recognition
| |  | -------------------

Our revenue is comprised of the following: sale and rental of equipment and
upgrades, service revenue, and license fees and related procedure revenue
(procedure revenue). We recognize revenue in accordance with SEC Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements

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(SAB 101). Under this standard, revenue is generally recognized when the following
four criteria are met:



| | (1) |  | Persuasive evidence of an arrangement exists;        
| | --- |  | -----------------------------------------------------
|
| | (2) |  | Delivery has occurred or services have been rendered;
|
| | (3) |  | Our selling price is fixed or determinable; and      
|
| | (4) |  | Collectibility is reasonably assured.                

All of our sales are documented by contract or purchase orders specifying sales
prices and terms.

We sell directly to end customers in the U.S. Within the U.S. and Japan we
directly handle installation of our equipment and upgrades and recognize
revenue on these products after we have completed installation at a customers
site. At this point we accrue an estimate of the cost of warranty service to be
provided in the future. Outside the U.S. and Japan our standard terms are FOB
VISX and we sell through independent, third party distributors who are
generally responsible for all marketing, sales, installation, training and
warranty labor coverage for our products. Accordingly, we recognize system
revenue when we ship equipment for customers outside the U.S. and Japan and
accrue an estimate of the cost of parts that we are obligated to provide under
warranty. Under sales type lease agreements, system revenues are recognized
upon shipment or installation, as appropriate. Under rental or operating lease
agreements for systems, rental revenue is recognized over the term of the
agreement. For customers who purchase service contracts, we recognize service
revenue over the term of the contract. Payments received in advance of services
performed are recorded as deferred revenue. For customers without service
contracts, we recognize service revenue when we provide service. We record
spare parts revenue upon shipment of the parts. We recognize license fees and
related procedure revenue from direct customers when we ship VisionKey Cards.
We recognize license fees from third party licensees when we receive payment.
We classify shipping costs, net of any billings, in cost of revenues.

We assess the credit worthiness of all customers in connection with their
purchases. We only recognize revenue when collectibility is reasonably assured.
If this is not the case, then we record revenue only as payments are received.



| |  | Accounts Receivable
| |  | -------------------

Customers are evaluated for credit worthiness and we recognize revenue when
collectibility is reasonably assured. At the end of each accounting period, we
estimate the reserve necessary for accounts receivables that will ultimately
not be collectible from customers. To develop this estimate, we review all
receivables and identify those accounts with problems. For these problem
accounts, we estimate individual, specific reserves based on our analysis of
the payment history, operations and finances of each account. For all other
accounts, we review historical bad debt trends, general and industry specific
economic trends, customer concentrations, and current payment patterns to
estimate the reserve necessary to provide for payment defaults that cannot be
specifically identified but can be expected with reasonable probability to
occur in the future. We face two particular challenges in estimating these
reserves: concentration of credit with certain large customers and the
potential for significant change in the overall health of the national
economies in the markets we serve. Unexpected deterioration in the health of
either a large customer or a national economy could lead to a material adverse
impact on the collectibility of our accounts receivable and our future
operating results.



| |  | Inventories
| |  | -----------

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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. We regularly review our inventory on hand plus on order and compare
this to our estimate of demand over the following six months. Based on this
analysis, we reduce the carrying value of our inventory for excess and obsolete
items. Changes in competition, the economy, and technology can lead to
variation in demand for our products. If the change in demand is significant,
we may need to further reduce the carrying value of our inventory. All
inventory write-downs result in a new cost basis and are charged to cost of
revenues, accordingly any inventory write-down would impact our reported cost
of revenues.



| |  | Legal Contingencies
| |  | -------------------

At the end of each accounting period we review all outstanding legal matters.
If we believe it is probable that we will incur a loss as a result of the
resolution of a legal matter and we can reasonably estimate the amount of the
loss, we accrue our best estimate of the potential loss. It is very difficult
to predict the future results of complex legal matters. New developments in
legal matters can cause changes in previous estimates and result in significant
changes in loss accruals. Currently we are not aware of any legal actions
against us or threatened that we believe could materially adversely affect our
business, financial condition or results of operations. However, we could in
the future be subject to litigation claims that could cause us to incur
significant expenses and put our business, financial position, and results of
operations at material risk.




Risk Factors

This report contains forward-looking statements that involve risk and
uncertainty. The factors set forth below, which are not the only risks we face,
may cause our 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. If any
of the following risks actually occur, our business, results of operations or
cash flows could be adversely affected. Our results of operations have varied
widely in the past, and they could continue to vary significantly. In addition,
our actual results may differ significantly from the results contemplated by
the forward-looking statements. Accordingly, we believe that our results of
operations in any given period may not be a good indicator of our future
performance.

Market Acceptance.Our business depends upon broad market acceptance of laser
vision correction by both doctors and patients in the United States and key
international markets. Laser vision correction has penetrated less than 5% of
the eligible U.S. population, and our profitability and continued growth will
be largely dependent on increasing levels of market acceptance and procedure
growth, especially with regard to our higher priced CustomVue procedure, both
in the United States and internationally. Although laser vision correction
offers a more predictable outcome and more precise 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). Some consumers may not choose to undergo laser vision correction
because of these complications or more general concerns relating to its safety
and efficacy and a general resistance to surgery. Alternatively, some consumers
may elect to delay

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undergoing laser vision correction surgery because they
believe improved technology and/or methods of treatment will be available in
the near future. Should either the ophthalmic community or the general
population turn away from laser vision correction as an alternative to existing
methods of treating refractive vision disorders, or if future technologies
replaced laser vision correction, these developments could have a material
adverse effect on our business, financial position and results of operations.

Patents and Intellectual Property Disputes.Our business is dependent on the
enforceability and the validity of our United States and foreign patents. We
own over 200 United States and foreign patents and have approximately 200
patent applications pending. In the past, our patents have been challenged on
several fronts and we have asserted our patents against competitors.
Generally, these proceedings centered on whether infringement of the patents
had occurred, and on the validity or enforceability of the patents. While all
of these proceedings have now been resolved, we may assert our
patents against competitors in the future. If in any future
proceedings our patents were found to be invalid or unenforceable (or
in the event that parties against whom VISX asserted patent
infringement were found not to be infringing our 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 may suffer and our revenues may decline. In addition, other companies own United States
and
foreign patents covering methods and apparatus for performing corneal surgery
with ultraviolet lasers. If we were accused of infringing such competitors
patents, and found to have infringed such patents, we could be subject to
significant monetary liability and enjoined from distributing our products. Any one of these
results could harm our business. See Item 1 Legal Proceedings of Part II of
this report for additional information regarding legal proceedings involving
VISX.

Competition.Intense competition in the laser vision correction industry could
result in the loss of customers, an inability to attract new customers, or a
decrease in prices for our products. The medical device and ophthalmic laser
industries are subject to intense competition and technological change. Not
only does laser vision correction compete with more traditional vision
correction options such as eyeglasses and contact lenses, it also competes with
other technologies and surgical techniques such as corneal implants,
intraocular 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 laser
systems. The VISX® System competes with products marketed or under development
by other laser and medical equipment manufacturers, many of which have greater
financial and other resources. Competitors may 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 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 laser vision correction, and could potentially render
laser vision correction obsolete. Any such developments could have a material
adverse effect on our business, financial position and results of operations.

Unfavorable Side Effects.The possibility of long-term side effects and
adverse publicity regarding laser correction surgery could seriously harm our
business. Laser vision correction is a relatively new procedure. Consequently,
there is no long-term follow-up data beyond ten years, and longer-term
follow-up data might reveal additional complications or unknown side effects.
Any future reported side effects, other adverse events or unfavorable publicity
involving patient outcomes resulting from the use of laser vision correction
systems manufactured by VISX or any participant in the laser vision correction
market, may have a material adverse effect on our business, financial position,
and results of operations.

Economic Conditions.Laser vision correction is not subject to reimbursement
from third-party payors such as insurance companies or government programs, and
adverse economic conditions have, and may

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continue to cause, our revenues to
decline. The costs of laser vision correction are typically borne by
individuals directly. Accordingly, individuals may be less willing to incur the
procedure cost associated with laser vision correction in weak or uncertain
economic conditions, as was evidenced by our decline in revenues from 2002
compared to 2001 and from 2001 compared to 2000. Any resulting decline in the
number of VISX STAR Systems sold or laser vision correction procedures
performed may have a material adverse effect on our business, financial
position, and results of operations.

Third Party Financing Entities.
We have relationships with third party financing entities that
purchase our products directly and subsequently lease and/or sell
these products to our end-user customers, or provide financing
directly to customers who purchase our products directly from us. DVI
Strategic Partner Group, a division of DVI Inc. (DVI),
currently provides the majority of these services, representing
approximately 14% of our existing accounts receivable, which equaled
$4.6 million as of June 30, 2003. Should DVI or any other
third party financing entities fail or refuse to pay us in a timely
manner or at all, it could negatively affect our cash flows and could
have a material adverse effect on our business, financial position
and results of operation.

Significant Customers.A
significant portion of our revenues has been derived from sales to
TLC Vision Corporation (TLC) formed in May 2002 through
the merger of Laser Vision Centers, Inc. and TLC Laser Eye Centers,
Inc., both long-term customers of ours. The combined company, TLC,
accounted for 10% and 17% of total revenues in the second quarter of
2003 and 2002, respectively, and 11% and 17% of total revenues in the
first half of 2003 and 2002, respectively. A significant portion of
our equipment sales has been financed by DVI, Inc., a healthcare
finance company. At June 30, 2003 and December 31, 2002 TLC
represented 24% and 22% of accounts receivable, respectively. Should
we lose a significant customer or if anticipated sales to a
significant customer do not materialize, our business, financial
position and results of operations may suffer. Should a significant
customer become unable to pay balances owed, we would have to
increase our charges for bad debt expense which could have a material
adverse effect on our financial position and results of operations.

Fixed Short-Term Expenses.Because our expenses are relatively fixed in the
short term, our earnings will decline if we do not meet our projected sales.
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.

Governmental Regulation.We are subject to extensive governmental regulation,
which increases our costs and could prevent us from selling our products.
Government regulation includes inspection of and controls over research and
development, testing, manufacturing, safety and environmental controls,
efficacy, labeling, advertising, promotion, pricing, record keeping, the sale
and distribution of pharmaceutical products and samples and electronic records
and electronic signatures. In the United States, we must obtain FDA approval or
clearance for each medical device that we market. The FDA approval process is
typically lengthy and expensive, and approval is never certain. Products
distributed outside of the United States are also subject to government
regulation, which may be equally or more demanding. Our new products could take
a significantly longer time than we expect to gain regulatory approval and may
never gain approval. If a regulatory authority delays approval of a potentially
significant product, our market value and operating results may decline. Even
if the FDA or another regulatory agency approves a product, the approval may
limit the indicated uses for a product, may otherwise limit our ability to
promote, sell and distribute a product or may require post-marketing studies.
If we are unable to obtain regulatory approval of our products, we will not be
able to market these products, which would result in a decrease in our sales.
Currently, we are actively pursuing approval for a number of our products from
regulatory authorities in a number of countries, including, among others, the
United States, countries in the European Union and Japan. Continued growth in
our sales and profits will depend, in part, on the timely and successful
introduction and marketing of some or all of these products.

The clinical trials required to obtain regulatory approvals are complex and
expensive and their outcomes are uncertain. We incur substantial expense for,
and devote significant time to, clinical trials, yet cannot be certain that the
trials will ever result in the commercial sale of a product. We may suffer
significant setbacks in clinical trials, even after earlier clinical trials
show promising results. Any of our products may produce undesirable side
effects that could cause us or regulatory authorities to interrupt, delay or
halt clinical trials of a product candidate. We, the FDA, or another regulatory
authority may suspend or

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terminate clinical trials at any time if they or we
believe the trial participants face unacceptable health risks.

Noncompliance with applicable United States regulatory requirements can result
in fines, injunctions, penalties, mandatory recalls or seizures, suspensions of
production, denial or withdrawal of pre-marketing approvals, recommendations by
the FDA against governmental contracts and criminal prosecution. The FDA also
has authority to request repair, replacement, or refund of the cost of any
device we manufacture or distribute. Regulatory authorities outside of the
United States may impose similar sanctions for noncompliance with applicable
regulatory requirements.

Taxes. We operate throughout the United States and, consequently, are subject
to various federal, state and local taxes, including sales, income, payroll,
unemployment, property, franchise, capital and use tax on our operations,
payroll, assets and services. Although we believe we have adequate provisions
and accruals in our financial statements for tax liabilities, we cannot predict
the outcome of all past and future tax assessments. If any taxing authority
determines that we owe amounts for taxes greater than we expect, our earnings
may be negatively affected.

New Products May Not Be Commercially Viable.Our research and development may
not lead to new products that achieve commercial success. We devote significant
resources to research and development. The research and development process is
expensive, prolonged, and entails considerable uncertainty. Development of a
new product, from discovery through testing and registration to initial product
launch, typically takes between three and seven years for a medical device.
Each of these periods varies considerably from product to product and country
to country. Because of the complexities and uncertainties associated with
ophthalmic research and development, products we are currently developing may
not complete the development process or obtain the regulatory approvals
required to market such products successfully. The products currently in our
development pipeline may not be approved by regulatory entities and may not be
commercially successful, and our current and planned products could be
surpassed by more effective or advanced products.

International Operations.We face risks due to our reliance on sales in
international markets. Our future success will depend in part on the continued
expansion of our international sales and operations. In particular, during
2002, 2001, and 2000, we derived approximately 23%, 16% and 18%, respectively,
of our revenues from sales to customers outside the United States. Our growing
international presence exposes us to risks including:



| |  |  | the need for export licenses;                                                           
| | - |  | ----------------------------------------------------------------------------------------
|
| |  |  | unexpected regulatory requirements;                                                     
|
| |  |  | tariffs and other potential trade barriers and restrictions;                            
|
| |  |  | political, legal and economic instability in foreign markets;                           
|
| |  |  | longer accounts receivable cycles;                                                      
|
| |  |  | difficulties in managing operations across disparate geographic areas;                  
|
| |  |  | foreign currency fluctuations;                                                          
|
| |  |  | reduced or limited protection of our intellectual property rights in some countries; and

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| |  |  | dependence on local distributors.
| | - |  | ---------------------------------

If one or more of these risks materialize, our sales to international customers
may decrease and our costs may increase, which could negatively impact our
revenues and operating results.

Product Liability Claims.We have and may become subject to product liability
claims. We could be liable for injuries or damage resulting from use of the
VISX STAR System or WaveScan System. In addition, a claim that an injury
resulted from a defect in any VISX product, even if successfully defended,
could damage our reputation. Although we possess insurance customarily obtained
by businesses of our type (including insurance against product liability risks
associated with the testing, manufacturing, and marketing of our products),
product liability claims in excess of our insurance coverage could have a
material adverse effect on our business, financial position, and results of
operations.

Single Sources For Key Components.The manufacture of VISX STAR Systems and
WaveScan Systems is a complex operation involving numerous procedures. We
depend on single and limited sources for several key components. 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 the production of our products, parts
and services were interrupted or could not continue in a cost-effective or
timely manner, our business, financial position, and results of operations,
could be materially adversely affected.

Volatility of our Stock Price.The market price of our common stock has
experienced fluctuations and is likely to fluctuate significantly in the
future. Our stock price can fluctuate for a number of reasons, including:



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

In addition, stock markets have experienced significant price and volume
volatility in recent years. This volatility has had a substantial effect on the
market prices of securities of many public companies for reasons frequently
unrelated or disproportionate to the operating performance of the specific
companies. In addition, the securities of many medical device companies,
including VISX, have historically been subject to extensive price and volume
fluctuations that may affect the market price of their common stock. If these
broad market fluctuations continue, they may adversely affect the market price
of our common stock.

Confidentiality Agreements.We rely on confidentiality agreements to protect
our proprietary technology. We protect our proprietary technology, in part,
through confidentiality and nondisclosure agreements with employees,
consultants and other parties. Our confidentiality agreements with

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employees
and consultants generally contain standard provisions requiring those
individuals to assign to us, without additional consideration, inventions
conceived or reduced to practice by them while employed or retained by us,
subject to customary exceptions. If any of our employees, consultants or others
breach these confidentiality agreements, we may not have adequate remedies for
any breach, and our competitors may learn of our trade secrets.

New Technologies.If we fail to keep pace with advances in our industry or
fail to develop new methods of vision correction, customers may not buy our
products and our revenue may decline. We must be able to manufacture and
effectively market those products and persuade a sufficient number of eye care
professionals to use the new products we introduce. Sales of our existing
products may decline rapidly if a new product is introduced by one of our
competitors or if we announce a new product that, in either case, represents a
substantial improvement over our existing products. A decrease in procedure
volume may also occur if consumers elect to delay undergoing laser vision
correction surgery because they believe improved technology and/or methods of
treatment will be available in the near future.

Antitakeover Provisions in Our Charter Documents.In 2000, we adopted a
stockholder rights plan. The presence of this plan could make it more difficult
for a third party to engage in a takeover attempt, even a takeover attempt in
which the potential purchaser offers to pay a per share price greater than the
current market price for our common stock. In addition, the presence of the
plan could delay or impede the
removal of incumbent directors. These provisions may also impact the amount of
interest investors have in our business.




Item 3. Quantitative and Qualitative Disclosures about Market Risk

There were no material changes during the six months ended June 30, 2003 to our
exposure to market risk for changes in interest rates and foreign currency
exchange rates.




Item 4. Disclosure Controls and Procedures

VISX management, including the Chief Executive Officer and Chief Financial
Officer, conducted an evaluation of the effectiveness of disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
as of the end of the period covered by this quarterly report. Based on that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that, as of the end of the period covered by this quarterly report, the disclosure controls and procedures are
effective in ensuring that all material information required to be filed in
this quarterly report has been made known to them in a timely
fashion. There were no changes in VISXs internal control
over financial reporting that occurred during the period covered by
this report that have materially affected, or are likely materially
affect, VISXs internal control over financial reporting.




Part II. OTHER INFORMATION




Item 1. Legal Proceedings

From time to time, we have been involved in a variety of legal proceedings. For
a complete description of legal proceedings, see our annual report on Form 10-K
for the year ended December 31, 2002 and our quarterly report on Form 10-Q for
the quarter ended March 31, 2003. During the quarter ended June 30, 2003,
there were no material developments with respect to such previously existing
proceedings and no new material proceedings not previously disclosed.

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

We held our annual meeting of stockholders on May 23, 2003.

The stockholders voted as follows to elect the
following seven members of the
Board of Directors.

|                    |  |     |            |          |  |  |           | 
|------------------- |  | --- | ---------- | -------- |  |  | --------- | 
|Name                |  | For |            | Withheld
|                    |  |     |            |         
|Elizabeth H. Dávila |  |     | 30,921,839 |          |  |  | 6,248,996 | 
|Glendon E. French   |  |     | 30,815,254 |          |  |  | 6,355,581 | 
|John W. Galiardo    |  |     | 30,837,152 |          |  |  | 6,333,683 | 
|Jay T. Holmes       |  |     | 27,563,669 |          |  |  | 125,764   | 
|Richard B. Sayford  |  |     | 30,816,684 |          |  |  | 6,354,151 | 
|Laureen De Buono    |  |     | 30,827,286 |          |  |  | 6,343,549 | 
|Gary S. Petersmeyer |  |     | 30,816,768 |          |  |  | 6,354,067 | 

In addition, Keith Meister received 9,419,134 votes
For and 184,732 votes Withheld with respect
to his election as a member of the Board of Directors, and he was not
elected to the Board of Directors.

The stockholders voted as follows on a proposal to ratify the appointment
of KPMG LLP as auditors of VISX for 2003.



|           |  |         |         |         |  |                 |           |  |  |  |   | 
|---------- |  | ------- | ------- | ------- |  | --------------- | --------- |  |  |  | - | 
|For        |  | Against |         | Abstain |  | Broker
Non-Vote
|           |  |         |         |         |  |                
|30,517,417 |  |         | 544,893 |         |  |                 | 6,108,525 |  |  |  | 0 | 

The stockholders voted as follows on a proposal to approve an amendment
to VISXs 1995 Director Option Plan.

|           |  |         |           |         |  |                 |           |  |  |  |   | 
|---------- |  | ------- | --------- | ------- |  | --------------- | --------- |  |  |  | - | 
|For        |  | Against |           | Abstain |  | Broker
Non-Vote
|           |  |         |           |         |  |                
|27,925,377 |  |         | 2,966,627 |         |  |                 | 6,278,831 |  |  |  | 0 | 

The stockholders voted as follows on a proposal to approve an amendment
to VISXs 2000 Stock Option Plan.

|           |  |         |           |         |  |                 |           |  |  |  |   | 
|---------- |  | ------- | --------- | ------- |  | --------------- | --------- |  |  |  | - | 
|For        |  | Against |           | Abstain |  | Broker
Non-Vote
|           |  |         |           |         |  |                
|24,708,129 |  |         | 6,195,656 |         |  |                 | 6,267,050 |  |  |  | 0 | 




Item 5. Other Information

In accordance with Section 10A(i)(2) of the Securities Exchange Act of 1934, as
added by Section 202 of the Sarbanes-Oxley Act of 2002, VISX is responsible for
disclosing the non-audit services approved by VISX s Audit Committee to be
performed by KPMG LLP, VISX s independent auditor. Non-audit services are
defined in the law as services other than those provided in connection with an
audit or a review of the financial statements of VISX. The non-audit services
approved by the Audit Committee in the second quarter are considered by VISX to
be audit-related services that closely relate to the financial audit process.
Each of the services has been approved in accordance with a pre-approval from
the Audit Committees Chairman pursuant to delegated authority by the Audit
Committee.

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During the quarterly period covered by this filing, the Committee approved
additional engagements of KPMG LLP for the following non-audit service: tax
return preparation, non-audit accounting services, and tax matter consultations
concerning federal and state taxes.




Item 6. Exhibits and Reports on Form 8-K



|a) |  | Exhibits.
|-- |  | ---------

|               |  |                                                                                                                                                                                
|-------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit
Number |  | Description                                                                                                                                                                    
|              
|10.1           |  | 1995 Director Option and Stock Deferral Plan Amended, as and
Restated Effective as of May 23, 2003.                                                                            
|               |  |                                                                                                                                                                                
|10.2           |  | 2000 Stock Plan, as Amended and Restated Effective as of
May 23, 2003.                                                                                                         
|               |  |                                                                                                                                                                                
|31.1           |  | Certification of Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.                                                                            
|               |  |                                                                                                                                                                                
|31.2           |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                            
|               |  |                                                                                                                                                                                
|32.1           |  | Certifications of Chief Executive Officer and Chief
Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



|b) |  | Reports on Form 8-K.                                                                
|-- |  | ------------------------------------------------------------------------------------
|  
|   |  | VISX filed reports on Form 8-K during the period covered by
this report, as follows:



| | (1) |  | Report on Form 8-K filed on
April 23, 2003 under Item 12 (Results of Operations and
Financial Condition) covering VISXs first quarter 2003 financial results.
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (2) |  | Report on Form 8-K filed on
May 16, 2003 under Item 5 (Other
Events) covering the amendment to the Rights Agreement.                                          
|
| | (3) |  | Report on Form 8-K/A filed on
May 19, 2003 under Item 5 (Other
Events) covering the amendment to the Rights Agreement.                                        
|

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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)

|              |  |                                      
|------------- |  | -------------------------------------
|July 31, 2003 |  | /s/Elizabeth H. Dávila               
|(Date)        |  |                                      
|              |  | Elizabeth H. Dávila                  
|              |  | Chairman of the Board and            
|              |  | Chief Executive Officer              
|              |  |                                      
|July 31, 2003 |  | /s/Timothy R. Maier                  
|(Date)        |  |                                      
|              |  | Timothy R. Maier                     
|              |  | Executive Vice President and         
|              |  | Chief Financial Officer (principal   
|              |  | financial officer)                   
|              |  |                                      
|July 31, 2003 |  | /s/Derek A. Bertocci                 
|(Date)        |  |                                      
|              |  | Derek A. Bertocci                    
|              |  | Vice President, Controller (principal
|              |  | accounting officer)                  

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EXHIBIT INDEX

|          |  |                                                                                               
|--------- |  | ----------------------------------------------------------------------------------------------
|Exhibits. |  |                                                                                               
|          |  |                                                                                               
|10.1      |  | 1995 Director Option and Stock Deferral Plan Amended and
Restated Effective as of May 23, 2003
|          |  |                                                                                               
|10.2      |  | 2000 Stock Plan Amended and Restated Effective as of May 23, 2003                             
|          |  |                                                                                               
|31.1      |  | Section 302 Certifications of Chief Executive Officer and Chief
Financial Officer             
|          |  |                                                                                               
|32.1      |  | Section 906 Certifications of Chief Executive Officer and Chief
Financial Officer             

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