##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549




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FORM 10-Q

|    |  |                                                                                        
|--- |  | ---------------------------------------------------------------------------------------
|(X) |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 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                                                       |  | 06-1161793                       
|                                                               |  |                                  
|(State or other Jurisdiction of
Incorporation or Organization) |  | (IRS Employer
Identification No.)

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

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

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

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 October 31, 2003:
48,330,443





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TABLE OF CONTENTS



|                              |                                                                                               |                                                              |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------------------------ |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              | Item 1. Condensed Consolidated Interim Financial Statements                                  
|                              |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEETS                       
|                              |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS             
|                              |                                                                                               | CONDENSED CONSOLIDATED 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. Controls and Procedures                                                              
|Part II. OTHER INFORMATION   
|                              | Item 1. Legal Proceedings                                                                    
|                              | Item 5. Other Information                                                                    
|                              | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                   
|Exhibit Index                
|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 Balance Sheets as
of September 30, 2003 and December 31, 2002                                                                             |    |      | 3  | 
|           |  |                                                                                       |  | Condensed Consolidated Statements of Operations for the
Three Months Ended September 30, 2003 and 2002 and for the
Nine Months Ended September 30, 2003 and 2002 |    |      | 4  | 
|           |  |                                                                                       |  | Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended September 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 Disclosures about Market Risk                            |  |                                                                                                                                                                  | 22 |     
|Item 4.    |  | Controls and Procedures                                                               |  |                                                                                                                                                                  | 22 |     
|PART II    |  | OTHER INFORMATION                                                                     |  |                                                                                                                                                                  |    |     
|Item 1.    |  | Legal Proceedings                                                                     |  |                                                                                                                                                                  | 23 |     
|Item 5.    |  | Other Information                                                                     |  |                                                                                                                                                                  | 23 |     
|Item 6.    |  | Exhibits and Reports on Form 8-K                                                      |  |                                                                                                                                                                  | 23 |     
|SIGNATURES |  |                                                                                       |  |                                                                                                                                                                  | 24 |     

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##### Table of Contents



PART I. FINANCIAL INFORMATION







Item 1. Condensed Consolidated Interim Financial Statements

VISX, INCORPORATED AND SUBSIDIARIES




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

|                                        |                                                                                                |   |                            |          |               |         |              |          |   |         | 
|--------------------------------------- | ---------------------------------------------------------------------------------------------- | - | -------------------------- | -------- | ------------- | ------- | ------------ | -------- | - | ------- | 
|                                        |                                                                                                |   |                            |          | September 30, |         | December 31,
|                                        |                                                                                                |   |                            |          | 2003          |         | 2002        
|                                        |                                                                                                |   |                            |          |               |         |             
|                                        |                                                                                                |   |                            |          | (unaudited)   |         |              |          |  
|ASSETS                                  |                                                                                                |   |                            |          |               |         |              |         
|Current Assets:                         |                                                                                                |   |                            |          |               |         |              |         
|                                        | Cash and cash equivalents                                                                      |   | $                          | 26,090   |               |         | $            | 37,687   |  
|                                        | Short-term investments                                                                         |   |                            | 42,908   |               |         |              | 85,268   |  
|                                        | Accounts receivable, net of allowance
for doubtful accounts of $4,589 and
$2,563, respectively |   |                            | 24,721   |               |         |              | 24,559   |  
|                                        | Inventories                                                                                    |   |                            | 13,109   |               |         |              | 12,751   |  
|                                        | Deferred tax assets and prepaid expenses                                                       |   |                            | 17,901   |               |         |              | 23,488   |  
|                                        |                                                                                                |   |                            |          |               |         |              |          |  
|                                        |                                                                                                |   | Total current assets       |          |               | 124,729 |              |          |   | 183,753 | 
|Property and Equipment, net             |                                                                                                |   | 7,833                      |          |               |         | 6,498        |         
|Long-Term Deferred Tax and Other Assets |                                                                                                |   | 13,413                     |          |               |         | 10,341       |         
|                                        |                                                                                                |   |                            |          |               |         |              |          |  
|                                        |                                                                                                | $ | 145,975                    |          |               | $       | 200,592      |         
|                                        |                                                                                                |   |                            |          |               |         |              |          |  
|LIABILITIES AND STOCKHOLDERS EQUITY    |                                                                                                |   |                            |          |               |         |              |         
|Current Liabilities:                    |                                                                                                |   |                            |          |               |         |              |         
|                                        | Accounts payable                                                                               |   | $                          | 4,004    |               |         | $            | 4,341    |  
|                                        | Accrued liabilities                                                                            |   |                            | 33,924   |               |         |              | 41,061   |  
|                                        |                                                                                                |   |                            |          |               |         |              |          |  
|                                        |                                                                                                |   | Total current liabilities  |          |               | 37,928  |              |          |   | 45,402  | 
|                                        |                                                                                                |   |                            |          |               |         |              |          |  
|                                        | Long term liabilities                                                                          |   | $                          | 219      |               |         |              |         |  
|                                        |                                                                                                |   |                            |          |               |         |              |          |  
|Stockholders Equity:                   |                                                                                                |   |                            |          |               |         |              |         
|                                        | Common stock: $.01 par value,
180,000,000 shares authorized;
64,990,089 shares issued          |   |                            | 650      |               |         |              | 650      |  
|                                        | Additional paid-in capital                                                                     |   |                            | 200,606  |               |         |              | 202,700  |  
|                                        | Treasury stock, at cost 16,857,034 and
13,652,256 shares, respectively                         |   |                            | (267,119 | )             |         |              | (208,748 | )
|                                        | Accumulated other comprehensive income                                                         |   |                            | 585      |               |         |              | 1,921    |  
|                                        | Retained earnings                                                                              |   |                            | 173,106  |               |         |              | 158,667  |  
|                                        |                                                                                                |   |                            |          |               |         |              |          |  
|                                        |                                                                                                |   | Total stockholders equity |          |               | 107,828 |              |          |   | 155,190 | 
|                                        |                                                                                                |   |                            |          |               |         |              |          |  
|                                        |                                                                                                | $ | 145,975                    |          |               | $       | 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 STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)

|                                         |                                      |                          |       |                    |        |                   |       |             |        |      |        |        |         |   |        |         |         | 
|---------------------------------------- | ------------------------------------ | ------------------------ | ----- | ------------------ | ------ | ----------------- | ----- | ----------- | ------ | ---- | ------ | ------ | ------- | - | ------ | ------- | ------- | 
|                                         |                                      |                          |       | Three months ended |        | Nine months ended
|                                         |                                      |                          |       | September 30,      |        | September 30,    
|                                         |                                      |                          |       |                    |        |                  
|                                         |                                      |                          |       | 2003               |        | 2002              |       | 2003        |        | 2002
|                                         |                                      |                          |       |                    |        |                   |       |             |        |     
|                                         |                                      |                          |       |                    |        |                   |       | (unaudited) |        |      |        |       
|Revenues:                                |                                      |                          |       |                    |        |                   |       |             |        |      |        |        |         |   |        |        
|                                         | System revenues                      |                          | $     | 11,136             |        |                   | $     | 10,216      |        |      | $      | 28,743 |         |   | $      | 32,935  |        
|                                         | Service and parts revenues           |                          |       | 4,638              |        |                   |       | 4,735       |        |      |        | 13,709 |         |   |        | 14,669  |        
|                                         | License and other revenues           |                          |       | 23,494             |        |                   |       | 15,609      |        |      |        | 63,235 |         |   |        | 56,180  |        
|                                         |                                      |                          |       |                    |        |                   |       |             |        |      |        |        |         |   |        |         |        
|                                         |                                      | Total revenues           |       |                    | 39,268 |                   |       |             | 30,560 |      |        |        | 105,687 |   |        |         | 103,784 | 
|                                         |                                      |                          |       |                    |        |                   |       |             |        |      |        |        |         |   |        |         |        
|Costs and Expenses:                      |                                      |                          |       |                    |        |                   |       |             |        |      |        |        |         |   |        |        
|                                         | Cost of system revenues              |                          |       | 11,752             |        |                   |       | 6,927       |        |      |        | 27,316 |         |   |        | 22,114  |        
|                                         | Cost of service and parts revenues   |                          |       | 3,574              |        |                   |       | 3,805       |        |      |        | 10,685 |         |   |        | 10,749  |        
|                                         | Cost of license and other revenues   |                          |       | 1,009              |        |                   |       | 807         |        |      |        | 2,548  |         |   |        | 2,600   |        
|                                         | Selling, general, and administrative |                          |       | 10,538             |        |                   |       | 8,831       |        |      |        | 30,846 |         |   |        | 31,675  |        
|                                         | Research, development and regulatory |                          |       | 4,814              |        |                   |       | 4,601       |        |      |        | 13,649 |         |   |        | 13,625  |        
|                                         |                                      |                          |       |                    |        |                   |       |             |        |      |        |        |         |   |        |         |        
|                                         |                                      | Total costs and expenses |       |                    | 31,687 |                   |       |             | 24,971 |      |        |        | 85,044  |   |        |         | 80,763  | 
|                                         |                                      |                          |       |                    |        |                   |       |             |        |      |        |        |         |   |        |         |        
|Income From Operations                   |                                      |                          | 7,581 |                    |        |                   | 5,589 |             |        |      | 20,643 |        |         |   | 23,021 |        
|                                         | Interest and other income            |                          |       | 369                |        |                   |       | 1,505       |        |      |        | 3,130  |         |   |        | 4,597   |        
|                                         |                                      |                          |       |                    |        |                   |       |             |        |      |        |        |         |   |        |         |        
|Income Before Provision For Income Taxes |                                      |                          | 7,950 |                    |        |                   | 7,094 |             |        |      | 23,773 |        |         |   | 27,618 |        
|                                         | Provision for income taxes           |                          |       | (3,085             | )      |                   |       | (2,625      | )      |      |        | (9,334 | )       |   |        | (10,730 | )      
|                                         |                                      |                          |       |                    |        |                   |       |             |        |      |        |        |         |   |        |         |        
|Net Income                               |                                      | $                        | 4,865 |                    |        | $                 | 4,469 |             |        | $    | 14,439 |        |         | $ | 16,888 |        
|                                         |                                      |                          |       |                    |        |                   |       |             |        |      |        |        |         |   |        |         |        
|Earnings Per Share                       |                                      |                          |       |                    |        |                   |       |             |        |      |        |        |         |   |        |        
|                                         | Basic                                |                          | $     | 0.10               |        |                   | $     | 0.09        |        |      | $      | 0.29   |         |   | $      | 0.31    |        
|                                         |                                      |                          |       |                    |        |                   |       |             |        |      |        |        |         |   |        |         |        
|                                         | Diluted                              |                          | $     | 0.10               |        |                   | $     | 0.08        |        |      | $      | 0.28   |         |   | $      | 0.31    |        
|                                         |                                      |                          |       |                    |        |                   |       |             |        |      |        |        |         |   |        |         |        
|Shares Used For Earnings Per Share       |                                      |                          |       |                    |        |                   |       |             |        |      |        |        |         |   |        |        
|                                         | Basic                                |                          |       | 48,065             |        |                   |       | 52,483      |        |      |        | 49,816 |         |   |        | 53,620  |        
|                                         |                                      |                          |       |                    |        |                   |       |             |        |      |        |        |         |   |        |         |        
|                                         | Diluted                              |                          |       | 50,132             |        |                   |       | 52,904      |        |      |        | 50,995 |         |   |        | 54,429  |        
|                                         |                                      |                          |       |                    |        |                   |       |             |        |      |        |        |         |   |        |         |        

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

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VISX, INCORPORATED AND SUBSIDIARIES




CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

|                                                             |                                                                                   |                                              |                                          |         |                   |        |        |         |         |        |  
|------------------------------------------------------------ | --------------------------------------------------------------------------------- | -------------------------------------------- | ---------------------------------------- | ------- | ----------------- | ------ | ------ | ------- | ------- | ------ | -
|                                                             |                                                                                   |                                              |                                          |         | Nine months ended
|                                                             |                                                                                   |                                              |                                          |         | September 30,    
|                                                             |                                                                                   |                                              |                                          |         |                  
|                                                             |                                                                                   |                                              |                                          |         | 2003              |        | 2002  
|                                                             |                                                                                   |                                              |                                          |         |                   |        |       
|                                                             |                                                                                   |                                              |                                          |         | (unaudited)      
|Cash flows from operating activities:                        |                                                                                   |                                              |                                          |         |                   |        |        |        
|                                                             | Net income                                                                        |                                              | $                                        | 14,439  |                   |        | $      | 16,888  |        
|                                                             | Adjustments to reconcile net income to net cash provided
by operating activities: |                                              |                                          |         |                   |        |        |         |        
|                                                             |                                                                                   | Depreciation and amortization                |                                          |         | 6,518             |        |        |         | 2,851   |       
|                                                             |                                                                                   | Provision for doubtful accounts receivable   |                                          |         | 2,044             |        |        |         | 1,142   |       
|                                                             |                                                                                   | Changes in operating assets and liabilities: |                                          |         |                   |        |        |         |         |       
|                                                             |                                                                                   |                                              | Accounts receivable                      |         |                   | (2,206 | )      |         |         | 6,757  |  
|                                                             |                                                                                   |                                              | Inventories                              |         |                   | (6,053 | )      |         |         | (2,806 | )
|                                                             |                                                                                   |                                              | Deferred tax assets and prepaid expenses |         |                   | 5,587  |        |         |         | 9,372  |  
|                                                             |                                                                                   |                                              | Long-term deferred tax and other assets  |         |                   | 1,328  |        |         |         | (710   | )
|                                                             |                                                                                   |                                              | Accounts payable                         |         |                   | (337   | )      |         |         | 2,228  |  
|                                                             |                                                                                   |                                              | Accrued liabilities                      |         |                   | (6,918 | )      |         |         | (3,789 | )
|                                                             |                                                                                   |                                              |                                          |         |                   |        |        |         |        
|                                                             |                                                                                   | Net cash provided by operating activities    |                                          |         | 14,402            |        |        |         | 31,933  |       
|                                                             |                                                                                   |                                              |                                          |         |                   |        |        |        
|Cash flows from investing activities:                        |                                                                                   |                                              |                                          |         |                   |        |        |        
|                                                             | Capital expenditures                                                              |                                              |                                          | (658    | )                 |        |        | (2,099  | )      
|                                                             | Cash paid for acquisition of patents and technology assets                        |                                              |                                          | (5,900  | )                 |        |        |        |        
|                                                             | Purchase of short-term investments                                                |                                              |                                          | (45,853 | )                 |        |        | (64,580 | )      
|                                                             | Sales and maturities of short-term investments                                    |                                              |                                          | 86,800  |                   |        |        | 78,799  |        
|                                                             |                                                                                   |                                              |                                          |         |                   |        |        |         |        
|                                                             |                                                                                   | Net cash provided by investing activities    |                                          |         | 34,389            |        |        |         | 12,120  |       
|                                                             |                                                                                   |                                              |                                          |         |                   |        |        |        
|Cash flows from financing activities:                        |                                                                                   |                                              |                                          |         |                   |        |        |        
|                                                             | Exercise of stock options                                                         |                                              |                                          | 2,535   |                   |        |        | 4,352   |        
|                                                             | Repurchase of common stock                                                        |                                              |                                          | (63,000 | )                 |        |        | (39,113 | )      
|                                                             |                                                                                   |                                              |                                          |         |                   |        |        |        
|                                                             |                                                                                   | Net cash used in financing activities        |                                          |         | (60,465           | )      |        |         | (34,761 | )     
|                                                             |                                                                                   |                                              |                                          |         |                   |        |        |        
|Effect of exchange rate changes on cash and cash equivalents |                                                                                   |                                              | 77                                       |         |                   |        | (1     | )      
|                                                             |                                                                                   |                                              |                                          |         |                   |        |        |        
|Net increase (decrease) in cash and cash equivalents         |                                                                                   |                                              | (11,597                                  | )       |                   |        | 9,291  |        
|Cash and cash equivalents, beginning of period               |                                                                                   |                                              | 37,687                                   |         |                   |        | 15,349 |        
|                                                             |                                                                                   |                                              |                                          |         |                   |        |        |        
|Cash and cash equivalents, end of period                     |                                                                                   | $                                            | 26,090                                   |         |                   | $      | 24,640 |        
|                                                             |                                                                                   |                                              |                                          |         |                   |        |        |        
|Non-Cash Investing Activities:                               |                                                                                   |                                              |                                          |         |                   |        |        |        
|                                                             | Inventory transferred to property and equipment under
operating leases            |                                              | $                                        | 5,695   |                   |        | $      | 2,568   |        
|                                                             |                                                                                   |                                              |                                          |         |                   |        |        |         |        

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

Page 5



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##### Table of Contents






VISX, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
September 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.

These interim financial statements include 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 |        | Nine Months Ended
|                           |                                                                     |   | September 30,      |        | September 30,    
|                           |                                                                     |   |                    |        |                  
|                           |                                                                     |   | 2003               |        | 2002              |   | 2003  |        | 2002
|                           |                                                                     |   |                    |        |                   |   |       |        |     
|NET INCOME                 |                                                                     | $ | 4,865              |        |                   | $ | 4,469 |        |      | $ | 14,439 |        |  | $ | 16,888 |       
|                           |                                                                     |   |                    |        |                   |   |       |        |      |   |        |        |  |   |        |       
|BASIC EARNINGS PER SHARE   |                                                                     |   |                    |        |                   |   |       |        |      |   |        |        |  |   |        |       
|                           | Income available to common stockholders                             |   | $                  | 4,865  |                   |   | $     | 4,469  |      |   | $      | 14,439 |  |   | $      | 16,888 | 
|                           | Weighted average common shares outstanding                          |   |                    | 48,065 |                   |   |       | 52,483 |      |   |        | 49,816 |  |   |        | 53,620 | 
|                           |                                                                     |   |                    |        |                   |   |       |        |      |   |        |        |  |   |        |       
|                           | Basic Earnings Per Share                                            |   | $                  | 0.10   |                   |   | $     | 0.09   |      |   | $      | 0.29   |  |   | $      | 0.31   | 
|                           |                                                                     |   |                    |        |                   |   |       |        |      |   |        |        |  |   |        |       
|DILUTED EARNINGS PER SHARE |                                                                     |   |                    |        |                   |   |       |        |      |   |        |        |  |   |        |       
|                           | Income available to common stockholders                             |   | $                  | 4,865  |                   |   | $     | 4,469  |      |   | $      | 14,439 |  |   | $      | 16,888 | 
|                           |                                                                     |   |                    |        |                   |   |       |        |      |   |        |        |  |   |        |       
|                           | Weighted average common shares outstanding                          |   |                    | 48,065 |                   |   |       | 52,483 |      |   |        | 49,816 |  |   |        | 53,620 | 
|                           | Dilutive potential common shares from stock options                 |   |                    | 2,067  |                   |   |       | 421    |      |   |        | 1,179  |  |   |        | 809    | 
|                           |                                                                     |   |                    |        |                   |   |       |        |      |   |        |        |  |   |        |       
|                           | Weighted average common shares and dilutive potential common shares |   |                    | 50,132 |                   |   |       | 52,904 |      |   |        | 50,995 |  |   |        | 54,429 | 
|                           |                                                                     |   |                    |        |                   |   |       |        |      |   |        |        |  |   |        |       
|                           | Diluted Earnings Per Share                                          |   | $                  | 0.10   |                   |   | $     | 0.08   |      |   | $      | 0.28   |  |   | $      | 0.31   | 
|                           |                                                                     |   |                    |        |                   |   |       |        |      |   |        |        |  |   |        |       

Options to purchase 1,996,000 shares and 6,640,000 shares during the three
months ended September 30, 2003 and 2002, respectively, were excluded from the
computation of diluted EPS because the weighted average exercise prices for
these options of $34.97 and $21.67, respectively, were greater than the average
market price of VISXs common stock during these periods.

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Options to purchase 4,795,000 shares and 6,349,000 shares during the nine
months ended September 30, 2003 and 2002, respectively, were excluded from the
computation of diluted EPS because the weighted average exercise prices for
these options of $24.46 and $22.95, 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 of a two-year offering period or as of the
end of each six month purchase segment of a two year offering period, whichever
is lower. 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 |        | Nine Months Ended
|                                                                                                                                            |  |             |  |   |       | September 30,      |        | September 30,    
|                                                                                                                                            |  |             |  |   |       |                    |        |                  
|                                                                                                                                            |  |             |  |   |       | 2003               |        | 2002              |       | 2003 |        | 2002
|                                                                                                                                            |  |             |  |   |       |                    |        |                   |       |      |        |     
|Net Income                                                                                                                                  |  | As Reported |  | $ | 4,865 |                    |        | $                 | 4,469 |      |        | $    | 14,439 |  |        | $ | 16,888 | 
|Deduct: Total stock-based
employee compensation
expense determined under
fair value based method
for all awards, net of
related tax effects |  |             |  |   |       |                    | (1,906 | )                 |       |      | (2,481 | )    |        |  | (6,071 | ) |        |  | (7,351 | )
|                                                                                                                                            |  |             |  |   |       |                    |        |                   |       |      |        |      |        |  |        |   |        |  |        |  
|Net Income                                                                                                                                  |  | Pro Forma   |  | $ | 2,959 |                    |        | $                 | 1,988 |      |        | $    | 8,368  |  |        | $ | 9,537  | 
|                                                                                                                                            |  |             |  |   |       |                    |        |                   |       |      |        |      |        |  |        |   |        |  |        |  
|Basic Earnings Per Share                                                                                                                    |  | As Reported |  | $ | 0.10  |                    |        | $                 | 0.09  |      |        | $    | 0.29   |  |        | $ | 0.31   | 
|                                                                                                                                            |  | Pro Forma   |  |   | 0.06  |                    |        |                   | 0.04  |      |        |      | 0.17   |  |        |   | 0.18   | 
|Diluted Earnings Per Share                                                                                                                  |  | As Reported |  | $ | 0.10  |                    |        | $                 | 0.08  |      |        | $    | 0.28   |  |        | $ | 0.31   | 
|                                                                                                                                            |  | Pro Forma   |  |   | 0.06  |                    |        |                   | 0.04  |      |        |      | 0.17   |  |        |   | 0.18   | 

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 |      | Nine Months Ended
|                                        |  |                    |      |                  
|                                        |  | September 30,      |      | September 30,     |  | September 30, |      | September 30,
|                                        |  | 2003               |      | 2002              |  | 2003          |      | 2002         
|                                        |  |                    |      |                   |  |               |      |              
|Expected life of options (in years)     |  |                    | 4.78 |                   |  |               | 4.22 |               |  |  | 4.35 |   |  |  | 4.22 |  
|Expected life of ESPP rights (in years) |  |                    | 1.25 |                   |  |               | 1.25 |               |  |  | 1.25 |   |  |  | 1.25 |  
|Volatility for options                  |  |                    | 74   | %                 |  |               | 79   | %             |  |  | 75   | % |  |  | 79   | %
|Volatility for ESPP rights              |  |                    | 60   | %                 |  |               | 65   | %             |  |  | 60   | % |  |  | 65   | %
|Risk free interest rate for options     |  |                    | 2.32 | %                 |  |               | 2.46 | %             |  |  | 2.46 | % |  |  | 4.16 | %
|Risk free interest rate for ESPP rights |  |                    | 1.63 | %                 |  |               | 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):
|-- |  | --------------------------

|                                |       |   |               |        |              |   |       |        | 
|------------------------------- | ----- | - | ------------- | ------ | ------------ | - | ----- | ------ | 
|                                |       |   | September 30, |        | December 31,
|                                |       |   | 2003          |        | 2002        
|                                |       |   |               |        |             
|                                |       |   | (Unaudited)   |        |              |   |      
|Raw materials and subassemblies |       | $ | 7,788         |        |              | $ | 8,108 |       
|Work in process                 |       |   | 1,560         |        |              |   | 1,563 |       
|Finished goods                  |       |   | 3,761         |        |              |   | 3,080 |       
|                                |       |   |               |        |              |   |       |       
|                                | Total |   | $             | 13,109 |              |   | $     | 12,751 | 
|                                |       |   |               |        |              |   |       |       



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

|                                  |                                                                              |   |                    |     |                   |   |       |     |      |   |        |        |   |   |        |      |  
|--------------------------------- | ---------------------------------------------------------------------------- | - | ------------------ | --- | ----------------- | - | ----- | --- | ---- | - | ------ | ------ | - | - | ------ | ---- | -
|                                  |                                                                              |   | Three Months Ended |     | Nine Months Ended
|                                  |                                                                              |   | September 30,      |     | September 30,    
|                                  |                                                                              |   |                    |     |                  
|                                  |                                                                              |   | 2003               |     | 2002              |   | 2003  |     | 2002
|                                  |                                                                              |   |                    |     |                   |   |       |     |     
|NET INCOME                        |                                                                              | $ | 4,865              |     |                   | $ | 4,469 |     |      | $ | 14,439 |        |   | $ | 16,888 |     
|OTHER COMPREHENSIVE INCOME (LOSS) |                                                                              |   |                    |     |                   |   |       |     |      |   |        |        |   |   |        |     
|                                  | Change in unrealized holding gains (losses) on
available-for-sale securities |   |                    | (81 | )                 |   |       | 354 |      |   |        | (1,413 | ) |   |        | (620 | )
|                                  | Change in accumulated foreign currency translation adjustment                |   |                    | 86  |                   |   |       | (21 | )    |   |        | 77     |   |   |        | (1   | )
|                                  |                                                                              |   |                    |     |                   |   |       |     |      |   |        |        |   |   |        |     
|COMPREHENSIVE INCOME              |                                                                              | $ | 4,870              |     |                   | $ | 4,802 |     |      | $ | 13,103 |        |   | $ | 16,267 |     
|                                  |                                                                              |   |                    |     |                   |   |       |     |      |   |        |        |   |   |        |     



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

Warranty obligations are included in
accrued liabilities. Changes in product warranty obligations for the periods ended September 30,
2003 and 2002 are as follows (unaudited, in thousands):

|                                          |  |                    |        |                   |  |      |       |      |  |   |        |   |  |   |        |  
|----------------------------------------- |  | ------------------ | ------ | ----------------- |  | ---- | ----- | ---- |  | - | ------ | - |  | - | ------ | -
|                                          |  | Three Months Ended |        | Nine Months Ended
|                                          |  | September 30,      |        | September 30,    
|                                          |  |                    |        |                  
|                                          |  | 2003               |        | 2002              |  | 2003 |       | 2002
|                                          |  |                    |        |                   |  |      |       |     
|Balance as of the beginning of the period |  | $                  | 1,663  |                   |  | $    | 1,790 |      |  | $ | 1,963  |   |  | $ | 1,768  |  
|Expense accrued for new warranties        |  |                    | 1,700  |                   |  |      | 346   |      |  |   | 3,098  |   |  |   | 1,743  |  
|Cost of services provided                 |  |                    | (1,028 | )                 |  |      | (421  | )    |  |   | (2,726 | ) |  |   | (1,796 | )
|                                          |  |                    |        |                   |  |      |       |      |  |   |        |   |  |   |        |  
|Balance as of the end of the period       |  | $                  | 2,335  |                   |  | $    | 1,715 |      |  | $ | 2,335  |   |  | $ | 1,715  |  
|                                          |  |                    |        |                   |  |      |       |      |  |   |        |   |  |   |        |  

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7.     Patents
and Technology Assets

In April 2003, we acquired technology,
including patents and other assets associated with our WaveScan
WaveFront® System (WaveScan System) from 20/10
Perfect Vision Optische Gerate GmbH. We paid $5.9 million for
this technology, which was previously licensed to us under an
exclusive licensing agreement that is superseded by the acquisition.
These assets are included in other assets and are being amortized to cost of system revenues over the
estimated useful life of five years.

8.     Stock Repurchase Program

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 applicable securities laws, we have
repurchased 7.0 million shares cumulatively on the open market through
September 30, 2003, at a total cost of $90.4 million. Accordingly, 3.0 million
shares remain available as of September 30, 2003 for repurchase under the Board
of Directors April 2001 authorization. Additionally, on May 28, 2003, the
Board of Directors authorized the repurchase of an additional 3.5 million
shares of VISX stock at a total cost of $63 million, all of which were
purchased during the quarter ended June 30, 2003.

9.     Significant Customer

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 TLC and its operating subsidiaries accounted for 17% and 12% of total
revenues in the third quarter of 2003 and 2002, respectively, and 16% and 15%
of total revenues in the first nine months of 2003 and 2002, respectively.

At September 30, 2003, TLC represented 23% of accounts receivable. At December
31, 2002, TLC represented 22% of accounts receivable.

10.     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 reports on Form 10-Q for
the quarters ended March 31, 2003 and June 30, 2003. During the quarter ended
September 30, 2003, there were no material developments with respect to such
previously existing proceedings and no new material proceedings not previously
disclosed.

11.     New Accounting Pronouncement

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 apply to revenue arrangements entered into
in fiscal periods beginning after June 15, 2003. The adoption of EITF Issue
No. 00-21 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 in 2003 as compared to 2002; our belief that a
rebound in the United States economy and increases in consumer confidence will
provide renewed support for the United States 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, as
well as the potential decline in demand for procedures caused by the weakness
in the economy, consumer confidence or 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 continually evolving. 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 Wavefront® System (WaveScan System) and/or treatment cards for standard or CustomVue procedures
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 treatment cards that are used
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 United
States and from procedures that are performed in the United States using their
systems.

The Food and Drug Administration (FDA) in the United States and comparable
regulatory agencies in other countries 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 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 possible with contacts and glasses. In
May 2003, we received FDA approval of our CustomVue procedure for the treatment
of myopia and astigmatism.

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Results of Operations

|                           |                           |      |                                  |      |                                 |        |        |      |   |      |     |        |  |   |         |      |   |   |         |      |   |  |      |   | 
|-------------------------- | ------------------------- | ---- | -------------------------------- | ---- | ------------------------------- | ------ | ------ | ---- | - | ---- | --- | ------ |  | - | ------- | ---- | - | - | ------- | ---- | - |  | ---- | - | 
|                           |                           |      | Three Months Ended September 30, |      | Nine Months Ended September 30,
|                           |                           |      |                                  |      |                                
|REVENUES (000s)           |                           | 2003 |                                  | 2002 |                                 | Change |        | 2003 |   | 2002 |     | Change
|                           |                           |      |                                  |      |                                 |        |        |      |   |      |     |       
|System revenues            |                           | $    | 11,136                           |      |                                 | $      | 10,216 |      |   |      | 9   | %      |  | $ | 28,743  |      |   | $ | 32,935  |      |   |  | (13) | %
|                           | Percent of total revenues |      |                                  | 28.4 | %                               |        |        | 33.4 | % |      |     |        |  |   |         | 27.2 | % |   |         | 31.8 | % |  |      |   | 
|Service and parts revenues |                           |      | 4,638                            |      |                                 |        | 4,735  |      |   |      | (2) | %      |  |   | 13,709  |      |   |   | 14,669  |      |   |  | (7)  | %
|                           | Percent of total revenues |      |                                  | 11.8 | %                               |        |        | 15.5 | % |      |     |        |  |   |         | 13.0 | % |   |         | 14.1 | % |  |      |   | 
|License and other revenues |                           |      | 23,494                           |      |                                 |        | 15,609 |      |   |      | 51  | %      |  |   | 63,235  |      |   |   | 56,180  |      |   |  | 13   | %
|                           | Percent of total revenues |      |                                  | 59.8 | %                               |        |        | 51.1 | % |      |     |        |  |   |         | 59.8 | % |   |         | 54.1 | % |  |      |   | 
|Total                      |                           | $    | 39,268                           |      |                                 | $      | 30,560 |      |   |      | 28  | %      |  | $ | 105,687 |      |   | $ | 103,784 |      |   |  | 2    | %

System revenues

System revenues are comprised of the following: revenues from sales of the
VISX STAR System, revenues from the sales of upgrades to the VISX STAR System,
and revenues from the sales of the WaveScan System®. Overall, system revenues
increased $0.9 million, to $11.1 million for the three months ended September
30, 2003 from $10.2 million for the three months ended September 30, 2002.
System revenues decreased $4.2 million, to $28.7 million for the nine months
ended September 30, 2003 from $32.9 million for the nine months ended September
30, 2002.

Sales of the VISX STAR System declined $1.2 million and $6.4 million in the
third quarter and nine months, respectively, from the comparable periods of the
prior year. The United States and many of our key international markets began
to experience an economic slowdown in the later part of 2000 that has continued
into 2003. This has lead to industry-wide reductions in procedure volume in
the United States as well as in many key international markets during this
period. We believe the reduction in procedure volume is the principle cause
for the decline in demand for new lasers. We also believe that economic
slowdown was responsible for the decline in our average selling price for VISX
STAR Systems in the United States as compared to the prior year.

Upgrade revenues declined $1.7 million and $7.8 million in the third quarter
and first nine months of 2002, respectively, from the comparable periods of the
prior year. The decline in upgrade revenues was due to the fact that
approximately 90% of our lasers in active use in the United States have already
been upgraded to the STAR S3® platform. We anticipate that upgrade revenues
throughout 2003 will be significantly lower than in 2002.

WaveScan System sales increased $3.8 million and $10.0 million in the third
quarter and first nine months of 2002, respectively, over the comparable
periods of the prior year due to the CustomVue approval in May 2003 that had
been long anticipated by our customers.

Service and parts revenues

Service and parts revenues decreased $0.1 million, to $4.6 million for the
three months ended September 30, 2003, from $4.7 million for the three months
ended September 30, 2002. Service and parts revenues decreased $1.0 million,
to $13.7 million for the nine months ended September 30, 2003, from $14.7
million for the nine months ended September 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.

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License and other revenues

License and other revenues increased $7.9 million, to $23.5 million for the
three months ended September 30, 2003, from $15.6 million for the three months
ended September 30, 2002. License and other revenues increased $7.0 million, to
$63.2 million for the nine months ended September 30, 2003, from $56.2 million
for the nine months ended September 30, 2002. These increases are attributable
primarily to customers in the United States purchasing treatment cards for our
new CustomVue procedure, which was introduced in June 2003. Our selling price
for the CustomVue procedure is more than double that for our standard
procedure. In addition, procedure volume increased slightly in the third
quarter of 2003, reversing our normal seasonal decline in procedure volume from
the second to the third quarter.

We believe that a rebound in the United States economy and increases in
consumer confidence will provide renewed support for the United States laser
vision correction market. 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. Nevertheless, we cannot accurately predict when, or
to what extent, these anticipated changes in the economy and technology will
impact our license and other revenues.

|                                   |                             |      |                                  |       |                                 |        |       |      |   |      |     |        |  |   |        |      |   |   |        |      |   |  |     |   | 
|---------------------------------- | --------------------------- | ---- | -------------------------------- | ----- | ------------------------------- | ------ | ----- | ---- | - | ---- | --- | ------ |  | - | ------ | ---- | - | - | ------ | ---- | - |  | --- | - | 
|                                   |                             |      | Three Months Ended September 30, |       | Nine Months Ended September 30,
|                                   |                             |      |                                  |       |                                
|COSTS
& EXPENSES (000s)           |                             | 2003 |                                  | 2002  |                                 | Change |       | 2003 |   | 2002 |     | Change
|                                   |                             |      |                                  |       |                                 |        |       |      |   |      |     |       
|Cost of system revenues            |                             | $    | 11,752                           |       |                                 | $      | 6,927 |      |   |      | 70  | %      |  | $ | 27,316 |      |   | $ | 22,114 |      |   |  | 24  | %
|                                   | Percent of related revenues |      |                                  | 105.5 | %                               |        |       | 67.8 | % |      |     |        |  |   |        | 95.0 | % |   |        | 67.1 | % |  |     |   | 
|Cost of service and parts revenues |                             |      | 3,574                            |       |                                 |        | 3,805 |      |   |      | (6) | %      |  |   | 10,685 |      |   |   | 10,749 |      |   |  | (1) | %
|                                   | Percent of related revenues |      |                                  | 77.1  | %                               |        |       | 80.4 | % |      |     |        |  |   |        | 77.9 | % |   |        | 73.3 | % |  |     |   | 
|Cost of license and other revenues |                             |      | 1,009                            |       |                                 |        | 807   |      |   |      | 25  | %      |  |   | 2,548  |      |   |   | 2,600  |      |   |  | (2) | %
|                                   | Percent of related revenues |      |                                  | 4.3   | %                               |        |       | 5.2  | % |      |     |        |  |   |        | 4.0  | % |   |        | 4.6  | % |  |     |   | 
|Selling, genl and admin           |                             |      | 10,538                           |       |                                 |        | 8,831 |      |   |      | 19  | %      |  |   | 30,846 |      |   |   | 31,675 |      |   |  | (3) | %
|                                   | Percent of total revenues   |      |                                  | 26.8  | %                               |        |       | 28.9 | % |      |     |        |  |   |        | 29.2 | % |   |        | 30.5 | % |  |     |   | 
|Research, develop. and regulatory  |                             |      | 4,814                            |       |                                 |        | 4,601 |      |   |      | 5   | %      |  |   | 13,649 |      |   |   | 13,625 |      |   |  | 0   | %
|                                   | Percent of total revenues   |      |                                  | 12.3  | %                               |        |       | 15.1 | % |      |     |        |  |   |        | 12.9 | % |   |        | 13.1 | % |  |     |   | 

Cost of system revenues

Cost of system revenues increased $4.8 million, to $11.8 million for the three
months ended September 30, 2003, from $6.9 million for the three months ended
September 30, 2002. Cost of system revenues increased $5.2 million, to $27.3
million for the nine months ended September 30, 2003, from $22.1 million for
the nine months ended September 30, 2002. Sales of VISX STAR Systems and
system upgrades decreased while shipments of WaveScan Systems increased. The
increase in cost of system revenues was due primarily to higher costs related
to increased WaveScan System revenue. Cost of system revenues as a
percent of WaveScan System revenue in 2003 was higher than the cost
of system revenues percentage on VISX STAR Systems and system upgrade
revenue in 2002. In addition, our gross profit margin on system
revenues declined in 2003 from 2002 because we sold fewer VISX STAR Systems and
system upgrades and we earned less revenue on average per unit sold.
Furthermore, we recorded a negative gross profit margin in the three months
ended September 30, 2003 as additional costs of system revenues were incurred
for the support related to the introduction of our CustomVue products. We
believe that our gross profit margin on system revenues for the remainder of
2003 will be lower than in the comparable period of 2002. However, we do not
anticipate a negative gross profit margin on system revenues during the coming
twelve months.

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Cost of service and parts revenues

Cost of service and parts revenues decreased $0.2 million, to $3.6 million for
the three months ended September 30, 2003, compared to $3.8 million for the
three months ended September 30, 2002. Cost of
service and parts revenues was largely unchanged in the nine months ended
September 30, 2003, from the corresponding period of the prior year. Cost of
service and parts revenues decreased due to a large installed base of stable
products in the United States that required fewer repairs. The gross profit
margin on service and parts revenues was lower in the nine months ended
September 30, 2003 than in the comparable period of 2002 due primarily to the
lower price associated with a new service plan introduced during 2002.

Cost of license and other revenues

Cost of license and other revenues increased $0.2 million, to $1.0 million for
the three months ended September 30, 2003, from $0.8 million for the three
months ended September 30, 2002. Cost of license and other revenues was
largely unchanged in the nine months ended September 30, 2003, from the
corresponding period of the prior year. This increase was due to the sale of
more treatment cards in 2003 when compared to the related period in 2002.

Selling, general, and administrative expenses

Selling, general, and administrative expenses (S,G&A) increased $1.7 million,
to $10.5 million for the three months ended September 30, 2003, from $8.8
million for the three months ended September 30, 2002. Selling, general, and
administrative expenses decreased $0.9 million to $30.8 million for the nine
months ended September 30, 2003 from $31.7 million for the nine months ended
September 30, 2002. S,G&A expense in the third quarter of 2003 included $1.5
million higher charges for bad debt expense over the comparable period of 2002.
DVI Inc. (DVI), which provided equipment purchase financing to VISX
customers, entered into Chapter 11 bankruptcy proceedings on August 25, 2003.
We recorded bad debt expense to increase our reserve for doubtful accounts to
cover the entire $2.3 million of accounts receivables then outstanding from
DVI. This was the primary cause for the increase in bad debt expense over the
comparable period of 2002. Otherwise, higher marketing and sales expenses
incurred to promote our new CustomVue procedure largely offset lower
administration expenses. The decline in S,G&A for the first nine months of 2003
from the comparable period of 2002 resulted principally from two offsetting
factors. Legal expenses declined by $4.8 million due to the settlement reached
with Nidek in the first quarter of 2003. Legal expenses are net of insurance
reimbursements of $2.3 million and $5.0 million received in the first nine
months of 2003 and 2002, respectively. Marketing and sales expenses increased
$3.7 million in support of the launch of our new CustomVue procedure.

Research, development and regulatory expenses

Research, development and regulatory expenses increased $0.2 million to $4.8
million for the three months ended September 30, 2003, from $4.6 million for
the three months ended September 30, 2002. Research, development and
regulatory expenses were consistent between the nine months ended September 30,
2003 and 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 fund 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.

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Interest and other income

Our average balance of cash invested in interest bearing securities was lower
in 2003 than in 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 both the three month and nine month periods ended September 30. We
anticipate that our interest and other income for the remainder of 2003 will be
significantly lower than during the comparative 2002 period due to our reduced
cash, cash equivalents and short-term investments as of September 30, 2003 and
lower market interest rates.




Liquidity and Capital Resources

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

|                                                  |  |               |         |              |  |   |         | 
|------------------------------------------------- |  | ------------- | ------- | ------------ |  | - | ------- | 
|                                                  |  | (000s)      
|                                                  |  | September 30, |         | December 31,
|                                                  |  | 2003          |         | 2002        
|                                                  |  |               |         |             
|                                                  |  | (Unaudited)   |         |              |  |  
|Cash, cash equivalents and short-term investments |  | $             | 68,998  |              |  | $ | 122,955 | 
|Working capital                                   |  |               | 86,801  |              |  |   | 138,351 | 
|Stockholders equity                              |  |               | 107,828 |              |  |   | 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 $54.0 million
in the first nine months of 2003 principally because of stock repurchases of
$63.0 million for the nine months ended September 30, 2003.

Operating activities provided $14.4 million of cash in the first nine months of
2003, down from $31.9 million provided in the first nine months of 2002. Net
cash provided by operating activities, in the nine months ended September 30,
2003, consisted primarily of net income, net of non-cash related expenses of
$8.6 million. This was partially offset by a decrease in accrued liabilities
due primarily to a payment to Nidek as settlement for antitrust and related
claims.

Net cash provided by investing activities was $34.4 million in the first nine
months of 2003, compared to net cash provided by investing activities of $12.1
million in the first nine months of 2002. Net cash provided by investing
activities consisted primarily of the proceeds from the sale of short-term
investments. This was partially offset in 2003 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 $60.5 million in the first nine
months of 2003, compared to net cash used in financing activities of $34.8
million in the first nine months of 2002. Cash of $63.0 million in 2003 and
$39.1 million in 2002 was used to repurchase approximately 3.5 million shares
in open market transactions during the first nine months of each year. This
was partially offset by cash received upon the
exercise of stock options totaling $2.5 million during the first nine months of
2003 as compared to $4.4 million in the comparable period of 2002.

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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 applicable securities laws, we have
repurchased 7.0 million shares on the open market cumulatively through
September 30, 2003, at a total cost of $90.4 million. Accordingly, 3.0 million
shares remain available as of September 30, 2003 for repurchase under the Board
of Directors April 2001 authorization. Additionally, on May 28, 2003, the
Board of Directors authorized the repurchase of an additional 3.5 million
shares of VISX stock at a total cost of $63 million, all of which were
purchased during the quarter ended June 30, 2003. Before repurchasing shares
we consider a number of factors including market conditions, the market price
of the stock, and the number of shares needed for employee benefit plans. As a
result, we cannot predict the number of shares that we may repurchase in the
future.

Purchases of short-term investments represent reinvestment into short-term
investments of the proceeds from short-term investments that matured and
investment of cash and cash equivalents. As of September 30, 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 and WaveScan Systems, we provide long-term financing
to customers for their purchase of our equipment in certain markets. 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 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 $69 million in cash, cash equivalents, and short-term
investments as of September 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, we 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 are achieved, VISX will 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 reported 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 could require us to record adjustments to
expenses or revenues 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.

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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 (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 United States. Within the United
States 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. We also accrue an estimate of the cost of warranty service
to be provided in the future. Outside the United States 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 United States 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
treatment 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 collected 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

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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

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. New products and 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 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 United States 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

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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 choose not to undergo laser vision correction
because of these complications or more general concerns relating to its safety
and efficacy or a resistance to surgery in general. Alternatively, some
consumers may 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. 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 210 United States and foreign patents and have more than 230 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 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) in any future
proceedings, 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 STAR 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 STAR 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 that 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

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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.Because laser vision correction is not subject to
reimbursement from third-party payors such as insurance companies or government
programs, the cost of laser vision correction is typically borne by individuals
directly. Accordingly, weak or uncertain economic conditions may cause
individuals to be less willing to incur the procedure cost associated with
laser vision correction as was evidenced by our decline in revenues from 2002
compared to 2001 and from 2001 compared to 2000. A decline in economic
conditions could 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. Should any
third party financing entity or 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
operations. In fact, DVI, which provided equipment purchase financing to our
customers, entered into Chapter 11 bankruptcy proceedings in August 2003, and
as a result, we recorded bad debt expense to increase our reserve for doubtful
accounts to cover the entire $2.3 million of accounts receivables then
outstanding from DVI.

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. TLC and its operating subsidiaries accounted for
17% and 12% of total revenues in the third quarter of 2003 and 2002,
respectively, and 16% and 15% of total revenues in the first nine months of
2003 and 2002, respectively. At September 30, 2003 and December 31, 2002, TLC
represented 23% 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. In addition, 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

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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 but 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
showed 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 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 the 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 we owe amounts for taxes greater than we expect, our earnings may be
negatively affected.

New Products May Not Be Commercially Viable.While we devote significant
resources to research and development, our research and development may not
lead to new products that achieve commercial success. The research and
development process is expensive, prolonged, and entails considerable
uncertainty. Development of a new medical device, from discovery through
testing and registration to initial product launch, typically takes between
three and seven years. 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;
| | - |  | -----------------------------

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| |  |  | 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
|
| |  |  | 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 the VISX STAR System and
WaveScan System 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;   

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| |  |  | 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 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 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 nine months ended September 30, 2003
to our exposure to market risk for changes in interest rates and foreign
currency exchange rates.




Item 4. 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

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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 to 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 reports on Form 10-Q for
the quarters ended March 31, 2003 and June 30, 2003. During the quarter ended
September 30, 2003, there were no material developments with respect to such
previously existing proceedings and no new material proceedings not previously
disclosed.




Item 5. Other Information

Non-Audit Services

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 third 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.

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.

Qualified Trading Plans

On August 1, 2003, August 15, 2003, and June, 13, 2003, Elizabeth H. Davila,
Chairman of the Board and Chief Executive Officer, John F. Runkel, Jr., Vice
President, General Counsel, and Donald L. Fagen, Vice President, Global Sales,
respectively, each entered into separate written trading plans (each a Plan)
relating to future sales of their shares of VISX common stock.

Each Plan is intended to comply with Rule 10b5-1 of the Securities Exchange Act
of 1934, as amended, and provides for monthly stock sales if the prevailing
market price is above specified levels. Within broad constraints, these plans
mean that the market may begin to see more frequent sales of the holdings of
these individuals. In the future, other officers and directors may choose to
adopt similar plans.




Item 6. Exhibits and Reports on Form 8-K

a)Exhibits.

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|        |  |                                                                                                                                                                                
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                
|Number  |  | Description                                                                                                                                                                    
|        |  |                                                                                                                                                                                
|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 July 23, 2003 under Item 12 (Results of
Operations and Financial Condition) covering VISXs second quarter 2003
financial results.
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------




SIGNATURES

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

| |  |                   
| |  | ------------------
| |  | VISX, Incorporated
| |  |                   
| |  | (Registrant)      

|                  |  |                                      
|----------------- |  | -------------------------------------
|November 10, 2003 |  | /s/Elizabeth H. Dávila               
|(Date)            |  |                                      
|                  |  | Elizabeth H. Dávila                  
|                  |  | Chairman of the Board and            
|                  |  | Chief Executive Officer              
|                  |  |                                      
|November 10, 2003 |  | /s/Timothy R. Maier                  
|(Date)            |  |                                      
|                  |  | Timothy R. Maier                     
|                  |  | Executive Vice President and         
|                  |  | Chief Financial Officer (principal   
|                  |  | financial officer)                   
|                  |  |                                      
|November 10, 2003 |  | /s/Derek A. Bertocci                 
|(Date)            |  |                                      
|                  |  | Derek A. Bertocci                    
|                  |  | Vice President, Controller (principal
|                  |  | accounting officer)                  

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Exhibit Index

|        |  |                                                                                                                                                                                
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                
|Number  |  | Description                                                                                                                                                                    
|        |  |                                                                                                                                                                                
|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.