<PAGE>   1
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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                ----------------

                                    FORM 10-Q

(MARK ONE)

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

                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999

                                       OR

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

                             COMMISSION FILE NUMBER:
                                    000-23461
                                ----------------

                          SPECTRA-PHYSICS LASERS, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
                                ----------------

              DELAWARE                                       77-0264342
   (STATE OR OTHER JURISDICTION OF                        (I.R.S. EMPLOYER
    INCORPORATION OR ORGANIZATION)                       IDENTIFICATION NO.)

            1335 TERRA BELLA AVENUE, MOUNTAIN VIEW, CALIFORNIA, 94043
               (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

               REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
                                  650-961-2550

               (FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR
                         IF CHANGED SINCE LAST REPORT)

        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 [ ]

        The number of shares outstanding of the Registrant's common stock, par
value $0.01 per share, at July 30, 1999 was 16,168,043 shares.


================================================================================


                                       1


<PAGE>   2
                          SPECTRA-PHYSICS LASERS, INC.

                  FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1999

                                      INDEX


<TABLE>
<CAPTION>
                                                                                                  PAGE
<S>                                                                                               <C>
Part I   Financial information

Item 1.  Financial statements and supplementary data:
            (a) Consolidated Balance Sheet at June 30, 1999 and December 31, 1998...............    3
            (b) Consolidated  Statement of Operations for the three and six months ended June 30,
                1999 and 1998...................................................................    4
            (c) Consolidated  Statement of Cash Flows for the six months ended June 30, 1999 and
                1998............................................................................    5
            (d) Notes to Consolidated Financial Statements......................................    6

Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations..   10

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.............................   19

Part II  Other Information......................................................................   20

         Signatures.............................................................................   23
</TABLE>


                                       2
<PAGE>   3
                         PART I -- FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                          SPECTRA-PHYSICS LASERS, INC.

                           CONSOLIDATED BALANCE SHEET
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                        June 30,    December 31,
                                                          1999         1998
                                                       ----------   ----------
                                                       (Unaudited)  (See Note)
<S>                                                    <C>          <C>
ASSETS
Current assets:
  Cash and cash equivalents .......................... $   23,647   $   34,620
  Accounts receivable ................................     34,600       45,824
  Inventories ........................................     29,632       25,566
  Deferred tax assets ................................      7,300        7,300
  Prepaid expenses and other current assets ..........      6,440        3,944
                                                       ----------   ----------
          Total current assets .......................    101,619      117,254
                                                       ----------   ----------

Property, plant and equipment, net ...................     38,644       35,156
Intangible assets, net ...............................      1,959        2,122
Other assets .........................................      2,223        2,496
                                                       ----------   ----------
          Total assets ............................... $  144,445   $  157,028
                                                       ==========   ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable ................................... $    7,921   $    9,262
  Borrowings under credit facilities .................      8,500       11,756
  Accrued and other current liabilities ..............     17,456       23,959
                                                       ----------   ----------

          Total current liabilities ..................     33,877       44,977
Long-term liabilities ................................      1,991        1,983

Commitments and contingencies

Stockholders' equity:
  Common stock .......................................        162          162
  Additional paid-in capital .........................     97,235       97,235
  Retained earnings ..................................     11,651       13,276
  Accumulated other comprehensive income (loss).......       (471)        (605)
                                                       ----------   ----------
          Total stockholders' equity .................    108,577      110,068
                                                       ----------   ----------
          Total liabilities and stockholders' equity . $  144,445   $  157,028
                                                       ==========   ==========
</TABLE>


        Note: The balance sheet at December 31, 1998 has been derived from the
audited consolidated financial statements at that date but does not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements.

                 See Notes to Consolidated Financial Statements.


                                       3


<PAGE>   4
                          SPECTRA-PHYSICS LASERS, INC.

                      CONSOLIDATED STATEMENT OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                         Three Months Ended     Six Months Ended
                                                              June 30,              June 30,
                                                        -------------------   --------------------
                                                          1999       1998       1999        1998
                                                        --------   --------   --------    --------
<S>                                                     <C>        <C>        <C>         <C>
Net sales ............................................. $ 34,901   $ 40,227   $ 65,982    $ 83,833
Cost of products sold .................................   21,751     24,488     42,911      51,508
                                                        --------   --------   --------    --------
    Gross margin ......................................   13,150     15,739     23,071      32,325
                                                        --------   --------   --------    --------
Operating expenses:
  Research and development ............................    4,234      3,997      8,385       8,745
  Selling, general and administrative .................    8,820      8,913     17,330      17,715
  Restructuring .......................................       73         --        541          --
                                                        --------   --------   --------    --------
    Total operating expenses ..........................   13,127     12,910     26,256      26,460
                                                        --------   --------   --------    --------
    Operating income (loss) ...........................       23      2,829     (3,185)      5,865
                                                        --------   --------   --------    --------
Other income (expense):
  Interest income .....................................      233        295        451         672
  Foreign currency gain ...............................      156         --        113          --
                                                        --------   --------   --------    --------
    Total other income ................................      389        295        564         672
                                                        --------   --------   --------    --------
    Income (loss) before income taxes .................      412      3,124     (2,621)      6,537
Income tax expense (benefit) ..........................      157      1,187       (996)      2,484
                                                        --------   --------   --------    --------
    Net income (loss).................................. $    255   $  1,937   $ (1,625)   $  4,053
                                                        ========   ========   ========    ========
Net income (loss) per share:
  Basic ............................................... $   0.02   $   0.12   $  (0.10)   $   0.25

  Diluted ............................................. $   0.02   $   0.12   $  (0.10)   $   0.24

Shares used in computing net income (loss) per share:
  Basic ...............................................   16,168     16,168     16,168      16,168
  Diluted .............................................   16,168     16,660     16,168      16,779
</TABLE>


                 See Notes to Consolidated Financial Statements.


                                       4


<PAGE>   5
                          SPECTRA-PHYSICS LASERS, INC.

                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                 (IN THOUSANDS)
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                 Six Months Ended
                                                                     June 30,
                                                               --------------------
                                                                 1999        1998
                                                               --------    --------
<S>                                                            <C>         <C>
OPERATING ACTIVITIES
Net income (loss) ..........................................   $ (1,625)   $  4,053
Adjustments to reconcile net income (loss) to cash used in
  operating activities:
  Depreciation and amortization ............................      3,157       2,744
Changes in operating assets and liabilities:
     Accounts receivable ...................................     11,224       4,982
     Inventories ...........................................     (4,066)     (2,614)
     Prepaid expenses and other current assets .............     (2,496)     (2,428)
     Accounts payable ......................................     (1,341)     (4,268)
     Accrued and other current liabilities .................     (5,098)     (2,804)
                                                               --------    --------
      Total cash used in operating activities ..............       (245)       (335)
                                                               --------    --------
INVESTING ACTIVITIES
Purchases of property, plant and equipment .................     (6,645)     (6,244)
Other ......................................................        (45)       (452)
                                                               --------    --------
      Total cash used in investing activities ..............     (6,690)     (6,696)
                                                               --------    --------
FINANCING ACTIVITIES
Net borrowings under credit facilities .....................     (3,256)        209
Net proceeds from issuance of common stock .................         --       3,245
                                                               --------    --------
      Total cash provided by (used in) financing activities      (3,256)      3,454
                                                               --------    --------
Effect of changes in foreign currency exchange rates .......       (782)         --
                                                               --------    --------
          Decrease in cash and cash equivalents ............    (10,973)     (3,577)
Cash and cash equivalents at beginning of year .............     34,620      33,487
                                                               --------    --------
Cash and cash equivalents at end of period .................   $ 23,647    $ 29,910
                                                               ========    ========
</TABLE>


                 See Notes to Consolidated Financial Statements.


                                       5


<PAGE>   6
                          SPECTRA-PHYSICS LASERS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

1. BASIS OF PRESENTATION

        Spectra-Physics Lasers, Inc. (the "Company") designs, develops,
manufactures and distributes lasers and laser systems for the industrial,
original equipment manufacturer ("OEM"), and research and development markets.

        The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation
have been included. Operating results for the six months ended June 30, 1999 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1999. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1998.

        The Company's fiscal year ends on December 31. The Company's fiscal
quarters end on the Friday of the thirteenth week of the quarter. For
presentation purposes, the financial statements reflect the calendar month-end
date.

2. INVENTORIES

        Inventories consisted of the following (in thousands):


<TABLE>
<CAPTION>
                             June 30,       December 31,
                              1999              1998
                          -----------       -----------
<S>                       <C>               <C>
Raw material ............ $    11,379       $     9,866
Work in process .........       9,302             7,582
Finished goods ..........       8,951             8,118
                          -----------       -----------
                          $    29,632       $    25,566
                          ===========       ===========
</TABLE>


3. STOCKHOLDERS' EQUITY

        In January 1998, the Company issued 360,000 shares of common stock at a
price of $10.00 per share in accordance with an overallotment option granted to
the underwriters of the Company's initial public offering. Net proceeds were
$3.2 million.


4. NET INCOME (LOSS) PER SHARE

        Statement of Financial Accounting Standards (SFAS) No. 128 requires the
presentation of basic and diluted net income (loss) per share. Basic net income
(loss) per share is computed by dividing net income (loss) by the weighted
average number of common shares outstanding during the period. Diluted net
income per share is computed giving effect to all dilutive potential common
shares that were outstanding during the period. Dilutive potential common shares
consist of the incremental common shares issuable upon the exercise of stock
options. Diluted net loss per share does not include such incremental common
shares issuable upon the exercise of stock options as they were anti-dilutive.
Approximately 2.2 million options to acquire shares of common stock were
excluded from the calculation of diluted net income (loss) per share for the
three and six months ended June 30, 1999 as they were antidilutive. Stock
options granted by subsidiaries of the Company were not included in the
calculation of net income (loss) per share as they were anti-dilutive.


                                       6


<PAGE>   7
        The following table presents the calculation of basic and diluted net
income (loss) per share as required under SFAS No. 128 (in thousands, except
per share data):


<TABLE>
<CAPTION>
                                                                     Three Months Ended                    Six Months Ended
                                                                          June 30,                              June 30,
                                                               -----------------------------         ------------------------------
                                                                  1999               1998               1999                1998
                                                               ----------         ----------         ----------          ----------
<S>                                                            <C>                <C>                <C>                 <C>
Numerator:
  Net income (loss) ........................................   $      255         $    1,937         $   (1,625)         $    4,053
                                                               ==========         ==========         ==========          ==========
Denominator:
  Denominator for basic net income (loss) per share:
     Weighted average shares ...............................       16,168             16,168             16,168              16,168
  Effect of dilutive securities:
     Employee stock options ................................           --                492                 --                 611
                                                               ----------         ----------         ----------          ----------
  Denominator for diluted net
     income (loss) per share ...............................       16,168             16,660             16,168              16,779
                                                               ==========         ==========         ==========          ==========
Net income (loss) per share -- Basic .......................   $     0.02         $     0.12         $    (0.10)         $     0.25
Net income (loss) per share -- Diluted .....................   $     0.02         $     0.12         $    (0.10)         $     0.24
</TABLE>


5. COMPREHENSIVE INCOME (LOSS)

        The Company adopted SFAS No. 130, "Reporting Comprehensive Income," in
the fourth quarter of 1998. SFAS No. 130 established new rules for the reporting
and display of comprehensive income (loss) and its components. The adoption of
SFAS No. 130 had no impact on the Company's net income (loss) or total
stockholders' equity.

        Comprehensive income (loss) was as follows (in thousand):


<TABLE>
<CAPTION>
                                                           Three months ended                    Six months ended
                                                                June 30,                             June 30,
                                                      ----------------------------         ----------------------------
                                                        1999               1998              1999               1998
                                                      ---------          ---------         ---------          ---------
<S>                                                   <C>                <C>               <C>                <C>
Net income (loss) ................................    $     255          $   1,937         ($  1,625)         $   4,053
Foreign currency translation adjustments .........         (437)               123            (1,185)              (324)
Unrealized gain on forward foreign currency
  contract, net of income taxes ..................           82                 --             1,319                 --
                                                      ---------          ---------         ---------          ---------
Total ............................................    ($    100)         $   2,060         ($  1,491)         $   3,729
                                                      =========          =========         =========          =========
</TABLE>


        Accumulated other comprehensive income (loss) presented in the
accompanying consolidated balance sheet consists of the cumulative foreign
currency translation adjustments and net unrealized gains (losses) on forward
foreign currency contracts.


6. ENVIRONMENTAL MATTERS

        See Part II., Item 1. Legal Proceedings


                                       7


<PAGE>   8
7. SEGMENT REPORTING

   Effective December 31, 1998, the Company adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." SFAS No. 131 requires
enterprises to report information about operating segments in annual financial
statements and selected information about reportable segments in interim
financial reports issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers.

DESCRIPTION OF THE TYPES OF PRODUCTS AND SERVICES FROM WHICH EACH OF THE
REPORTABLE SEGMENT DERIVES ITS REVENUES

    Spectra-Physics Lasers, Inc. has five reportable segments: the Commercial
Systems Group (CSG) business unit; the Industrial and Scientific Lasers (ISL)
business unit; the Original Equipment Manufacturer (OEM) business unit; Opto
Power Corporation (OPC); and Spectra-Physics Distribution (SPD) business unit.
CSG designs and manufactures optics, thin films, fabricated parts, plasma tubes,
and subsystems for all operating units within the Company and external
customers. CSG also designs, manufactures, and markets low power laser sources
and beam delivery systems for OEM products in the industrial and medical
instrumentation markets. ISL designs, markets and manufactures high power
semiconductor-based and conventional lasers for the industrial and scientific
markets. OEM designs, markets and manufactures high power semiconductor-based
lasers for various OEM markets. OPC designs, markets and manufactures high power
semiconductor-based laser diodes, components and systems. SPD is the Company's
worldwide sales, service and support organization.

MEASUREMENT OF SEGMENT PROFIT OR LOSS AND SEGMENT ASSETS

   The Company evaluates performance and allocates resources based on Earnings
Before Interest and Taxes (EBIT). The accounting policies of the reportable
segments are the same as those described in the summary of significant
accounting policies.

     Intersegment sales and transfers are recorded at intercompany transfer
prices which approximate sales as if conducted on an arm's length basis.

FACTORS MANAGEMENT USED TO IDENTIFY THE COMPANY'S REPORTABLE SEGMENTS

   The Company's reportable segments are business units that are, except for
SPD, organized primarily by technology (for example, high power
semiconductor-based, semiconductor laser pumped solid state, optics, air cooled
lasers.) The reportable segments are each managed separately because they
manufacture and distribute distinct products with different production methods
and different customer bases.

   Information about segments (in thousands):

<TABLE>
<CAPTION>
                                                                                                         All
                                          CSG          ISL         OEM         OPC          SPD         Others       Total
                                        --------     --------    --------    --------     --------     --------     --------
<S>                                     <C>          <C>         <C>         <C>          <C>          <C>          <C>
Three months ended June 30, 1999:

  Net sales to external customers ..    $    218     $   --      $   --      $  1,844     $ 32,150     $    689     $ 34,901

  Intersegment net sales ...........       7,176       14,602       7,170       4,629         --           --         33,577

  Segment EBIT .....................        (175)       2,988         878        (535)      (2,208)        (785)         163

  Segment assets ...................      18,428       21,655       9,118      36,855       58,959        2,345      147,360

Three months ended June 30, 1998:

  Net sales to external customers ..    $    218     $   --      $   --      $  2,478     $ 36,197     $  1,334     $ 40,227

  Intersegment net sales ...........       8,601       15,564       9,346       6,505         --           --         40,016

  Segment EBIT .....................         508        2,277       1,477       2,232       (2,397)        (257)       3,840

  Segment assets ...................      17,608       22,220      11,207      27,931       54,170        2,240      135,376
</TABLE>


                                       8
<PAGE>   9

<TABLE>
<CAPTION>
                                                                                                        All
                                          CSG         ISL         OEM         OPC          SPD         Others        Total
                                        --------    --------    --------    --------     --------     --------     --------
<S>                                     <C>         <C>         <C>         <C>          <C>          <C>          <C>
Six months ended June 30, 1999:

  Net sales to external customers ..    $    403    $   --      $   --      $  3,808     $ 60,601     $  1,170     $ 65,982

  Intersegment net sales ...........      14,822      29,117      15,018       7,894         --           --         66,851

  Segment EBIT .....................         113       5,345       1,748      (1,370)      (4,548)      (1,312)         (24)

Six months ended June 30, 1998:

  Net sales to external customers ..    $    453    $   --      $   --      $  9,012     $ 70,691     $  3,677     $ 83,833

  Intersegment net sales ...........      17,345      33,592      18,779       8,858         --           --         78,574

  Segment EBIT .....................       1,387       5,368       3,156       3,974       (3,905)        (111)       9,869
</TABLE>

Reconciliation of segment information to financial statements (in thousands):

<TABLE>
<CAPTION>
                                                               Three months ended        Six months ended
                                                                    June 30,                 June 30,
                                                                1999        1998         1999         1998
<S>                                                          <C>          <C>          <C>          <C>
Net Sales:
Total external sales for reportable segments ............    $ 34,212     $ 38,893     $ 64,812     $ 80,156
Intersegment sales for reportable segments ..............      33,577       40,016       66,851       78,574
Other sales .............................................         689        1,334        1,170        3,677
Elimination of intersegment sales .......................     (33,577)     (40,016)     (66,851)     (78,574)
                                                             --------     --------     --------     --------
   Total consolidated net sales .........................    $ 34,901     $ 40,227     $ 65,982     $ 83,833
                                                             ========     ========     ========     ========
Income (loss) before income taxes:
Total EBIT for reportable segments ......................    $    948     $  4,097     $  1,288     $  9,979
Other EBIT ..............................................        (785)        (257)      (1,312)        (111)
Corporate expenses ......................................        (798)        (917)      (2,051)      (2,304)
Other expenses not allocated to segments ................         731          (94)        (569)      (1,699)
Restructuring ...........................................         (73)        --           (541)        --
Interest income .........................................         233          295          451          672
Foreign currency gain ...................................         156         --            113         --
                                                             --------     --------     --------     --------
   Total consolidated income (loss) before income taxes..    $    412     $  3,124     ($ 2,621)    $  6,537
                                                             ========     ========     ========     ========
</TABLE>

8. RESTRUCTURING CHARGE

   In the six months ended June 30, 1999, the Company recorded a restructuring
charge of $541,000 for severance related to the termination of 41 employees. As
of June 30, 1999, approximately $450,000 of this amount had been paid.


                                       9
<PAGE>   10

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT

   Certain information in this quarterly report on Form 10-Q, including but not
limited to the Management's Discussion and Analysis of Financial Condition and
Results of Operations, may constitute forward-looking statements as such term is
defined in Section 27A of the Securities Act of 1933 (the "Securities Act") and
Section 21E of the Securities Exchange Act of 1934. Certain forward-looking
statements can be identified by the use of forward-looking terminology such as,
"believes," "expects," "may," "will," "should," "seeks," "approximately,"
"intends," "plans," "estimates," "anticipates," or "hopeful," or the negative
thereof or other comparable terminology, or by discussions of strategy, plans or
intentions. Forward-looking statements involve risks and uncertainties,
including sales initiatives and those described in the Risk Factors section of
Item 1 of Spectra-Physics Lasers, Inc's (the "Company's") Annual Report on Form
10-K, which could cause actual results to be materially different than those in
the forward-looking statements. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof. The Company assumes no obligation to update such information.

OVERVIEW

   The Company is a leader in the design, development, manufacture and
distribution of lasers and laser systems for a broad range of markets.
Spectra-Physics AB, a multinational corporation based in Sweden, indirectly owns
80.4% of the Company's outstanding Common Stock. On February 22, 1999,
shareholders of Spectra-Physics AB holding approximately 98.4% of the
outstanding shares of Spectra-Physics AB tendered their shares to Thermo
Instrument Systems Inc. (TIS), a U.S. based corporation whose common stock is
traded on the American Stock Exchange, which shares were thereafter accepted by
TIS for approximately $355 million. Accordingly, TIS now indirectly owns
approximately 79.1% of the Company's outstanding common stock.

   Net sales for products are recognized upon shipment. The Company derives its
revenue primarily from the sale of high power semiconductor-based and
conventional lasers and laser systems. High power semiconductor-based lasers and
laser systems are sold into the OEM/industrial market and research and
development market. The OEM/industrial market is characterized by unit sales,
with varying prices, in volumes of as much as several thousand units.
Conventional lasers are primarily sold into the research and development market.
This market is typically characterized by the sale of single units and systems
with prices that range from approximately $3,000 to $500,000. Sales in this
market have historically varied from quarter to quarter due to seasonal
fluctuations and governmental spending patterns. Over the last three years, a
growing proportion of the Company's total net sales and most of its sales growth
have been from high power semiconductor-based lasers.

   The Company's sales have shown a pattern in the last several years whereby
the fiscal fourth quarter net sales represent a large share of the Company's
annual net sales and whereby the Company's first quarter net sales decline
significantly compared to the fourth quarter of the prior fiscal year. The
Company believes these sales patterns result in part because of seasonal sales
pattern related to customers' fiscal years and in part from the Company's
incentive compensation plan which compensates employees based on annual results.
The Company recognizes that the non-linear pattern of its shipments leads to
inefficiencies in asset and employee utilization. The Company is taking steps to
mitigate this sales trend, but this pattern is likely to continue in the near
term.

   The Company's gross margin is affected by a number of factors, including
product mix, product pricing, cost of components, the proportion of third party
products incorporated into the Company's systems, foreign currency exchange
rates and manufacturing costs. For example, since high power semiconductor-based
lasers and laser systems generally have higher gross margins than conventional
lasers, absent other factors, a shift in sales toward high power
semiconductor-based lasers and laser systems would lead to a gross margin
improvement for the Company. On the other hand, if market conditions in the
highly competitive conventional laser market forced the Company to lower unit
prices, the Company would suffer a decline in gross margin unless the Company
were able to timely offset the price reduction by a reduction in production
costs or by sales of other products with higher gross margins. Either of these
events could have a material effect on the Company's business, operating results
and financial condition.

   The Company spends a significant amount of resources on research and
development. In recent years, the Company has focused much of these resources on
high power semiconductor-based lasers and laser systems. The Company expects to
continue to spend substantial resources in developing high power
semiconductor-based lasers and laser systems while making focused research and
development expenditures to maintain its leadership position in conventional
lasers.

A significant proportion of the Company's sales are to international customers
and are denominated in currencies other than the U.S. dollar. The Company also
has sales and support operations located in certain European countries and in
Japan which operate in local currencies. As a result, while the Company attempts
to hedge its economic risk of foreign currency fluctuations, the Company is


                                       10
<PAGE>   11

exposed to fluctuations in foreign currency exchange rates. These fluctuations
have had in the past, and may have in the future, a significant impact on the
Company's results of operations.

       The Company has five reportable segments: the Commercial Systems Group
(CSG) business unit; the Industrial and Scientific Lasers (ISL) business unit;
the Original Equipment Manufacturer (OEM) business unit; Opto Power Corporation
(OPC); and Spectra-Physics Distribution (SPD) business unit. CSG designs and
manufactures optics, thin films, fabricated parts, plasma tubes, and subsystems
for all operating units within the Company and external customers. CSG also
designs, manufactures and markets low power laser sources and beam delivery
systems for OEM products in the industrial and medical instrumentation markets.
ISL designs, markets and manufactures high power semiconductor-based and
conventional lasers for the industrial and scientific markets. OEM designs,
markets and manufactures high power semiconductor-based lasers for various OEM
markets. OPC designs, markets and manufactures high power semiconductor-based
laser diodes, components and systems. SPD is the Company's worldwide sales,
service and support organization. Reference is made to Footnote 7 of the
Consolidated Financial Statements for disclosures of certain financial
information related to the reportable segments.


                                       11
<PAGE>   12

RESULTS OF OPERATIONS

   The following tables set forth, for the periods indicated, the Company's
results of operations in dollar terms and as a percentage of net sales and the
percent change from 1998 to 1999:

<TABLE>
<CAPTION>
                                                                      Percent of
                                                                       Net Sales
                                            Three Months Ended    Three Months Ended   Percent
                                                  June 30,              June 30,       Change
                                            ------------------    -----------------    1999 to
                                              1999      1998        1999      1998      1998
                                            -------    -------      -----     -----     ----
<S>                                         <C>        <C>          <C>       <C>       <C>
Net sales ..............................    $34,901    $40,227      100.0%    100.0%   -13.2%
Cost of products sold ..................     21,751     24,488       62.3%     60.9%   -11.2%
                                            -------    -------      -----     -----     ----
    Gross margin .......................     13,150     15,739       37.7%     39.1%   -16.4%
                                            -------    -------      -----     -----     ----
Operating expenses:
  Research and development .............      4,234      3,997       12.1%      9.9%     5.9%
  Selling, general and administrative ..      8,820      8,913       25.3%     22.2%    -1.0%
  Restructuring ........................         73         --        0.2%       --    100.0%
                                            -------    -------      -----     -----     ----
    Total operating expenses ...........     13,127     12,910       37.6%     32.1%     1.7%
                                            -------    -------      -----     -----     ----
    Operating income ...................         23      2,829        0.1%      7.0%   -99.2%
                                            -------    -------      -----     -----     ----
Other income (expense):
  Interest income ......................        233        295        0.7%      0.7%   -21.0%
  Foreign currency gain ................        156         --        0.4%       --    100.0%
                                            -------    -------      -----     -----     ----
    Total other income .................        389        295        1.1%      0.7%    31.9%
                                            -------    -------      -----     -----     ----
    Income before income taxes .........        412      3,124        1.2%      7.7%   -86.8%
Income tax expense .....................        157      1,187        0.5%      2.9%   -86.8%
                                            -------    -------      -----     -----     ----
    Net income .........................    $   255    $ 1,937        0.7%      4.8%   -86.8%
                                            =======    =======      =====     =====     ====
</TABLE>

<TABLE>
<CAPTION>
                                                                         Percent of
                                                                          Net Sales
                                              Six Months Ended        Six Months Ended    Percent
                                                   June 30,                June 30,       Change
                                                                                          1999 to
                                              1999         1998        1999      1998      1998
                                            --------     --------      -----     -----    -------
<S>                                         <C>          <C>           <C>       <C>        <C>
Net sales ..............................    $ 65,982     $ 83,833      100.0%    100.0%    -21.3%
Cost of products sold ..................      42,911       51,508       65.0%     61.4%    -16.7%
                                            --------     --------      -----     -----      ----
    Gross margin .......................      23,071       32,325       35.0%     38.6%    -28.6%
                                            --------     --------      -----     -----      ----
Operating expenses:
  Research and development .............       8,385        8,745       12.7%     10.4%     -4.1%
  Selling, general and administrative ..      17,330       17,715       26.3%     21.1%     -2.2%
  Restructuring ........................         541           --        0.8%       --     100.0%
                                            --------     --------      -----     -----      ----
    Total operating expenses ...........      26,256       26,460       39.8%     31.6%     -0.8%
                                            --------     --------      -----     -----      ----
    Operating income (loss) ............      (3,185)       5,865       -4.8%      7.0%       NM
                                            --------     --------      -----     -----      ----
Other income (expense):
  Interest income ......................         451          672        0.7%      0.8%    -32.9%
  Foreign currency gain ................         113           --        0.2%       --     100.0%
                                            --------     --------      -----     -----      ----
    Total other income .................         564          672        0.9%      0.8%    -16.1%
                                            --------     --------      -----     -----      ----
    Income (loss) before income taxes ..      (2,621)       6,537       -4.0%      7.8%       NM
Income tax expense (benefit) ...........        (996)       2,484       -1.5%      3.0%       NM
                                            --------     --------      -----     -----      ----
    Net income (loss) ..................    ($ 1,625)    $  4,053       -2.5%      4.8%       NM
                                            ========     ========      =====     =====      ====
</TABLE>

NM -- not meaningful


                                       12
<PAGE>   13

THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998

Net sales

   Net sales were $34.9 million and $40.2 million in the three months ended June
30, 1999 and 1998, respectively, representing a decrease of 13.2%. Net sales for
the three months ended June 30, 1999, calculated using foreign currency exchange
rates for the same period in 1998, decreased 15.2%. Approximately 45% of the
decrease in net sales was attributable to decreased sales of high power
semiconductor-based lasers and laser systems and the remainder of the decrease
in net sales related to sales of conventional products. The decreased sales of
high power semiconductor-based lasers and laser systems was the result of
reduced orders and sales in the image recording market and the computer and
microelectronics manufacturing market, particularly the semiconductor and disk
drive industries. The decrease in conventional product sales reflects decreased
sales in the research markets in Japan and the U.S. These decreases were offset,
in part, for both semiconductor-based lasers and conventional products by
increased sales in the medical market. Sales of high power semiconductor-based
lasers and laser systems were 51% of total sales in the three months ended June
30, 1999 compared to 50% of total sales in the three months ended June 30, 1998.

   Net sales in the following geographic markets were:

<TABLE>
<CAPTION>
                                               Three Months Ended
                                                    June 30,
                                             ----------------------
                                               1999           1998
                                             -------        -------
                                                 (in thousands)
<S>                                          <C>            <C>
               North America ........        $17,804        $21,523
               Japan ................          5,837          7,915
               Europe ...............          8,690          8,286
               Other Asia ...........          1,322          1,383
               Rest of the World ....          1,248          1,120
                                             -------        -------
                                             $34,901        $40,227
                                             =======        =======
</TABLE>

   Net sales for the three months ended June 30, 1999 at actual currency
exchange rates increased 4.9% for Europe and 11.4% for Rest of the World, and
decreased 17.3% for North America, 26.3% for Japan and 4.4% for Other Asia. Net
sales for the three months ended June 30, 1999, calculated using foreign
currency exchange rates for the same period in 1998, increased 4.5% for Europe
and decreased 33.9% for Japan.

   Net sales were $66.0 million and $83.8 million in the six months ended June
30, 1999 and 1998, respectively, representing a decrease of 21.3%. Net sales for
the six months ended June 30, 1999, calculated using foreign currency exchange
rates for the same period in 1998, decreased 23.4%. Approximately 65% of the
decrease in net sales was attributable to decreased sales of high power
semiconductor-based lasers and laser systems. Most of this decrease was
experienced in two markets, computer and microelectronics manufacturing and
image recording, as discussed above. The remainder of the decrease was
conventional products, principally in the research market. Sales of high power
semiconductor-based lasers and laser systems were 46% of total sales in the six
months ended June 30, 1999 compared to 51% of total sales in the six months
ended June 30, 1998.


                                       13
<PAGE>   14

   Net sales in the following geographic markets were:


<TABLE>
<CAPTION>
                                                Six Months Ended
                                                    June 30,
                                             ----------------------
                                               1999           1998
                                             -------        -------
                                                 (in thousands)
<S>                                          <C>            <C>
               North America ........        $30,188        $45,755
               Japan ................         15,471         16,853
               Europe ...............         15,819         15,676
               Other Asia ...........          2,560          3,073
               Rest of the World ....          1,944          2,476
                                             -------        -------
                                             $65,982        $83,833
                                             =======        =======
</TABLE>

   Net sales for the six months ended June 30, 1999 at actual currency exchange
rates increase 0.9% for Europe, and decreased 34.0% for North America, 8.2% for
Japan, 16.7% for Other Asia, and 21.5% for Rest of the World. Net sales for the
six months ended June 30, 1999, calculated using foreign currency exchange rates
for the same period in 1998, decreased 18.2% for Japan and 0.6% for Europe.

   Net sales are attributed in the above tables based on the location of the
Company's customer. Substantially all sales in North America, Other Asia and
Rest of the World are denominated in U.S. dollars. Europe and Japan in the above
table include sales from the Company's European and Japanese sales subsidiaries,
respectively. Export sales to countries not located in Asia are included in Rest
of the World.

   As previously mentioned, over the last three years a growing proportion of
the Company's total sales and most of its sales growth have been from sales of
high power semiconductor-based lasers. However, in the first six months of 1999,
the percentage of total sales of conventional lasers grew as compared to the
first six months of 1998. This was due to weaknesses in certain key OEM markets
which are the primary markets of semiconductor based lasers as described above.
Widely published reports foresee no upturn in these markets until late 1999
thereby limiting sales growth for 1999. However, the Company believes that the
first two quarters of 1999 revenue comparisons are indicative of current market
conditions only and that the evolution from conventional to semiconductor-based
lasers will continue.

Cost of products sold and gross margin

   Cost of products sold includes all manufacturing materials and labor and a
proportionate share of overhead costs, as well as costs of shipping, tooling,
royalties, third party products incorporated in the Company's products and
provisions for excess and obsolete inventories and warranty. Cost of products
sold varies by product mix, product pricing, cost of components, the proportion
of third party products incorporated in systems manufactured by the Company, and
manufacturing costs.

   Gross margin was $13.2 million and $15.7 million for the three months ended
June 30, 1999 and 1998, respectively, representing a decrease of 16.4%. As a
percentage of net sales, gross margin was 37.7% and 39.1% in the three months
ended June 30, 1999 and 1998, respectively. The principal reason for the
decrease in gross margin as a percentage of net sales was unfavorable overhead
absorption resulting from lower sales. Mitigating these unfavorable factors was
the positive effect on gross margins from the weakening of the U.S. dollar
compared to non-U.S. dollar currencies, particularly the Yen.

   Gross margin was $23.1 million and $32.3 million for the six months ended
June 30, 1999 and 1998, respectively, representing a decrease of 28.6%. As a
percentage of net sales, gross margin was 35.0% and 38.6% in the six months
ended June 30, 1999 and 1998, respectively. The principal reason for the
decrease in gross margin as a percentage of net sales was the lower proportion
of sales of high power semiconductor-based lasers and laser systems which
generally have higher gross margins than conventional products and unfavorable
overhead absorption resulting from the lower sales. Mitigating these unfavorable
factors was the positive effect on gross margins from the weakening of the U.S.
dollars compared to non-U.S. dollar currencies, particularly the Yen.


                                       14
<PAGE>   15

Operating expenses

   Operating expenses totaled $13.1 million and $12.9 million in the three
months ended June 30, 1999 and 1998, respectively, representing a increase of
1.7%. As a percentage of net sales, operating expenses were 37.6% and 32.1% in
the three months ended June 30, 1999 and 1998, respectively. Included in
operating expenses for the three months ended June 30, 1999 was restructuring
costs of $0.1 million.

   Operating expenses totaled $26.3 million and $26.5 million in the six months
ended June 30, 1999 and 1998, respectively, representing a decrease of 0.8%. As
a percentage of net sales, operating expenses were 39.8% and 31.6% in the six
months ended June 30, 1999 and 1998, respectively. Included in operating
expenses for the six months ended June 30, 1999 was restructuring costs of $0.5
million.

   Research and development expenses represent expenses associated with Company
funded research and new product development, and efforts designed to improve the
performance of existing products and manufacturing processes. Customer funded
product development engineering for certain OEM customers and the U.S.
government, which to date has been minimal, is recorded as a reduction of
research and development expenses. Research and development expenses are charged
to operations as incurred.

   Research and development expenses totaled $4.2 million and $4.0 million for
the three months ended June 30, 1999 and 1998, respectively, representing an
increase of 5.9%. As a percentage of net sales, research and development
expenses were 12.1% and 9.9% in the three months ended June 30, 1999 and 1998,
respectively.

   Research and development expenses totaled $8.4 million and $8.7 million for
the six months ended June 30, 1999 and 1998, respectively, representing a
decrease of 4.1%. As a percentage of net sales, research and development
expenses were 12.7% and 10.4% in the six months ended June 30, 1999 and 1998,
respectively.

   Selling, general and administrative expenses include the expenses of the
Company's sales and support subsidiaries in the United Kingdom, France, Germany,
the Netherlands and Japan as well as the Company's North American sales and
support organization, and other administrative expenses such as legal and
accounting.

   Selling, general and administrative expenses totaled $8.8 million and $8.9
million for the three months ended June 30, 1999 and 1998, respectively,
representing a decrease of 1.0%. As a percentage of net sales, selling, general
and administrative expenses were 25.3% and 22.2% in the three months ended June
30, 1999 and 1998, respectively.

   Selling, general and administrative expenses totaled $17.3 million and $17.7
million for the six months ended June 30, 1999 and 1998, respectively,
representing a decrease of 2.2%. As a percentage of net sales, selling, general
and administrative expenses were 26.3% and 21.1% in the six months ended June
30, 1999 and 1998, respectively. The principal reason for the decrease in
selling, general and administrative expenses in dollar terms for the three and
six month periods ended June 30, 1999 was lower expenses associated with the
lower sales volumes.

Interest income

   Interest income totaled $0.2 million and $0.3 million in the three months
ended June 30, 1999 and 1998, respectively. Interest income totaled $0.5 million
and $0.7 million in the six months ended June 30, 1999 and 1998, respectively.
Interest income was earned on the Company's invested cash and cash equivalents.

Foreign currency gain (loss)

   At June 30, 1999, the Company had contracts for the sale of foreign
currencies and the purchase of U.S. dollars totaling $ 35.3 million. At June 30,
1999, the Company had deferred gains relating to its foreign currency contracts
of approximately $2.2 million, substantially all of which is expected to be
recognized in income over the next twelve months.

   The following table provides information about the Company's foreign currency
derivative financial instruments outstanding as of June 30, 1999. The
information is provided in U.S. dollar amounts, as presented in the Company's
consolidated financial statements. The table presents the notional amount (at
contract exchange rates) and the weighted average contractual foreign currency
exchange rates. All contracts mature within twelve months.


                                       15
<PAGE>   16

   Foreign currency spot/forward contracts (in thousands, except average
contract rates):

<TABLE>
<CAPTION>
                                                              AVERAGE
                                               NOTIONAL       CONTRACT
                                                AMOUNT          RATE
<S>                                            <C>             <C>
             Japanese Yen .............        $21,081         114.37
             British Pound Sterling....          3,339         0.6071
             German Marks .............          5,355         1.6485
             Netherland Guilder .......          1,500         1.8337
             French Franc .............          4,030         5.7276
                                               -------         ------
                                               $35,305
                                               =======

             Estimated fair value               $2,199(*)
                                               =======
</TABLE>

(*) The estimated fair value is based on the estimated amount at which the
    contracts could be settled based on forward exchange rates.

   During the three and six months ended June 30, 1999, the Company recorded a
foreign currency gain of $0.2 million and $0.1 million, respectively,
principally related to gains incurred as a result of favorable foreign exchange
rate movements on unhedged accounts receivable.

Income tax expense

   Income taxes have been provided in the financial statements as if the Company
were a separate taxable entity.

   The Company's effective tax rate is 38% of pre tax income (loss). Income tax
expenses of $0.2 million and $1.2 million were recorded in the three months
ended June 30, 1999 and 1998, respectively. An income tax benefit of $1.0
million was recorded in the six months ended June 30, 1999 and income tax
expense of $2.5 million was recorded in the six months ended June 30, 1998.

LIQUIDITY AND CAPITAL RESOURCES

   Through the third quarter of 1997, the Company had satisfied its liquidity
requirements through cash provided by Spectra-Physics AB and affiliates in the
form of loans and advances. As of October 1, 1997, all outstanding loans and
advances from Spectra-Physics AB and affiliates were converted to equity. At
June 30, 1999, the Company had working capital of $67.7 million, including cash
and cash equivalents of $23.6 million, compared to working capital at December
31, 1998 of $72.3 million, including cash and cash equivalents of $34.6 million.

   Cash used in operating activities was $0.2 million and $0.3 million in the
six months ended June 30, 1999 and 1998, respectively. Cash used in investing
activities, mostly purchases of property, plant and equipment, was $6.7 million
in each of the six months ended June 30, 1999 and 1998. Cash used in financing
activities was $3.3 million in the six months ended June 30, 1999. Cash provided
by financing activities was $3.5 million in the six months ended June 30, 1998.
All of the cash used in financing activities in the six months ended June 30,
1999 represented decreases in net borrowings under the Company's credit
facilities. During the six months ended June 30, 1998, financing activities
included the sale of 360,000 shares of common stock in accordance with an
overallotment option granted to the underwriters of the Company's initial public
offering of $3.2 million. The effect of foreign currency exchange rate changes
on cash was $0.8 million in the six months ended June 30, 1999.

   These activities resulted in a decrease in cash and cash equivalents of $11.0
million and $3.6 million in the six months ended June 30, 1999 and 1998,
respectively.

The Company has unsecured short-term credit facilities in Japan with several
banks. The facilities allow aggregate borrowings of 2.4 billion Yen ($19.8
million) and bear interest at 1.625% per annum. At June 30, 1999 and December
31, 1998 there were approximately $8.5 million and $11.8 million, respectively,
of borrowings outstanding under these facilities. The Company's foreign
subsidiaries other than Japan have credit facilities aggregating $3.9 million,
none of which was outstanding as of June 30, 1999. From time to time, the amount
available under the credit facilities will be reduced by the amount of
performance bonds outstanding guaranteed by the applicable bank to the Company's
customers. The Company also has available in the U.S. two committed,


                                       16
<PAGE>   17

unsecured credit facilities aggregating $20.0 million and a $10.0 million
uncommitted, unsecured credit facility. The committed facilities are through
June 2000. At June 30, 1999 and December 31, 1998, there were no borrowings
under the U.S. facilities.

   The Company has reviewed its short- and long-term liquidity needs. The
Company's liquidity needs for at least the next twelve months will be met by
cash flows from operations, existing cash balances and borrowings available
under its credit facilities.

YEAR 2000 COMPLIANCE

   An issue exists for all companies that rely on computers as the year 2000
approaches. Known as the "Millennium Bug", or the "Year 2000 (Y2K) Problem", the
problem stems from the way that some computer systems and other chip containing
equipment were programmed to process date information. To conserve memory, dates
were stored as two digit, rather than as four digit, numbers with all the dates
assumed to be between 1900 and 1999. Thus the year 2000 would be stored as "00"
and be assumed to be 1900, and year 2001 as "01", and be assumed to be 1901,
etc. This practice will result in incorrect results when computers so programmed
perform arithmetic operations, comparisons or data field sorting with dates
later than 1999.

   The Board of Directors of Spectra-Physics, and all levels of management, are
well aware of the Y2K problem, and plans have been made to address the issue.
Spectra-Physics' Y2K compliance plans are supervised by the Vice President of
Finance, and progress is under ongoing review by the Board. The Company's Year
2000 Project Team has completed a review of Spectra-Physics' (a) Information
Technology (IT) and non-IT systems, (b) products, (c) vendors and (d) customers
and is acting to correct identified problems.

Information Technology (IT) and non-IT systems

   Spectra-Physics has completed a review of its Information Technology (IT) and
non-IT systems at all of its sites. The Company has identified a few items that
are not Y2K compliant and has created a plan to bring them into compliance in
advance of the year 2000. The Company feels that it will be able to accomplish
this goal by (a) using its internal programming staff, (b) using outside
computer consultants in a few limited cases, and (c) buying replacements for
some specific systems. Costs in connection with these solutions are expected to
be in the range of $0.1 million to $0.4 million over the period of July 1, 1999
to September 30, 1999, and these costs will be funded by operating cash flow.
Through June 30, 1999, the Company has incurred approximately $0.4 million of
these costs.

    If such modifications or replacements are not completed in a timely manner,
the Y2K problem may have a material adverse effect on the operations of the
Company.

Products

   The Company has completed a thorough review of its products. This review has
uncovered no material Y2K issues with Spectra-Physics products.

Vendors and Suppliers

   The Company has performed a review of its suppliers and vendors and has
identified a subset of them as being "critical" vendors. Spectra-Physics has
sent letters and follow-up letters to each of these critical vendors asking them
about their Y2K readiness. The Company has received responses from a majority of
these vendors and is satisfied with their Y2K readiness. Those vendors who did
not respond, or whose response the Company found inadequate, are being
individually contacted by the Company's purchasing department. For those vendors
that the Company feels are at risk of not being compliant, the purchasing
department is working to establish alternate sources. If a critical vendor is
not Y2K compliant, and such vendor cannot remedy its noncompliance and
Spectra-Physics cannot identify an alternative vendor, there may be a material
adverse effect on the operations of the Company.

Customers

   The Company prepared a listing of its top customers during the first quarter
of 1999 and sent a Y2K compliance letter to them in the second quarter of 1999.
Since no one customer of the Company makes up more than 5% of the Company's
total sales, the Company is not subject to as much risk as companies with more
concentrated sales. The Company expects to complete the survey of its customers
early in the third quarter of 1999. The Company will assess their Y2K readiness
and will work with those who are not compliant to identify alternative methods
for them to order from Spectra-Physics.


                                       17
<PAGE>   18

   The business communities' understanding of the Y2K Problem is continually
evolving, and all plans may need to be reviewed as the year 2000 approaches.
Further third party Y2K problems (suppliers to Spectra-Physics' vendors, for
example) which are outside the control of Spectra-Physics may have an effect on
Spectra-Physics' ability to serve its customers. This, in turn, may have a
material adverse effect on the Company's operations. The Company is working to
be ready for the year 2000 and will continue to modify plans and efforts as
necessary.


Costs

   The reviews of Company products, systems, vendors and suppliers, and
customers are performed by the Company's manufacturing, facilities, research and
development, and IT staff as part of their on-going duties. The only incremental
costs the Company expects to incur relate to certain outside computer
consultants and the replacement of certain non-Y2K compliant hardware and
software, and the related installation services.

EUROPEAN MONETARY UNION (EMU)

   The euro is the new currency introduced by certain European countries
collectively known as the European Monetary Union (EMU). The euro was introduced
on January 1, 1999 and the eleven participating EMU members established fixed
conversion rates between their existing currencies (legacy currencies) and the
euro. The legacy currencies have no value of their own but are subsets of the
euro. The legacy currencies and the euro will both be used through June 30, 2002
when the legacy currencies will be withdrawn (euro only environment).

   The introduction of the euro could have an adverse impact on a company's
information systems, its markets and the economies in which it operates.

   With regards to information systems, through June 30, 1999, the euro had no
material impact on the Company's information systems. The Company believes the
euro will have no material impact on its systems in 1999. Furthermore, the
Company's review indicates that the Company's information systems can operate in
the "euro only" environment in 2002. As that date gets closer the Company
expects to conduct another survey concerning the euro's impact on information
systems.

   With regards to the Company's markets, the Company has reviewed its customer
list and current selling practices and expects no material adverse impact from
the introduction of the euro.

   The Company is currently unable to determine the ultimate long term financial
impact of the exclusive use of the euro on the Company's markets and on the
economies of the countries in which the Company operates. This impact will be
dependent upon the evolving competitive situations and macro-economic impact of
the introduction of the euro.


                                       18
<PAGE>   19
Item 3.  Quantitative and Qualitative Disclosures About Market Risk

   There has been no material change in the Company's exposure to market risk
since December 31, 1998. See Spectra-Physics Lasers, Inc.'s Annual Report on
Form 10-K dated December 31, 1998.


                                       19
<PAGE>   20

                          PART II -- OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

   The Company's facilities and operations are subject to a wide variety of
Environmental Laws and Employee Safety Laws. Further, compliance with
Environmental Laws also may require the acquisition of permits or other
authorizations for certain activities and compliance with various standards or
procedural requirements. Although the Company believes that its operations are
in compliance in all material respects with current requirements under
Environmental Laws and Employee Safety Laws, the nature of the Company's
operations exposes it to the risk of liabilities or claims with respect to such
matters.

   Certain of these Environmental Laws, including Superfund Laws, hold owners or
operators of land or businesses liable for their own and for previous owners' or
operators' releases of Hazardous Substances. Such Superfund Laws also provide
for responses to and liability for releases of certain Hazardous Substances into
the environment. The nature of the Company's operations and the long history of
industrial uses at some of its current or former facilities expose the Company
to risk of liabilities or claims under Superfund Laws. In 1988, the Company was
named on the General Notification List of the Environmental Protection Agency
(EPA)stating that the Company may be a Potentially Responsible Party (PRP) under
the Superfund Laws for Hazardous Substances which may have been generated by its
former operations at a former site. Since that time, the Company has not been
named in the EPA's first or second tier lists, and has not been pursued as PRP
by the EPA or any of the other PRPs.

   Since 1984, the Company's facilities in Mountain View, California ("Mountain
View Site") have been undergoing investigation and remediation in response to
past releases of industrial solvents to the soil and groundwater. In addition,
the impacted groundwater has migrated to what is referred to as the North
Bayshore Area. As a result of these past releases, the Mountain View Site and
other neighboring sites are listed on the NPL or the Superfund List under
CERCLA. The Company is subject to Orders that require the Company to perform
remediation on-site and off-site and investigate other potentially responsible
parties. Pursuant to the Orders and other orders issued to other responsible
parties, the Company and other responsible parties are jointly performing and
funding remediation which includes soil vapor extraction and groundwater
extraction, treatment and monitoring. All of the required soil and groundwater
remediation and monitoring systems currently required by the Order are in place,
and consequently the initial capital expenses for such systems have been
incurred. As of November 1998, the Company had received permission from the
Regional Water Quality Control Board (RWQCB) to shut down one of its extraction
wells and one of its vapor extraction units. The Company has also been given
permission to run tests that may allow it to shut down a second well and is
applying for permission to shut down its second soil vapor extraction system.

   In October 1997, the Company was served with a complaint that had been filed
on behalf of five individuals in the Superior Court of the State of California
seeking an unspecified amount of damages for personal injuries and property
damage incurred by residents of a single location alleged to have resulted from
the Company's and others' negligent and/or intentional handling of toxic
chemicals (Rosario Balcita et al. v. Teledyne Semiconductor, Spectra-Physics
Lasers, et al.). As of December 31, 1998, there has been a summary judgement
ruling in the case in favor of the Company and its co-defendants in regards to
the four adults in the case. Since that time, the four adult plaintiffs had
filed an appeal but shortly thereafter dropped their complaint. The minor
plaintiff has agreed to settle for $7,500 but the final resolution is still
pending. There can be no assurances that other parties will not come forward and
claim personal injury or property damage.

      Based on the Company's experience to date, the Company believes that the
future cost of compliance with existing Environmental Laws (or liability for
known environmental liabilities or claims) and Employee Safety Laws should not
have a material adverse effect on the Company's business, operating results and
financial condition. However, future events, such as changes in existing laws
and regulations or their interpretation, or the discovery of heretofore unknown
contamination, may give rise to additional compliance costs or liabilities that
could have a material adverse effect on the Company's business, operating
results and financial condition. Compliance with more stringent laws or
regulations, as well as more vigorous enforcement policies of regulatory
agencies or stricter or different interpretations of existing laws, may require
additional expenditures by the Company that may be material.


                                       20
<PAGE>   21

ITEM 2. CHANGES IN SECURITIES

   Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

   Not applicable.


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

   At Spectra-Physics Lasers, Inc.'s Annual Meeting of Stockholders held on May
4, 1999, the following proposal was adopted by margins indicated:

   1.  To elect five directors to the board of directors to hold office until
       the next annual meeting of stockholders and until their successors have
       been elected and qualified.

<TABLE>
<CAPTION>
                                        For                 Withheld
                                        ----------------------------
<S>                                     <C>                   <C>
           Patrick L. Edsell            15,865,665            62,309
           Dennis A. Helm               15,823,494           104,480
           Lawrence C. Karlson          15,864,865            63,109
           Earl R. Lewis                15,869,424            58,550
           Polyvios C. Vintiadis        15,857,144            70,830
</TABLE>


ITEM 5. OTHER INFORMATION

   None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

   (a) EXHIBITS:

<TABLE>
<CAPTION>
  EXHIBIT
   NUMBER                              DESCRIPTION
  -------                              -----------
<S>         <C>
    2.1     Plan of Reorganization of the Company (Incorporated by reference to
            exhibit 2.1 of the Company's Registration Statement on Form S-1 (No.
            333-38329))

    3.1     Certificate of Incorporation of the Company, as amended
            (Incorporated by reference to exhibit 3.1 of the Company's
            Registration Statement on Form S-1 (No. 333-38329))

    3.2     Bylaws of the Company (Incorporated by reference to exhibit 3.2 of
            the Company's Registration Statement on Form S-1 (No. 333-38329))

    4.1     Specimen of Common Stock Certificate (Incorporated by reference to
            exhibit 4.1 of Amendment No. 1 of the Company's Registration
            Statement on Form S-1 (No. 333-38329))

   10.1     Agreement by and between Spectra-Physics USA and the Company, dated
            as of August 29, 1997 (Incorporated by reference to exhibit 10.1 of
            the Company's Registration Statement on Form S-1 (No. 333-38329))

   10.2     Registration Rights Agreement between Spectra-Physics USA and the
            Company (Incorporated by reference to exhibit 10.2 of Amendment No.
            2 of the Company's Registration Statement on Form S-1 (No.
            333-38329))

   10.3     Form of Executive Employment Agreement with certain officers of the
            Company (Incorporated by reference to exhibit 10.3 of Amendment No.
            2 of the Company's Registration Statement on Form S-1 (No.
            333-38329))

   10.4     Form of Executive Incentive Plan (Incorporated by reference to
            exhibit 10.5 of Amendment No. 1 of the Company's Registration
            Statement on Form S-1 (No. 333-38329))

   10.5     1997 Spectra-Physics Lasers, Inc. Stock Option Plan (Incorporated by
            reference to exhibit 10.6 of Amendment No. 1 of the Company's
            Registration Statement on Form S-1 (No. 333-38329))

   10.6     Patent License Agreement dated as of October 4, 1997 by and between
            the Company, as licensor, and Spectra
</TABLE>


                                       21
<PAGE>   22
<TABLE>
<CAPTION>
  EXHIBIT
   NUMBER                              DESCRIPTION
  -------                              -----------
<S>         <C>

            Precision, Inc., as licensee (Incorporated by reference to exhibit
            10.7 of Amendment No. 1 of the Company's Registration Statement on
            Form S-1 (No. 333-38329))

   10.7     Patent License Agreement dated as of October 4, 1997 by and between
            Spectra Precision, Inc., as licensor, and the Company, as licensee
            (Incorporated by reference to exhibit 10.8 of Amendment No. 1 of the
            Company's Registration Statement on Form S-1 (No. 333-38329))

   10.8     Tradename and Trademark License Agreement dated as of August 29,
            1997 by and between the Company, Spectra-Physics AB and certain
            Spectra-Physics AB subsidiaries (Incorporated by reference to
            exhibit 10.9 of Amendment No. 1 of the Company's Registration
            Statement on Form S-1 (No. 333-38329))

   10.9     Form of Restricted Stock Plan Agreement among the Company, Opto
            Power and certain Opto Power employees (Incorporated by reference to
            exhibit 10.10 of Amendment No. 1 of the Company's Registration
            Statement on Form S-1 (No. 333-38329))

   10.10    Employment Agreement dated January 1, 1998, between the Company and
            Patrick L. Edsell (Incorporated by reference to Exhibit 10.10 of the
            Company's 1998 Annual Report on Form 10-K)

   27.1     Financial Data Schedule
</TABLE>

   (b) REPORTS ON FORM 8-K:

       Report on Form 8-K dated July 30, 1999 filed on August 6, 1999.


                                       22
<PAGE>   23

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.

<TABLE>
<S>                                  <C>
                                     Spectra-Physics Lasers, Inc.

Date: August  9, 1999                                   /s/ PATRICK L. EDSELL
                                     ------------------------------------------------------
                                                          Patrick L. Edsell
                                           Chairman, President and Chief Executive Officer

Date: August  9, 1999                                      /s/ SETH HALIO
                                     ------------------------------------------------------
                                                             Seth Halio
                                                Vice President, Finance, and Treasurer
                                                    (Principal Financial Officer)
</TABLE>


                                       23
<PAGE>   24
                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
  EXHIBIT
   NUMBER                              DESCRIPTION
  -------                              -----------
<S>         <C>
    2.1     Plan of Reorganization of the Company (Incorporated by reference to
            exhibit 2.1 of the Company's Registration Statement on Form S-1 (No.
            333-38329))

    3.1     Certificate of Incorporation of the Company, as amended
            (Incorporated by reference to exhibit 3.1 of the Company's
            Registration Statement on Form S-1 (No. 333-38329))

    3.2     Bylaws of the Company (Incorporated by reference to exhibit 3.2 of
            the Company's Registration Statement on Form S-1 (No. 333-38329))

    4.1     Specimen of Common Stock Certificate (Incorporated by reference to
            exhibit 4.1 of Amendment No. 1 of the Company's Registration
            Statement on Form S-1 (No. 333-38329))

   10.1     Agreement by and between Spectra-Physics USA and the Company, dated
            as of August 29, 1997 (Incorporated by reference to exhibit 10.1 of
            the Company's Registration Statement on Form S-1 (No. 333-38329))

   10.2     Registration Rights Agreement between Spectra-Physics USA and the
            Company (Incorporated by reference to exhibit 10.2 of Amendment No.
            2 of the Company's Registration Statement on Form S-1 (No.
            333-38329))

   10.3     Form of Executive Employment Agreement with certain officers of the
            Company (Incorporated by reference to exhibit 10.3 of Amendment No.
            2 of the Company's Registration Statement on Form S-1 (No.
            333-38329))

   10.4     Form of Executive Incentive Plan (Incorporated by reference to
            exhibit 10.5 of Amendment No. 1 of the Company's Registration
            Statement on Form S-1 (No. 333-38329))

   10.5     1997 Spectra-Physics Lasers, Inc. Stock Option Plan (Incorporated by
            reference to exhibit 10.6 of Amendment No. 1 of the Company's
            Registration Statement on Form S-1 (No. 333-38329))

   10.6     Patent License Agreement dated as of October 4, 1997 by and between
            the Company, as licensor, and Spectra
</TABLE>


                                       23
<PAGE>   25

<TABLE>
<CAPTION>
  EXHIBIT
   NUMBER                              DESCRIPTION
  -------                              -----------
<S>         <C>

            Precision, Inc., as licensee (Incorporated by reference to exhibit
            10.7 of Amendment No. 1 of the Company's Registration Statement on
            Form S-1 (No. 333-38329))

   10.7     Patent License Agreement dated as of October 4, 1997 by and between
            Spectra Precision, Inc., as licensor, and the Company, as licensee
            (Incorporated by reference to exhibit 10.8 of Amendment No. 1 of the
            Company's Registration Statement on Form S-1 (No. 333-38329))

   10.8     Tradename and Trademark License Agreement dated as of August 29,
            1997 by and between the Company, Spectra-Physics AB and certain
            Spectra-Physics AB subsidiaries (Incorporated by reference to
            exhibit 10.9 of Amendment No. 1 of the Company's Registration
            Statement on Form S-1 (No. 333-38329))

   10.9     Form of Restricted Stock Plan Agreement among the Company, Opto
            Power and certain Opto Power employees (Incorporated by reference to
            exhibit 10.10 of Amendment No. 1 of the Company's Registration
            Statement on Form S-1 (No. 333-38329))

   10.10    Employment Agreement dated January 1, 1998, between the Company and
            Patrick L. Edsell (Incorporated by reference to Exhibit 10.10 of the
            Company's 1998 Annual Report on Form 10-K)

   27.1     Financial Data Schedule
</TABLE>

                                       24