<PAGE>   1

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

                                  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 SEPTEMBER 30, 2000

                                       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)

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

<TABLE>
<CAPTION>
           DELAWARE                                            77-0264342
<S>                                                         <C>
(STATE OR OTHER JURISDICTION OF                             (I.R.S. EMPLOYER
 INCORPORATION OR ORGANIZATION)                            IDENTIFICATION NO.)
</TABLE>


            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 September 30, 2000 was 16,635,486 shares.

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

<PAGE>   2

                          SPECTRA-PHYSICS LASERS, INC.

               FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2000

                                      INDEX

<TABLE>
<CAPTION>
                                                                                                                  PAGE
                                                                                                                  ----
Part I   Financial information

Item 1.  Financial statements and supplementary data (unaudited):
<S>      <C>                                                                                                      <C>
         (a) Consolidated Balance Sheets at September 30, 2000 and December 31, 1999........................        3

         (b) Consolidated Statements of Operations for the three and nine months ended
             September 30, 2000 and 1999....................................................................        4

         (c) Consolidated Statements of Cash Flows for the nine months ended September 30, 2000 and 1999....        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.........................................       17

Part II  Other Information..................................................................................       18

         Signatures.........................................................................................       20
</TABLE>


                                       2
<PAGE>   3

                         PART I -- FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                          SPECTRA-PHYSICS LASERS, INC.

                          CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                         September 30,   December 31,
                                                            2000            1999
                                                         -------------   ------------
                                                          (Unaudited)     (See Note)
<S>                                                       <C>             <C>
ASSETS
Current assets:
  Cash and cash equivalents                               $  21,432       $  23,278
  Accounts receivable, including $52 and $68,
   respectively, due from affiliated companies,
   less allowance for doubtful accounts of $750
   and $1,253, respectively.                                 42,965          38,246
  Inventories                                                37,625          26,582
  Deferred tax assets                                         5,046           9,657
  Prepaid expenses and other current assets                   5,594           5,906
                                                          ---------       ---------
          Total current assets                              112,662         103,669

Property, plant and equipment, net                           48,945          42,015
Goodwill and other intangible assets, net of
 accumulated amortization of $2,763 and $2,487,
 respectively                                                 4,356           1,794
Other assets                                                  4,184           4,799
                                                          ---------       ---------
          Total assets                                    $ 170,147       $ 152,277
                                                          =========       =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable                                        $  12,104       $  10,015
  Borrowings under credit facilities                         23,324          13,655
  Accrued and other current liabilities, including
   $1,286 and $170, respectively, due to affiliated
   companies                                                 21,313          22,052
                                                          ---------       ---------
          Total current liabilities                          56,741          45,722
Long-term liabilities                                         1,163           1,093
                                                          ---------       ---------
Commitments and contingencies

Stockholders' equity:
  Common stock                                                  166             162
  Additional paid-in capital                                102,913          98,320
  Retained earnings                                          10,466           9,428
  Accumulated other comprehensive loss                       (1,302)         (2,448)
                                                          ---------       ---------
          Total stockholders' equity                        112,243         105,462
                                                          ---------       ---------
          Total liabilities and stockholders' equity      $ 170,147       $ 152,277
                                                          =========       =========
</TABLE>

     Note: The balance sheet at December 31, 1999 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 STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                Three Months Ended          Nine Months Ended
                                                   September 30,              September 30,
                                              -----------------------    -----------------------
                                                  2000         1999         2000         1999
                                              ---------     ---------    ---------     ---------
<S>                                           <C>           <C>          <C>           <C>
Net sales ................................    $ 47,444      $  34,149    $ 127,061     $ 100,131
Cost of products sold ....................      31,600         22,345       80,010        65,256
Cost of products sold-inventory write-offs          --          3,700           --         3,700
                                              --------      ---------    ---------     ---------
    Gross margin .........................      15,844          8,104       47,051        31,175
                                              --------      ---------    ---------     ---------

Operating expenses:
  Research and development ...............       5,708          3,968       17,288        12,353
  Selling, general and administrative ....       9,594          8,378       27,237        25,708
  Purchased in process research and
    development ..........................       1,500             --        1,500            --
  Restructuring ..........................          --          1,999         (115)        2,540
                                              --------      ---------    ---------     ---------
    Total operating expenses .............      16,802         14,345       45,910        40,601
                                              --------      ---------    ---------     ---------
    Operating income (loss) ..............        (958)        (6,241)       1,141        (9,426)
                                              --------      ---------    ---------     ---------
Other income (expense):
  Interest income ........................          69            187          551           638
  Foreign currency gain (loss) ...........         (84)           (34)         260            79
                                              --------      ---------    ---------     ---------
    Total other income (expense) .........         (15)           153          811           717
                                              --------      ---------    ---------     ---------
    Income (loss) before income taxes ....        (973)        (6,088)       1,952        (8,709)
Income tax expense (benefit) .............        (148)        (2,313)         914        (3,309)
                                              --------      ---------    ---------     ---------
    Net income (loss) ....................    $   (825)     $  (3,775)   $   1,038     $  (5,400)
                                              ========      =========    =========     =========
Net income (loss) per share:
  Basic ..................................    $   (0.05)    $   (0.23)   $    0.06     $   (0.33)

  Diluted ................................    $   (0.05)    $   (0.23)   $    0.06     $   (0.33)

Shares used in computing net
 income (loss) per share:
  Basic ..................................       16,619        16,168       16,554        16,168
  Diluted ................................       16,619        16,168       17,448        16,168
</TABLE>

                 See Notes to Consolidated Financial Statements.

                                       4
<PAGE>   5
                          SPECTRA-PHYSICS LASERS, INC.

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

<TABLE>
<CAPTION>
                                                             Nine months ended
                                                               September 30,
                                                            -------------------
                                                              2000        1999
                                                            -------    --------
<S>                                                       <C>          <C>
OPERATING ACTIVITIES
Net income (loss)                                          $  1,038    $ (5,400)
Adjustments to reconcile net income (loss) to
  cash provided by (used in) operating activities:
  Depreciation and amortization                               5,785       4,862
  Purchased in process research and development               1,500          -
  Deferred tax assets                                         4,611          -
  Inventory write-offs                                           -        3,700
  Non-cash portion of restructuring charge                       -          655
Changes in operating assets and liabilities, excluding
acquisition:
  Accounts receivable, including long-term                   (2,142)      9,751
  Inventories                                               (10,745)     (6,382)
  Prepaid expenses and other current assets                     336      (3,919)
  Accounts payable                                            1,830      (1,685)
  Accrued and other current liabilities                         769      (4,694)
                                                           --------    --------
     Net cash provided by (used in) operating activities      2,982      (3,112)
                                                           --------    --------

INVESTING ACTIVITIES
Purchases of property, plant and equipment                  (12,114)     (8,740)
Payment for intangible asset                                   (600)         -
Acquisition of LAS                                             (900)         -
Other                                                        (1,459)       (190)
                                                           --------    --------
     Net cash used in investing activities                  (15,073)     (8,930)
                                                           --------    --------
FINANCING ACTIVITIES
Net borrowings (payments) under credit facilities             6,944        (772)
Exercises of common stock options                             4,597          -
                                                           --------    --------
     Net cash provided by (used in)
       financing activities                                  11,541        (772)
                                                           --------    --------

Effect of changes in foreign currency exchange rates         (1,296)       (427)
                                                           --------    --------

     Decrease in cash and cash equivalents                   (1,846)    (13,241)
Cash and cash equivalents at beginning of year               23,278      34,620
                                                           --------    --------
Cash and cash equivalents at end of period                 $ 21,432    $ 21,379
                                                           ========    ========
Supplemental disclosures:
  Debt assumed on acquisition of LAS                       $  2,967
                                                           ========
</TABLE>



                                       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, laser systems and optics for a variety of
end 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 nine months ended September 30,
2000 are not necessarily indicative of the results that may be expected for the
year ended December 31, 2000. For further information, refer to the consolidated
financial statements and footnotes thereto included in our Annual Report on Form
10-K for the year ended December 31, 1999.

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

2.   RECENT ACCOUNTING PRONOUNCEMENT

     In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin (SAB) No. 101 "Revenue Recognition in Financial
Statements." SAB No. 101 includes requirements for recognizing shipments as
revenue when the terms of the sale include customer acceptance provisions or an
obligation of the seller to install the product. In such instances, SAB No. 101
generally requires that revenue recognition occurs at completion of installation
and/or upon customer acceptance. SAB No. 101 requires that calendar year-end
companies conform their revenue recognition practices to the requirements
therein no later than the fourth quarter of calendar 2000. We continue to assess
the effect that the adoption of SAB No. 101 will have on our financial
statements. This assessment includes the impact of recently released guidance
and interpretations.

     Had we adopted SAB No. 101 during our third quarter ended September 30,
2000, and assuming all revenue subject to customer acceptance or our obligation
to install the product was deferred until we met such requirements, the adoption
of SAB No. 101 as of September 30, 2000, would have resulted in a deferral of as
much as 10% of our revenues arising from products shipped in 2000 prior to
September 30, 2000. Additionally, had we adopted SAB No. 101 in our third
quarter ended September 30, 2000, a substantial portion of revenue which was
recorded prior to June 30, 2000 would have been deferred pursuant to SAB No. 101
and would have been recognized as revenue in our third quarter. As a result, the
net impact on revenue of adoption of SAB No. 101 would not be material for the
three and nine months ended September 30, 2000. However, depending on the
outcome of our assessment above, there may be a material cumulative effect on
net income from our adopting SAB No. 101, which would be accounted for as a
cumulative effect, net of tax, of a change in accounting principle.

3.   INVENTORIES

     Inventories consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                            September 30,              December 31,
                                                2000                       1999
                                            -------------              ------------
<S>                                         <C>                        <C>
Raw material .............                    $16,354                    $15,277
Work in process ..........                     10,241                      3,482
Finished goods ...........                     11,030                      7,823
                                              -------                    -------
                                              $37,625                    $26,582
                                              =======                    =======
</TABLE>

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 are anti-dilutive.
Approximately 2.9 million options to acquire shares of common stock were
excluded from the calculation of diluted net income per share for the three and
nine months ended September 30, 2000 as they were antidilutive. Stock options
granted by a subsidiary of ours 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           Nine Months Ended
                                                     September 30,               September 30,
                                               ----------------------       -----------------------
                                                  2000           1999         2000           1999
                                               ---------     ---------      ---------     ---------
<S>                                            <C>            <C>           <C>            <C>
Numerator:
  Net income (loss) .....................       $  (825)      $ (3,775)     $ 1,038        $ (5,400)
                                                =======       ========      =======        ========
Denominator:
  Denominator for basic net income (loss)
   per share:
     Weighted average shares ............        16,619         16,168       16,554          16,168
  Effect of dilutive securities:
     Employee stock options .............            --             --          894              --
                                                -------       --------      -------        --------
  Denominator for diluted net
     income (loss) per share ............        16,619         16,168       17,448          16,168
                                                =======       ========      =======        ========
Net income (loss) per share -- Basic ....       $ (0.05)      $  (0.23)     $  0.06        $  (0.33)
Net income (loss) per share -- Diluted ..       $ (0.05)      $  (0.23)     $  0.06        $  (0.33)
</TABLE>


5.   COMPREHENSIVE INCOME (LOSS)

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

<TABLE>
<CAPTION>
                                                          Three months ended         Nine months ended
                                                             September 30,              September 30,
                                                        ---------------------      ---------------------
                                                          2000          1999         2000          1999
                                                        -------       -------      -------       -------
<S>                                                     <C>           <C>          <C>           <C>
Net income (loss) ................................      $  (825)      $(3,775)     $ 1,038       $(5,400)
Foreign currency translation adjustments .........         (741)          651       (1,296)         (534)
Unrealized gain (loss) on forward foreign currency
  contracts, net of income taxes .................          880        (2,521)       2,442        (1,203)
                                                        -------       -------      -------       -------
Comprehensive income (loss) ......................      $  (686)      $(5,645)     $ 2,184       $(7,137)
                                                        =======       =======      =======       =======
</TABLE>

     Accumulated other comprehensive loss presented in the accompanying
consolidated balance sheets consist 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, we 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

     We currently have five reportable segments: Passive Components (PC)
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. PC designs and
manufactures optics, thin films, and fabricated parts for all operating units
within Spectra-Physics and external customers. ISL designs, markets and
manufactures high power semiconductor-based and conventional lasers for the
industrial and scientific markets. ISL also designs, manufactures and markets
low power laser sources and beam delivery systems for OEM products in the
industrial and medical instrumentation markets. OEM designs, markets and
manufactures high power semiconductor-based lasers for various OEM markets. OPC
designs, markets and manufactures high power semiconductor lasers. SPD is our
worldwide sales, service and support organization.

     In the third quarter of 2000, we announced the realignment of our business
units to support growth in telecommunications and other strategic markets. Our
new management structure includes three operating groups: the Passive
Telecommunications Group, the Active Telecommunications Group and the Laser
Group, as well as Spectra-Physics Distribution. In the fourth quarter of 2000,
we will begin reporting consistent with our realignment.

MEASUREMENT OF SEGMENT PROFIT OR LOSS AND SEGMENT ASSETS

     We evaluate 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 in the consolidated financial statements included in our Annual Report
on Form 10-K for the year ended December 31, 1999.

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

     Certain 1999 information has been reclassified to conform to the 2000
presentation.

FACTORS MANAGEMENT USED TO IDENTIFY OUR REPORTABLE SEGMENTS

     Our reportable segments are business units that are, except for SPD,
organized primarily by technology (for example, high power semiconductor lasers,
semiconductor laser pumped solid state lasers, ultrafast lasers and optics.) The
reportable segments are each managed separately because they manufacture and
distribute distinct products based on different technology and different
production methods.

Information about segments (in thousands):

<TABLE>
<CAPTION>
                                                                                                           All
                                             PC           ISL        OEM         OPC          SPD         Others       Total
                                          --------     --------    --------    --------     --------     --------     --------
<S>                                       <C>          <C>         <C>         <C>          <C>          <C>          <C>
Three months ended September 30, 2000:

  Net sales to external customers ....    $     79     $     --    $     --    $    733     $ 45,847     $    785     $ 47,444

  Intersegment net sales .............       6,535       22,846      15,027       8,205           --           --       52,613

  Segment EBIT .......................      (1,440)       3,923       3,434         308       (2,658)      (1,404)       2,163

  Segment assets .....................      22,662       34,294      17,886      38,251       77,765       86,369      277,227

Three months ended September 30, 1999:

  Net sales to external customers ....    $    137     $     --    $     --    $    887     $ 32,380     $    745     $ 34,149

  Intersegment net sales .............       3,732       18,145       9,457       5,212           --           --       36,546

  Segment EBIT .......................        (729)       3,487       1,812      (1,226)      (1,891)      (1,731)        (278)

  Segment assets .....................      12,509       28,793      11,471      36,619       64,423       77,292      231,107

</TABLE>

                                       8
<PAGE>   9

<TABLE>
<CAPTION>
                                                                                                               All
                                             PC           ISL          OEM          OPC           SPD         Others        Total
                                         ---------     ---------    ---------    -----------   ---------     ---------    ---------
<S>                                      <C>           <C>          <C>          <C>           <C>           <C>          <C>


Nine months ended September 30, 2000:

  Net sales to external customers ...    $     268     $      --    $      --    $   2,580     $ 123,743     $     470    $ 127,061

  Intersegment net sales ............       16,721        62,940       41,978       21,240            --            --      142,879

  Segment EBIT ......................       (3,033)       10,790        9,968         (481)       (9,499)       (4,856)       2,889

Nine months ended September 30, 1999:

  Net sales to external customers ...    $     539     $      --    $      --    $   4,695     $  92,981     $   1,916    $ 100,131

  Intersegment net sales ............       10,489        54,346       24,104       13,107            --            --      102,046

  Segment EBIT ......................       (1,471)       10,470        3,172       (2,715)       (6,529)       (5,094)      (2,167)
</TABLE>


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


<TABLE>
<CAPTION>
                                                              Three months ended          Nine months ended
                                                                September 30,               September 30,
                                                           -----------------------     -----------------------
                                                              2000         1999          2000           1999
                                                           ---------     ---------     ---------     ---------
<S>                                                        <C>           <C>           <C>           <C>
Net Sales:
Total external sales for reportable segments ..........    $  46,659     $  33,404     $ 126,591     $  98,215
Intersegment sales for reportable segments ............       52,613        36,546       142,879       102,046
Other sales ...........................................          785           745           470         1,916
Elimination of intersegment sales .....................      (52,613)      (36,546)     (142,879)     (102,046)
                                                           ---------     ---------     ---------     ---------
   Total consolidated net sales .......................    $  47,444     $  34,149     $ 127,061     $ 100,131
                                                           =========     =========     =========     =========
Income (loss) before income taxes:
Total EBIT for reportable segments ....................    $   3,567     $   1,453         7,745     $   2,927
Other EBIT ............................................          (16)         (619)          (16)       (1,931)
Corporate expenses ....................................       (1,388)       (1,112)       (4,840)       (3,163)
Other expenses not allocated to segments ..............       (1,621)         (264)         (363)       (1,019)
In process research and development ...................       (1,500)           --        (1,500)           --
Inventory write-offs ..................................           --        (3,700)           --        (3,700)
Restructuring .........................................           --        (1,999)          115        (2,540)
Interest income .......................................           69           187           551           638
Foreign currency gain (loss) ..........................          (84)          (34)          260            79
                                                           ---------     ---------     ---------     ---------
   Total consolidated income (loss) before income taxes    $    (973)    $  (6,088)    $   1,952     $  (8,709)
                                                           =========     =========     =========     =========
</TABLE>



8.   RESTRUCTURING CHARGE

     During 1999, we recorded $2.5 million of restructuring expenses associated
with severance and other direct costs of terminating 65 employees ($1.8 million)
and non-cash charges related to exiting the disk texturing system business ($0.7
million). In the nine months ended September 30, 2000, we reversed $0.1 million
of unused excess restructuring reserves.


9.   ACQUISITION

     In September 2000, we acquired Laser Analytical Systems GmbH (LAS), a
German based developer and manufacturer of solid state ultraviolet lasers for
the telecommunications, computer and microelectronics manufacturing and research
markets. This acquisition has been accounted for as a purchase; and accordingly,
the accompanying financial statements include LAS' results of operations since
the date of acquisition. Pro forma results of operations have not been presented
because the effects of this acquisition are not material. The amount allocated
to purchased in process research and development was determined through
established valuation techniques in the industry and was expensed upon
acquisition because technological feasibility had not been established and no
future alternative uses existed. Amounts allocated to goodwill and other
intangibles will be amortized over five years.

     The total purchase price was allocated among the acquired assets as follows
(in thousands):

<TABLE>
<S>                                                    <C>
     Net working capital deficit, including
        acquisition costs of $200 ................     $  (119)
     Property, plant and equipment ...............         325
     Purchased in process research and
        development ..............................       1,500
     Intangible assets:
        Goodwill .................................       1,031
        Existing technology ......................       1,000
        Workforce ................................         130
                                                       -------
     Total purchase price ........................     $ 3,867
                                                       =======
</TABLE>

     Allocation of purchase price:

<TABLE>
<S>                                                    <C>
     Cash paid ...................................     $  900
     Debt assumed ................................      2,967
                                                       ------
                                                       $3,867
                                                       ======
</TABLE>

     The purchase price allocation and intangible assets valuation was based on
management's estimates of the after-tax net cash flows and gave explicit
consideration to the Securities and Exchange Commission's views on purchased
in-process research and development as set forth in its September 9, 1998 letter
to the American Institute of Certified Public Accountants. Specifically, the
valuation gave consideration to the following: (i) the employment of a fair
market value premise excluding any Company-specific considerations which could
result in estimates of investment value for the subject assets; (ii)
comprehensive due diligence concerning all potential intangible assets including
trademarks/tradenames, patents, copyrights, non-compete agreements, assembled
workforce, customer relationships and sales channel; (iii) the value of existing
technology was specifically addressed, with a view toward ensuring the relative
allocations to existing technology and in-process research and development were
consistent with the relative contributions of each to the final product; and
(iv) the allocation to in-process research and development was based on a
calculation that considered only the efforts completed as of the transaction
date, and only the cash flow associated with said completed efforts for one
generation of the products currently in process. As indicated above, the Company
recorded a one-time charge of $1.5 million for purchased in-process research and
development related to several development projects. The charge related to the
portion of these products, excluding existing technology, that had not reached
technological feasibility, had no alternative future use and for which
successful development was uncertain. Management's conclusion that the
in-process development effort had no alternative future use was reached in
consultation with the engineering personnel from both Spectra-Physics and LAS.
The Company will begin to benefit from the acquired research and development of
these products once they begin shipping. Failure to reach successful completion
of these projects could result in impairment of the associated capitalized
intangible assets and could require the Company to accelerate the time period
over which the intangibles are being amortized. Significant assumptions used to
determine the value of in-process research and development included several
factors, including the following: (i) forecast of net cash flows that were
expected to result from the development effort using projections prepared by
management; (ii) percentage complete for the projects estimated by considering a
number of factors, including the costs invested to date relative to total cost
of the development effort and the amount of progress completed as of the
acquisition date, on a technological basis, relative to the overall
technological achievements required to achieve the functionality of the eventual
product. The technological issues were addressed by engineering representatives
from both companies, and when estimating the value of the technology, the
projected financial results of the acquired assets were estimated on a
stand-alone basis without any consideration to potential synergistic benefits or
"investment value" related to the acquisition. Accordingly, separate projected
cash flows were prepared for both the existing as well as the in-process
projects. These projected results were based on the number of units sold times
average selling price less the associated costs. After preparing the estimated
cash flows from the products being developed, a portion of these cash flows were
attributed to the existing technology, which was embodied in the in-process
product lines and enabled a quicker and more cost-effective development of these
products. When estimating the value of the existing and in-process technologies,
discount rates of 22% were used. The discount rates considered both the status
and risks associated with the respective cash flows at the acquisition date.


                                       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," " looks forward to,"
"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 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. We assume no obligation to update such
information.


OVERVIEW

     We design, develop, manufacture and distribute semiconductor-based lasers
and laser optics for a variety of end-markets. Our nearly forty years of laser
and optic experience has enabled us to offer passive and active optical
component products to the telecommunications industry. We began shipping
optical components for the telecommunications' industry in 1999 and have been
shipping lasers for commercial applications since the early 1960s. Thermo
Electron Corporation beneficially owned approximately 78% of our outstanding
common stock at September 30, 2000.

     Net sales for products are recognized upon shipment and when collectibility
is reasonably assured. We derive our revenue primarily from the sale of high
power semiconductor-based and conventional lasers. High power
semiconductor-based lasers are sold primarily into the telecommunications,
computer and microelectronics manufacturing, industrial manufacturing, medical,
image recording, and research and development markets. Conventional lasers are
primarily sold into the medical and research and development markets.

     Over the last several years, a growing proportion of our total net sales
and most of our sales growth have been from high power semiconductor-based
lasers used primarily in commercial applications. We have also begun to sell
passive and active optical components to telecommunications customers. We have
developed our passive telecommunications products based on our experience and
capabilities in optical fabrication and thin film coating. Although these
products currently represent a small percentage of our total revenues, we are
focusing our efforts on increasing revenues from telecommunications customers.

     In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin, or SAB, No. 101, "Revenue Recognition in Financial
Statements." SAB No. 101 includes requirements for recognizing shipments as
revenue when the terms of the sale include customer acceptance provisions or an
obligation of the seller to install the product. In such instances, SAB No. 101
generally requires that revenue recognition occurs at completion of installation
and/or upon customer acceptance. SAB No. 101 requires that calendar year-end
companies conform their revenue recognition practices to the requirements
therein no later than the fourth quarter of calendar 2000. We continue to assess
the effect that the adoption of SAB No. 101 will have on our financial
statements. This assessment includes the impact of recently released guidance
and interpretations.

     Had we adopted SAB No. 101 during our third quarter ended September 30,
2000, and assuming all revenue subject to customer acceptance or our obligation
to install the product was deferred until we met such requirements, the adoption
of SAB No. 101 as of September 30, 2000, would have resulted in a deferral of as
much as 10% of our revenues arising from products shipped in 2000 prior to
September 30, 2000. Additionally, had we adopted SAB No. 101 in our third
quarter ended September 30, 2000, a substantial portion of revenue which was
recorded prior to June 30, 2000 would have been deferred pursuant to SAB No. 101
and would have been recognized as revenue in our third quarter. As a result, the
net impact on revenue of adoption of SAB No. 101 would not be material for the
three and nine months ended September 30, 2000. However, depending on the
outcome of our assessment above, there may be a material cumulative effect on
net income from our adopting SAB No. 101, which would be accounted for as a
cumulative effect, net of tax, of a change in accounting principle.

     Our sales have shown a pattern in the last several years whereby the fiscal
fourth quarter net sales represent a large share of our annual net sales and
whereby our first quarter net sales decline significantly compared to the
fourth quarter of the prior fiscal year. We believe these sales patterns result
in part because of seasonal sales patterns related to customers' fiscal years
and in part from our incentive compensation plan, which compensates employees
based on annual results. We anticipate that this pattern is likely to continue.

     Our gross margin is affected by a number of factors, including product mix,
product pricing, cost of materials, the proportion of third party products
incorporated into our systems, foreign currency exchange rates and
manufacturing costs. For example, since high power semiconductor-based lasers
generally have higher gross margins than conventional lasers, absent other
factors, a shift in sales toward high power semiconductor-based lasers would
lead to a gross margin improvement for us. On the other hand, if market
conditions in the highly competitive conventional laser market forced us to
lower unit prices, we would suffer a decline in gross margin unless we 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 our business, operating results and financial
condition.

     We spend a significant amount of resources on research and development.
In 1999 and 2000, we focused much of these resources on high power
semiconductor-based lasers and optics for the telecommunications market. We
expect to continue to spend substantial resources in developing high power
semiconductor-based lasers and optical components for the telecommunications
market while making focused research and development expenditures to maintain
our leadership position in our other markets.

     A significant proportion of our sales are to international customers and
are denominated in currencies other than the U.S. dollar. We also have sales and
support operations located in certain European countries and in Japan which
operate in local currencies. As a result, while we attempt to hedge our economic
risk of foreign currency fluctuations, we are 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 our results of operations.

     We currently have five reportable segments: the Passive Components business
unit; the Industrial and Scientific Lasers business unit; the Original Equipment
Manufacturer business unit; Opto Power Corporation; and Spectra-Physics
Distribution business unit. Passive Components designs and manufactures optics,
thin films, and fabricated parts for all operating units within Spectra Physics
and for external customers. Industrial and Scientific Lasers designs, markets
and manufactures high power semiconductor-based and conventional lasers for the
industrial and scientific markets. Industrial and Scientific Lasers also
designs, manufactures and markets low power laser sources and beam delivery
systems for original equipment manufacturer products in the industrial and
medical instrumentation markets. Original Equipment Manufacturer designs,
markets and manufactures high power lasers. Spectra-Physics Distribution is our
worldwide sales, service and support organization. Reference is made to the
footnotes of our consolidated financial statements incorporated by reference
herein for disclosures of certain financial information related to the
reportable segments.

     On September 19, 2000, we announced the realignment of our business units
to support growth in telecommunications and other strategic markets. Our new
management structure includes three operating groups: the Passive
Telecommunications Group, the Active Telecommunications Group, and the Laser
Group. In the fourth quarter of 2000, we will begin reporting consistent with
our realignment.




                                       10
<PAGE>   11

RESULTS OF OPERATIONS

     The following tables set forth, for the periods indicated, our results of
operations in dollar terms and as a percentage of net sales and the percent
change from 1999 to 2000:

<TABLE>
<CAPTION>
                                                                                    Percent of
                                                                                     Net Sales
                                                    Three Months Ended          Three Months Ended         Percent
                                                       September 30,               September 30,            Change
                                                  ---------------------         -------------------        1999 to
                                                     2000         1999           2000         1999          2000
                                                  --------     --------         -----        ------        -------
<S>                                               <C>          <C>              <C>          <C>           <C>
Net sales ....................................    $ 47,444       $ 34,149       100.0 %       100.0 %        38.9%
Cost of products sold ........................      31,600         22,345        66.6          65.4          41.4
Cost of products sold-inventory write-offs ...          --          3,700          --          10.8        (100.0)
                                                  --------       --------       -----         -----        ------
    Gross margin .............................      15,844          8,104        33.4          23.8          95.5
                                                  --------       --------       -----         -----        ------
Operating expenses:
  Research and development ...................       5,708          3,968        12.0          11.6          43.9
  Selling, general and administrative ........       9,594          8,378        20.2          24.5          14.5
  Purchased in-process research and
    development...............................       1,500             --         3.2            --         100.0
  Restructuring ..............................          --          1,999          --           5.9        (100.0)
                                                  --------       --------       -----         -----        ------
    Total operating expenses .................      16,802         14,345        35.4          42.0          17.1
                                                  --------       --------       -----         -----        ------
    Operating income (loss) ..................        (958)        (6,241)       (2.0)        (18.2)         84.6
                                                  --------       --------       -----         -----        ------
Other income (expense):
  Interest income ............................          69            187         0.2           0.5         (63.1)
  Foreign currency gain (loss) ...............         (84)           (34)       (0.2)         (0.1)       (147.1)
                                                  --------       --------       -----         -----        ------
    Total other income (expense) .............         (15)           153          --           0.4            NM
                                                  --------       --------       -----         -----        ------
    Income (loss) before income taxes ........        (973)        (6,088)       (2.0)        (17.8)         84.0
Income tax expense (benefit) .................        (148)        (2,313)       (0.3)         (6.8)         93.6
                                                  --------       --------       -----         -----        ------
    Net income (loss) ........................    $   (825)      $ (3,775)       (1.7)%       (11.0)%        78.2%
                                                  ========       ========       =====         =====        ======
</TABLE>


<TABLE>
<CAPTION>
                                                                                    Percent of
                                                                                     Net Sales
                                                     Nine Months Ended           Nine Months Ended         Percent
                                                       September 30,               September 30,            Change
                                                  ----------------------        -------------------        2000 to
                                                     2000         1999           2000         1999          1999
                                                  --------     ---------        -----        ------        -------
<S>                                               <C>          <C>              <C>          <C>           <C>
Net sales ....................................    $127,061      $100,131        100.0%       100.0%          26.9%
Cost of products sold ........................      80,010        65,256         63.0         65.2           22.6
Cost of products sold-inventory write-offs ...          --         3,700           --          3.7         (100.0)
                                                  --------      --------        -----        -----         ------
    Gross margin .............................      47,051        31,175         37.0         31.1           50.9
                                                  --------      --------        -----        -----         ------
Operating expenses:
  Research and development ...................      17,288        12,353         13.6         12.3           40.0
  Selling, general and administrative ........      27,237        25,708         21.4         25.7            6.0
  Purchased in-process research and
    development...............................       1,500            --          1.2           --          100.0
  Restructuring ..............................        (115)        2,540         (0.1)         2.5             NM
                                                  --------      --------        -----        -----         ------
    Total operating expenses .................      45,910        40,601         36.1         40.5           13.1
                                                  --------      --------        -----        -----         ------
    Operating income (loss) ..................       1,141        (9,426)         0.9         (9.4)            NM
                                                  --------      --------        -----        -----         ------
Other income (expense):
  Interest income ............................         551           638          0.4          0.6          (13.6)
  Foreign currency gain ......................         260            79          0.2          0.1          229.1
                                                  --------      --------        -----        -----         ------
    Total other income .......................         811           717          0.6          0.7           13.1
                                                  --------      --------        -----        -----         ------
    Income (loss) before income taxes ........       1,952        (8,709)         1.5         (8.7)            NM
Income tax expense (benefit) .................         914        (3,309)         0.7         (3.3)            NM
                                                  --------      --------        -----        -----         ------
    Net income (loss) ........................    $  1,038      $ (5,400)         0.8%        (5.4)%           NM
                                                  ========      ========        =====        =====         ======
</TABLE>

NM -- not meaningful

                                       12
<PAGE>   12

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999

Net sales

     Net sales were $47.4 million and $34.1 million in the three months ended
September 30, 2000 and 1999, respectively, representing an increase of 38.9%.
Net sales for the three months ended September 30, 2000, calculated using
foreign currency exchange rates for the same period in 1999, increased 40.8%.

Net sales in the following end user markets were:

<TABLE>
<CAPTION>
                                           Three Months Ended
                                             September 30,
                                        2000                1999
                                       -------            -------
                                            (in thousands)
<S>                                   <C>                <C>
Telecommunications ................   $ 1,220            $   358
Computer and microelectronics
  manufacturing ...................     9,234              4,982
Industrial manufacturing ..........     5,955              5,068
Medical ...........................     7,810              5,106
Image recording ...................     2,986              1,340
Research and development ..........    18,637             16,422
Other .............................     1,602                873
                                      -------            -------
                                      $47,444            $34,149
                                      =======            =======
</TABLE>

     Sales of semiconductor-based laser products increased 44.1% in the three
months ended September 30, 2000, and represented 63.7% of total net sales
compared to 61.4% of total net sales in the three months ended September 30,
1999. Sales of telecommunications products increased to 2.5% of net sales in the
three months ended September 30, 2000 compared to 1.0% in the three months ended
September 30, 1999. Sales of conventional products increased 24.7% in the three
months ended September 30, 2000 and represented 33.8% of total net sales
compared to 37.6% in the three months ended September 30, 1999.

Net Sales in the following geographic markets were:

<TABLE>
<CAPTION>
                                    Three Months Ended
                                      September 30,
                                 2000                1999
                                -------            -------
                                     (in thousands)
<S>                            <C>                <C>
North America .........        $24,868            $16,065
Japan .................          9,206              8,855
Europe ................          9,695              7,300
Other Asia ............          1,325                928
Rest of the World .....          2,350              1,001
                               -------            -------
                               $47,444            $34,149
                               =======            =======
</TABLE>

     Net sales for the three months ended September 30, 2000 at actual currency
exchange rates increased 54.8% for North America, 4.0% for Japan, 32.8% for
Europe, 42.8% for Other Asia, 134.8% for Rest of world. Net sales for the three
months ended September 30, 2000, calculated using foreign currency exchange
rates for the same period in 1999, were the same for Japan and increased 47.7%
for Europe.

     Net sales were $127.1 million and $100.1 million in the nine months ended
September 30, 2000 and 1999, respectively, representing an increase of 26.9%.
Net sales for the nine months ended September 30, 2000, calculated using foreign
currency exchange rates for the same period in 1999, increased 27.8%.

Net sales in the following end user markets were:

<TABLE>
<CAPTION>
                                           Nine Months Ended
                                             September 30,
                                         2000             1999
                                       --------         --------
                                            (in thousands)
<S>                                   <C>               <C>
Telecommunications ................    $  2,292         $    520
Computer and microelectronics
  manufacturing ...................      25,293           13,184
Industrial manufacturing ..........      15,095           13,060
Medical ...........................      20,115           17,048
Image recording ...................       8,119            4,161
Research and development ..........      51,957           48,772
Other .............................       4,190            3,386
                                       --------         --------
                                       $127,061         $100,131
                                       ========         ========
</TABLE>

     Sales of semiconductor-based laser products increased 38.1% in the nine
months ended September 30, 2000, and represented 64.3% of total net sales
compared to 59.1% of total net sales in the nine months ended September 30,
1999. Sales of telecommunications products increased to 1.8% of net sales in
the nine months ended September 30, 2000 compared to 0.5% in the nine months
ended September 30, 1999. Sales of conventional products increased 6.2% in the
nine months ended September 30, 2000 and represented 34.0% of total net sales
compared to 40.4% in the nine months ended September 30, 1999.

     Net sales in the following geographic markets were:

<TABLE>
<CAPTION>
                                    Nine Months Ended
                                      September 30,
                               ----------------------------
                                 2000                1999
                               --------            --------
                                      (in thousands)
<S>                            <C>                 <C>
North America ........         $ 63,507            $ 46,253
Japan ................           29,771              24,326
Europe ...............           23,163              23,119
Other Asia ...........            5,158               3,488
Rest of the World ....            5,462               2,945
                               --------            --------
                               $127,061            $100,131
                               ========            ========
</TABLE>


                                       13
<PAGE>   13

     Net sales for the nine months ended September 30, 2000 at actual currency
exchange rates increased 37.3% for North America, 22.4% for Japan, 0.2% for
Europe, 47.9% for Other Asia, and 85.5% for Rest of the World. Net sales for the
nine months ended September 30, 2000, calculated using foreign currency exchange
rates for the same period in 1999, increased 13.6% for Japan and 12.9% for
Europe.

     Net sales are attributed in the above geographic tables based on the
location of our 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 our European and Japanese sales subsidiaries,
respectively. Export sales to countries not located in Asia are included in Rest
of the World.

Cost of products sold and gross margin

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

     Gross margin was $15.8 million and $8.1 million for the three months ended
September 30, 2000 and 1999, respectively, representing an increase of 95.5%. As
a percentage of net sales, gross margin was 33.4% and 23.8% in the three months
ended September 30, 2000 and 1999, respectively. Included in cost of sales for
the three months ended September 30, 1999, was $3.7 million of inventory
writeoffs. These inventory writeoffs related to hard drive disk texturing
systems and technology changes for high power semiconductor-based lasers.
Without these inventory writeoffs, gross margin for the three months ended
September 30, 1999 was 34.6% of sales. The principal reason for the decline in
gross margin as a percentage of net sales in the three months ended September
30, 2000 compared to the three months ended September 30, 1999 was the impact of
excess capacity as we ramp up our production of telecommunication products.

     Gross margin was $47.1 million and $31.2 million for the nine months ended
September 30, 2000 and 1999, respectively, representing an increase of 50.9%. As
a percentage of net sales, gross margin was 37.0% and 31.1% in the nine months
ended September 30, 2000 and 1999, respectively. Without the $3.7 million
inventory writeoffs referred to above, gross margin for the nine months ended
September 30, 1999 was 34.8% of sales. The principal reason for the increase in
gross margin as a percentage of net sales in the nine months ended September 30,
2000 compared to the nine months ended September 30, 1999 was the increased
sales which absorbed overhead at a higher rate in 2000 than 1999. Additionally,
we experienced improved manufacturing yields in the production of semiconductor
lasers in the nine months ended September 30, 2000 compared to the nine months
ended September 30, 1999. We anticipate that our gross margins for
telecommunication products will reflect the impact of excess capacity as we ramp
up our production of telecommunications products.

Operating expenses

     Operating expenses totaled $16.8 million and $14.3 million in the three
months ended September 30, 2000 and 1999, respectively, representing an increase
of 17.1%. As a percentage of net sales, operating expenses were 35.4% and 42.0%
in the three months ended September 30, 2000 and 1999, respectively. Included in
operating expenses for the three months ended September 30, 2000 and 1999 were
purchased in process research and development expenses of $1.5 million in 2000
and restructuring costs of $2.0 million in 1999. Excluding such items, operating
expenses increased 23.9% and were 32.3% and 36.2% of net sales in the three
months ended September 30, 2000 and 1999, respectively.

     Operating expenses totaled $45.9 million and $40.6 million in the nine
months ended September 30, 2000 and 1999, respectively, representing an increase
of 13.1%. As a percentage of net sales, operating expenses were 36.1% and 40.5%
in the nine months ended September 30, 2000 and 1999, respectively. Included in
operating expenses for the nine months ended September 30, 2000 and 1999 were an
in-process research and development charge of $1.5 million and a reversal of
unused restructuring reserves of $0.1 million in 2000 and restructuring costs of
$2.5 million in 1999. Excluding such items, operating expenses increased 17.0%
and were 35.0% and 38.0% of net sales for the nine months ended September 30,
2000 and 1999, respectively.

     Research and development expenses represent expenses associated with
Spectra-Physics 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 $5.7 million and $4.0 million for
the three months ended September 30, 2000 and 1999, respectively, representing
an increase of 43.9%. As a percentage of net sales, research and development
expenses were 12.0% and 11.6% in the three months ended September 30, 2000 and
1999, respectively. Research and development expenses totaled $17.3 million and
$12.4 million for the nine months ended September 30, 2000 and 1999,
respectively, representing an increase of 40.0%. As a percentage of net sales,
research and development expenses were 13.6% and 12.3% in the nine months ended
September 30, 2000 and 1999, respectively. The principal reason for the increase
in research and development expenses in 2000 as compared to 1999 was increased
spending for high power semiconductor-based lasers and passive and active
components for the telecommunications market. We expect that our spending for
research and development will continue at a significant level for the
foreseeable future.


                                       14
<PAGE>   14

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

     Selling, general and administrative expenses totaled $9.6 million and
$8.4 million for the three months ended September 30, 2000 and 1999,
respectively, representing an increase of 14.5%. As a percentage of net sales,
selling, general and administrative expenses were 20.2% and 24.5% in the three
months ended September 30, 2000 and 1999, respectively. Selling, general and
administrative expenses totaled $27.2 million and $25.7 million for the nine
months ended September 30, 2000 and 1999, respectively, representing an increase
of 6.0%. As a percentage of net sales, selling, general and administrative
expenses were 21.4% and 25.7% in the nine months ended September 30, 2000 and
1999, respectively.

Purchased In-Process Research and Development

     In September 2000, we acquired Laser Analytical Systems GmbH, a German
based developer and manufacturer of solid state ultraviolet lasers for the
telecommunications, computer and microelectronics manufacturing and research
markets. This acquisition has been accounted for as a purchase; and accordingly,
the accompanying financial statements include Laser Analytical Systems GmbH's
results of operations since the date of acquisition. Pro forma results of
operations have not been presented because the effects of this acquisition are
not material. The amount allocated to purchased in-process research and
development was determined through established valuation techniques in the
industry and was expensed upon acquisition because technological feasibility had
not been established and no future alternative uses existed. Amounts allocated
to goodwill and other intangibles will be amortized over five years.

     The total purchase price was allocated among the acquired assets as
follows:

<TABLE>
<S>                                                           <C>
Dollars in thousands
Net working capital deficit, including acquisition costs of
  $200......................................................  $  (119)
Property, plant and equipment...............................      325
Purchased in process research and development...............    1,500
Intangible assets:
  Goodwill..................................................    1,031
  Existing technology.......................................    1,000
  Workforce.................................................      130
                                                              -------
     Total purchase price...................................  $ 3,867
                                                              =======
</TABLE>

     Allocation of purchase price:

<TABLE>
<S>                                                           <C>
Cash paid...................................................  $  900
Debt assumed................................................   2,967
                                                              ------
                                                              $3,867
                                                              ======
</TABLE>

     The purchase price allocation and intangible assets valuation was based on
management's estimates of the after-tax net cash flows and gave explicit
consideration to the Securities and Exchange Commission's views on purchased
in-process research and development as set forth in its September 9, 1998 letter
to the American Institute of Certified Public Accountants. Specifically, the
valuation gave consideration to the following: (i) the employment of a fair
market value premise excluding any considerations specific to us which could
result in estimates of investment value for the subject assets; (ii)
comprehensive due diligence concerning all potential intangible assets including
trademarks/tradenames, patents, copyrights, non-compete agreements, assembled
workforce, customer relationships and sales channel; (iii) the value of existing
technology was specifically addressed, with a view toward ensuring the relative
allocations to existing technology and in-process research and development were
consistent with the relative contributions of each to the final product; and
(iv) the allocation to in-process research and development was based on a
calculation that considered only the efforts completed as of the transaction
date, and only the cash flow associated with said completed efforts for one
generation of the products currently in process. As indicated above, we recorded
a one-time charge of $1.5 million for purchased in-process research and
development related to several development projects. The cost to complete these
projects is estimated to be $1.0 million to $2.0 million. The charge related to
the portion of these products, excluding existing technology, that had not
reached technological feasibility, had no alternative future use and for which
successful development was uncertain. Management's conclusion that the
in-process development effort had no alternative future use was reached in
consultation with the engineering personnel from both us and Laser Analytical
Systems GmbH. We will begin to benefit from the acquired research and
development of these products once they begin shipping. Failure to reach
successful completion of these projects could result in impairment of the
associated capitalized intangible assets and could require us to accelerate the
time period over which the intangibles are being amortized. Significant
assumptions used to determine the value of in-process research and development
included several factors, including the following: (i) forecast of net cash
flows that were expected to result from the development effort using projections
prepared by management; (ii) percentage complete for the projects estimated by
considering a number of factors, including the costs invested to date relative
to total cost of the development effort and the amount of progress completed as
of the acquisition date, on a technological basis, relative to the overall
technological achievements required to achieve the functionality of the eventual
product. The technological issues were addressed by engineering representatives
from both companies, and when estimating the value of the technology, the
projected financial results of the acquired assets were estimated on a
stand-alone basis without any consideration to potential synergistic benefits or
"investment value" related to the acquisition. Accordingly, separate projected
cash flows were prepared for both the existing as well as the in-process
projects. These projected results were based on the number of units sold times
average selling price less the associated costs. After preparing the estimated
cash flows from the products being developed, a portion of these cash flows were
attributed to the existing technology, which was embodied in the in-process
product lines and enabled a quicker and more cost-effective development of these
products. When estimating the value of the existing and in-process technologies,
discount rates of 22% were used. The discount rates considered both the status
and risks associated with the respective cash flows at the acquisition date.

Interest income

     Interest income totaled $0.1 million and $0.2 million in the three months
ended September 30, 2000 and 1999, respectively. Interest income totaled $0.6
million in each of the nine months ended September 30, 2000 and 1999,
respectively. Interest income was earned on our invested cash and cash
equivalents and we incurred interest expense under our credit facilities. The
decline in interest income for the three months ended September 30, 2000
resulted from lower average cash and cash equivalent balances and increased
borrowings under our credit facilities during the period.

Foreign currency gain (loss)

     At September 30, 2000, we had contracts for the sale of foreign currencies
and the purchase of U.S. dollars totaling $51.0 million. At September 30, 2000,
we had deferred gains relating to our foreign currency contracts of
approximately $1.5 million (net of income taxes), substantially all of which is
expected to be recognized in income over the next twelve months.

     The following table provides information about our foreign currency
derivative financial instruments outstanding as of September 30, 2000. The
information is provided in U.S. dollar amounts, as presented in our 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.

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

<TABLE>
<CAPTION>
                                                                  AVERAGE
                                 NOTIONAL                         CONTRACT
                                  AMOUNT                            RATE
                                 --------                         --------
<S>                              <C>                              <C>
Japanese Yen .............       $32,343                          101.135
British Pound Sterling....         3,353                            0.662
German Marks .............         3,336                            1.998
Euro......................        10,216                            1.074
Other.....................         1,712                               --
                                 -------
                                 $50,960
                                 =======
Estimated fair value .....       $ 1,531
                                 =======
</TABLE>

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

     During each of the three months ended September 30, 2000 and 1999, we
recorded a foreign currency loss of $0.1 million. During the nine months ended
September 30, 2000 and 1999 we recorded foreign currency gains of $0.3 million
and $0.1 million, respectively. These losses and gains related to foreign
exchange rate movements on unhedged accounts receivable.

Income tax expense

     Prior to February 2000, we filed consolidated tax returns with certain
members of Thermo Electron Corporation's consolidated tax group. Income tax
expense was provided in the financial statements as if we were a separate
taxable entity. Effective February 2000, we will no longer be a member of such
consolidated tax group for federal income tax purposes. As a result of our no
longer filing consolidated tax returns with the Thermo Electron Corporation
consolidated group, in the third quarter of 2000 we received approximately $5.5
million from Thermo Electron Corporation in settlement of the use by Thermo
Electron Corporation in its consolidated tax return of certain of our net
operating loss carryforwards. These net operating loss carryforwards are no
longer available to us to reduce future taxable income. The amount received from
Thermo Electron Corporation reduced deferred tax assets by $4.6 million.

     We recorded income tax benefits of $0.1 million and $2.3 million in the
three months ended September 30, 2000 and 1999 and $3.3 million in the nine
months ended September 30, 1999, respectively. We recorded tax expense of $0.9
million in the nine months ended September 30, 2000.

     For the nine months ended September 30, 2000, our effective tax rate of
46.8% represented our statutory rate adjusted for certain tax reserves no longer
needed and for non-deductible in-process research and development expenses
associated with the acquisition of LAS.


                                       15
<PAGE>   15

LIQUIDITY AND CAPITAL RESOURCES

     At September 30, 2000, we had working capital of $55.9 million, including
cash and cash equivalents of $21.4 million, compared to working capital at
December 31, 1999 of $57.9 million, including cash and cash equivalents of
$23.3 million.

     Cash provided by operating activities was $3.0 million in the nine months
ended September 30, 2000 compared cash used in operating activities of $3.1
million in the nine months ended September 30, 1999. Cash provided by operating
activities for the nine months ended September 30, 2000 represented net income
for the period of $1.0 million, adjusted for the non-cash impact of depreciation
and amortization of $5.8 million, purchased in-process research and development
of $1.5 million and realization of deferred tax assets of $4.6 million, offset
by the use of cash for operating assets and liabilities of $10.0 million. Cash
used in operating activities for the nine months ended September 30, 1999
represented the net loss for the period of $5.4 million adjusted for the
non-cash impact of depreciation and amortization of $4.9 million, inventory
write-offs of $3.7 million, and the non-cash portion of the restructuring charge
of $0.7 million, increased by the use of cash for operating assets and
liabilities of $6.9 million.

     Cash used in investing activities, principally the purchase of property,
plant and equipment, was $15.1 million and $8.9 million in the nine months ended
September 30, 2000 and 1999, respectively.

     Cash provided by financing activities was $11.5 million in the nine months
ended September 30, 2000. Cash was provided by credit facilities of $6.9 million
and by exercises of stock options of $4.6 million. Cash used in financing
activities of $0.8 million in the nine months ended September 30, 1999 was the
net payment on credit facilities. The effect of foreign currency exchange rate
changes on cash was $1.3 million and $0.4 million in the nine months ended
September 30, 2000 and 1999, respectively.

     These activities resulted in a decrease in cash and cash equivalents of
$1.8 million and $13.2 million in the nine months ended September 30, 2000 and
1999, respectively.

     We have unsecured short-term credit facilities with several banks in Japan.
The facilities allow aggregate borrowings of 2.1 billion Yen, or $19.4 million
based on the exchange rate at September 30, 2000, and bear interest at 1.625%
per annum. At September 30, 2000 there were approximately $14.5 million of
borrowings outstanding under these facilities. Our foreign subsidiaries other
than Japan have credit facilities denominated in local currencies aggregating
$4.5 million, $0.8 million of which was outstanding as of September 30, 2000.
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 our customers. We have available in the U.S. a $15.0 million
unsecured credit facility with a bank through December 2000, at which time the
amount outstanding under the facility converts to a two year term loan. At
September 30, 2000, we had $8.0 million outstanding under this facility. We also
have available in the U.S. a $10.0 million unsecured credit facility with a
bank through November 2000. At September 30, 2000 there were no borrowings under
this facility.

     We have reviewed our short- and long-term liquidity needs. We anticipate
that our liquidity needs for at least the next twelve months will be met by cash
flows from operations and existing cash balances.

European Monetary Union (EMU)

     The euro is the new currency introduced by certain European countries
collectively known as the European Monetary Union, or EMU. The euro was
introduced on January 1, 1999 and the eleven participating EMU members
established fixed conversion rates between their existing currencies, or 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.

     The introduction of the euro could have an adverse impact on our
information systems, our markets and the economies in which we operate.

     With regard to information systems, the euro had no material impact on our
information systems through September 30, 2000. We believe the euro will have no
material impact on our systems in 2000. Furthermore, our review indicates that
our information systems can operate when the legacy currencies are withdrawn in
2002. As that date gets closer, we expect to conduct another survey concerning
the euro's impact on our information systems.

     With regard to our markets, we have reviewed our customer list and current
selling practices and expect no material adverse impact from the introduction of
the euro.

     We are currently unable to determine the ultimate long term financial
impact of the exclusive use of the euro on our markets and on the economies of
the countries in which we operate. This impact will be dependent upon the
evolving competitive situations and macro-economic impact of the introduction of
the euro.


                                       16
<PAGE>   16


EUROPEAN MONETARY UNION (EMU)

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, 1999. See Spectra-Physics Lasers, Inc.'s Annual Report on
Form 10-K dated December 31, 1999.

                                       17
<PAGE>   17
                          PART II -- OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

LEGAL PROCEEDINGS

Our facilities and operations are subject to various 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 we believe that our operations are in compliance in all material
respects with current requirements under environmental laws and employee safety
laws, the nature of our operations exposes us to the risk of liabilities or
claims with respect to such matters.

Some environmental laws hold owners or operators of land or businesses liable
for their own and for previous owners' or operators' releases of certain
hazardous substances. These laws also provide for responses to and liability for
releases of certain hazardous substances into the environment. The nature of our
operations and the long history of industrial uses at some of our current or
former facilities expose us to risk of liabilities or claims under these laws.
In 1988, we were named on the General Notification List of the Environmental
Protection Agency stating that we may be a potentially responsible party under
the laws for hazardous substances which may have been generated by our former
operations at a former site.

Since that time, we have not been named in the Environmental Protection Agency's
first or second tier lists, and have not been pursued as a potentially
responsible party by the Environmental Protection Agency or any of the other
potentially responsible parties. In 1991, we were named by the California
Regional Water Quality Control Board as a discharger of solvents to soil and
groundwater from our Mountain View facility.

Since 1984, our facilities in Mountain View 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 Superfund List
under federal environmental laws. We are subject to orders that require us to
perform remediation on-site and off-site and investigate other potentially
responsible parties. Pursuant to these orders and other orders issued to other
responsible parties, we and other responsible parties are jointly performing and
funding 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 these
systems have been incurred.

Based on our experience to date, we believe 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 our 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 our 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 us that
may be material.

On June 19, 2000, Rockwell Technologies LLC filed a complaint against both
Spectra Physics and our Opto Power subsidiary in the United States District
Court for the District of Delaware. The complaint alleges that both we and Opto
Power have infringed U.S. Patent No. 4,368,098 entitled "Epitaxial Composite and
Method of Making." Rockwell avers that Opto Power has infringed the patent by
performing the patented process and by using wafers manufactured by the patented
process and that we have infringed the patent by using and/or selling products
made by the patented process. Rockwell seeks damages, including increased
damages due to defendants' alleged willful infringement, plus costs and attorney
fees. Rockwell has not sought injunctive relief as the patent has already
expired. We believe that Rockwell's allegations are without merit and we intend
to vigorously defend this action.

The resolution of this dispute is uncertain, in part because the issues
underlying the case depend upon discovery of many facts, some of which concern
inventions and related circumstances dating back many years, and in part
because the action has been recently filed and our analysis of the case is
ongoing. We cannot assure that Rockwell will not ultimately prevail in this
dispute. If Rockwell were to prevail, it is possible that Rockwell could
recover substantial monetary damages, based on past sales of our products for a
number of years. Our efforts to defend Rockwell's claim against us may involve
significant expense to us and could divert the attention of our technical and
management personnel. An adverse outcome in this case could materially harm our
business or results of operations.

On February 17, 2000, IHD, Inc. filed a complaint against us in the Court of
Common Pleas, Hamilton County, Ohio asserting a breach of warranty claim
relating to defective surgical laser systems. This action has been removed to
the United States District Court for the Southern District of Ohio. We believe
that IHD, Inc.'s claims are without merit. We intend to vigorously defend this
action and believe that the ultimate resolution of these claims will not have a
material adverse effect on our financial position or results of operations.

We are subject to various claims which arise in the normal course of business.
We believe the ultimate resolution of these claims will not have a material
adverse effect on our financial position or results of operations.

ITEM 2. CHANGES IN SECURITIES

     Not applicable.

                                       18
<PAGE>   18

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

     Not applicable.

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

     None.


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    2000 Spectra-Physics Lasers, Inc. Stock Incentive Plan, as amended

  10.2    Amendment No. 1 to the 1997 Spectra-Physics Lasers, Inc. Stock Option
          Plan

  27.1    Financial Data Schedule
</TABLE>


     (b)  REPORTS ON FORM 8-K:

          None.


                                       19
<PAGE>   19

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.


                                        Spectra-Physics Lasers, Inc.

Date: October 31, 2000                           /s/ PATRICK L. EDSELL
                                        ----------------------------------------
                                                   Patrick L. Edsell
                                                Chairman, President and
                                                Chief Executive Officer


Date: October 31, 2000                              /s/ SETH HALIO
                                        ----------------------------------------
                                                      Seth Halio
                                         Vice President, Finance, and Treasurer
                                             (Principal Financial Officer)

                                       20
<PAGE>   20

                                  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    2000 Spectra-Physics Lasers, Inc. Stock Incentive Plan, as amended

  10.2    Amendment No. 1 to the 1997 Spectra-Physics Lasers, Inc. Stock Option
          Plan

  27.1    Financial Data Schedule
</TABLE>

                                       21