<PAGE>
================================================================================


                                  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, 2001

                                       OR

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

                             COMMISSION FILE NUMBER:
                                    000-23461

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

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

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

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

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

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

                   (FORMER NAME, 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, 2001 was 16,965,357 shares.

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


<PAGE>

                              SPECTRA-PHYSICS, INC.

               FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2001

                                      INDEX


<TABLE>
<CAPTION>
                                                                                                      PAGE
                                                                                                      ----
<S>                                                                                                   <C>
Part I      Financial information
Item 1.     Financial statements and supplementary data:
            (a) Consolidated Balance Sheets at September 30, 2001 and December 31, 2000..............    3
            (b) Consolidated  Statements of Operations for the three and nine months ended
                September 30, 2001 and 2000..........................................................    4
            (c) Consolidated  Statements of Cash Flows for the nine months ended
                September 30, 2001 and 2000..........................................................    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>

                         PART I -- FINANCIAL INFORMATION


ITEM 1. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                              SPECTRA-PHYSICS, INC.

                           CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                                                SEPTEMBER 30,    DECEMBER 31,
                                                                                                    2001             2000
                                                                                                -------------    ------------
                                                                                                 (UNAUDITED)      (SEE NOTE)
<S>                                                                                             <C>              <C>
                                     ASSETS

Current assets:
  Cash and cash equivalents ...................................................................   $   7,336       $  22,639
  Accounts receivable, less allowance for doubtful accounts of $2,091 and $842, respectively ..      41,889          42,725
  Inventories .................................................................................      46,104          47,498
  Deferred tax assets .........................................................................       9,639           5,046
  Prepaid expenses and other current assets ...................................................       8,151           6,925
                                                                                                  ---------       ---------
          Total current assets ................................................................     113,119         124,833
                                                                                                  ---------       ---------
Property, plant and equipment, net ............................................................      68,123          57,746
Goodwill and other intangible assets, net of accumulated  amortization of $3,644 and
  $2,989, respectively ........................................................................       3,631           4,140
Other assets ..................................................................................       6,990           4,112
                                                                                                  ---------       ---------
          Total assets ........................................................................   $ 191,863       $ 190,831
                                                                                                  =========       =========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable ............................................................................   $  13,533       $  17,561
  Borrowings under credit facilities with banks ...............................................      27,686          22,311
  Borrowings under a credit facility with an affiliated company ...............................      12,000              --
  Accrued and other current liabilities,  including $398 and $1,294, respectively
    due to affiliated companies ...............................................................      22,843          29,929
                                                                                                  ---------       ---------
          Total current liabilities ...........................................................      76,062          69,801
Long-term debt ................................................................................          --           7,500
Other long-term liabilities ...................................................................         595             714
Commitments and contingencies
Stockholders' equity:
  Common stock ................................................................................         170             167
  Additional paid-in capital ..................................................................     113,161         102,976
  Retained earnings ...........................................................................       4,663          10,875
  Accumulated other comprehensive income (loss) ...............................................      (2,788)         (1,202)
                                                                                                  ---------       ---------
          Total stockholders' equity ..........................................................     115,206         112,816
                                                                                                  ---------       ---------
          Total liabilities and stockholders' equity ..........................................   $ 191,863       $ 190,831
                                                                                                  =========       =========
</TABLE>

        Note: The consolidated balance sheet at December 31, 2000 has been
derived from the Company's 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>

                              SPECTRA-PHYSICS, INC.

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


<TABLE>
<CAPTION>
                                                                       THREE MONTHS ENDED            NINE MONTHS ENDED
                                                                          SEPTEMBER 30,                SEPTEMBER 30,
                                                                     ----------------------      ------------------------
                                                                       2001          2000          2001           2000
                                                                     --------      --------      ---------      ---------
<S>                                                                  <C>           <C>           <C>            <C>
Net sales .........................................................  $ 49,247      $ 45,844      $ 158,315      $ 129,061
Cost of products sold .............................................    35,863        31,200        108,172         81,310
Cost of products sold--excess inventory charges ...................        --            --          5,400             --
                                                                     --------      --------      ---------      ---------
    Gross margin ..................................................    13,384        14,644         44,743         47,751
                                                                     --------      --------      ---------      ---------
Operating expenses:
  Research and development ........................................     5,450         5,708         17,140         17,288
  Selling, general and administrative .............................    10,527         9,594         33,719         27,237
  Selling, general and  administrative--provision  for
    doubtful accounts receivables..................................       700            --          1,000             --
  Other ...........................................................       585         1,500          2,247          1,385
                                                                     --------      --------      ---------      ---------
           Total operating expenses ...............................    17,262        16,802         54,106         45,910
                                                                     --------      --------      ---------      ---------
           Operating income (loss) ................................    (3,878)       (2,158)        (9,363)         1,841
                                                                     --------      --------      ---------      ---------
Other income (expense):
  Interest income (expense) .......................................      (356)           69           (851)           551
  Foreign currency gain (loss) ....................................        27           (84)          (139)           260
                                                                     --------      --------      ---------      ---------
           Total other income (expense) ...........................      (329)          (15)          (990)           811
                                                                     --------      --------      ---------      ---------
           Income (loss) before income taxes and cumulative
             effect of change in accounting method ................    (4,207)       (2,173)       (10,353)         2,652
Provision for (benefit from) income taxes .........................    (1,682)         (543)        (4,141)         1,241
                                                                     --------      --------      ---------      ---------
           Income (loss) before cumulative effect of change in
             accounting method ....................................    (2,525)       (1,630)        (6,212)         1,411
Cumulative effect of change in accounting  method (net of
  income taxes of $1,778) .........................................        --            --             --         (2,022)
                                                                     --------      --------      ---------      ---------
    Net loss ......................................................  $ (2,525)     $ (1,630)     $  (6,212)     $    (611)
                                                                     ========      ========      =========      =========
Per share:
  Income (loss) before cumulative effect of change in accounting
     method:
     Basic ........................................................  $  (0.15)     $  (0.10)     $   (0.37)     $    0.09
     Diluted ......................................................  $  (0.15)     $  (0.10)     $   (0.37)     $    0.08
  Cumulative effect of change in accounting method:
     Basic ........................................................  $     --      $     --      $      --      $   (0.12)
     Diluted ......................................................  $     --      $     --      $      --      $   (0.12)
  Net loss per share:
     Basic ........................................................  $  (0.15)     $  (0.10)     $   (0.37)     $   (0.04)
     Diluted ......................................................  $  (0.15)     $  (0.10)     $   (0.37)     $   (0.04)
Shares used in computing net loss per share:
     Basic ........................................................    16,855        16,619         16,751         16,554
     Diluted ......................................................    16,855        16,619         16,751         17,448
</TABLE>


                 See Notes to Consolidated Financial Statements.




                                       4
<PAGE>

                              SPECTRA-PHYSICS, INC.

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


<TABLE>
<CAPTION>
                                                                        NINE MONTHS ENDED
                                                                           SEPTEMBER 30,
                                                                     -----------------------
                                                                       2001           2000
                                                                     --------       --------
<S>                                                                  <C>            <C>
OPERATING ACTIVITIES
Net income (loss) ................................................   $ (6,212)      $   (611)
Adjustments to reconcile net income (loss) to cash  provided by
(used  in) operating activities:
  Depreciation and amortization ..................................      8,747          5,785
  Purchased in process research and development ..................         --          1,500
  Deferred Taxes .................................................     (4,593)         4,611
  Excess inventory charges .......................................      5,400             --
  Income tax benefit from exercise of stock options ..............      5,917             --
  Provision for doubtful accounts receivables ....................      1,249            257
Changes in operating assets and liabilities:
     Accounts receivable .........................................       (413)        (9,199)
     Inventories .................................................     (4,006)        (7,045)
     Prepaid expenses and other current assets ...................     (1,226)           336
     Accounts payable ............................................     (4,028)         1,830
     Accrued and other current liabilities .......................     (7,994)         5,518
                                                                     --------       --------
      Total cash used in operating activities ....................     (7,159)         2,982
                                                                     --------       --------
INVESTING ACTIVITIES
Payments for intangible assets ...................................       (150)          (600)
Purchases of property, plant and equipment .......................    (19,578)       (12,114)
Acquisition of LAS ...............................................         --           (900)
Investment .......................................................       (935)            --
Other ............................................................     (1,049)        (1,459)
                                                                     --------       --------
      Total cash used in investing activities ....................    (21,712)       (15,073)
                                                                     --------       --------
FINANCING ACTIVITIES
Net borrowings under credit facilities ...........................      9,875          6,944
Net proceeds from issuance of common stock .......................      4,271          4,597
                                                                     --------       --------
      Total cash provided by financing activities ................     14,146         11,541
                                                                     --------       --------
Effect of changes in foreign currency exchange rates .............       (578)        (1,296)
                                                                     --------       --------
          Decrease in cash and cash equivalents ..................    (15,303)        (1,846)
Cash and cash equivalents at beginning of year ...................     22,639         23,278
                                                                     --------       --------
Cash and cash equivalents at end of period .......................   $  7,336       $ 21,432
                                                                     ========       ========
</TABLE>


                 See Notes to Consolidated Financial Statements.




                                       5
<PAGE>

                              SPECTRA-PHYSICS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

   The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation
have been included. Operating results for the nine months ended September 30,
2001 are not necessarily indicative of the results that may be expected for the
year ended December 31, 2001. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ending December 31, 2000.

   The Company's fiscal year ends on December 31. The Company's 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.

   The Company reviews its long-lived assets for impairment whenever events or
changes in business circumstances indicate that the carrying amount of such
assets may not be fully recoverable. This review requires significant judgment
and estimates by management related to future demand for the Company's products.
An impairment loss would be recognized when estimated undiscounted cash flows
expected to result from the use of the assets and their eventual disposition is
less than the assets' carrying amount. Impairment, if any, is assessed, using
discounted cash flows. To the extent actual future market conditions differ
significantly from current estimates, the estimated carrying value of the
Company's long-lived assets could change which may result in a future impairment
charge and such charge, if any, may be material.

2. INVENTORIES

   Inventories consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                                                        SEPTEMBER 30, DECEMBER 31,
                                                                                            2001         2000
                                                                                        ------------- ------------
     <S>                                                                                <C>           <C>
     Raw material ......................................................................   $21,802      $19,519
     Work in process ...................................................................     8,039        9,533
     Finished goods (including $3,500 and $5,600 at customer locations, respectively) ..    16,263       18,446
                                                                                           -------      -------
                                                                                           $46,104      $47,498
                                                                                           =======      =======
</TABLE>

3. 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 (loss) per share is computed giving effect to all diluted
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.

   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,
                                                           ----------------------      ----------------------
                                                             2001          2000          2001          2000
                                                           --------      --------      --------      --------
<S>                                                        <C>           <C>           <C>           <C>
Numerator:
  Net income (loss) .....................................  $ (2,525)     $ (1,630)     $ (6,212)     $   (611)
                                                           ========      ========      ========      ========
Denominator:
  Denominator for basic net income (loss) per share:
     Weighted average shares ............................    16,855        16,619        16,751        16,554
  Effect of dilutive securities:
     Employee stock options .............................        --            --            --           894
                                                           --------      --------      --------      --------
  Denominator for diluted net income (loss) per share ...    16,855        16,619        16,751        17,448
                                                           ========      ========      ========      ========
Net income (loss) per share -- Basic ....................  $  (0.15)     $  (0.10)     $  (0.37)     $  (0.04)
Net income (loss) per share -- Diluted ..................  $  (0.15)     $  (0.10)     $  (0.37)     $  (0.04)
</TABLE>




                                       6
<PAGE>

4. COMPREHENSIVE INCOME (LOSS)

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

<TABLE>
<CAPTION>
                                                        THREE MONTHS ENDED        NINE MONTHS ENDED
                                                           SEPTEMBER 30,             SEPTEMBER 30,
                                                       --------------------      --------------------
                                                         2001         2000         2001         2000
                                                       -------      -------      -------      -------
<S>                                                    <C>          <C>          <C>          <C>
Net loss ............................................  $(2,525)     $(1,630)     $(6,212)     $  (611)
Foreign currency translation adjustments ............      426         (741)        (578)      (1,296)
Unrealized gain (loss) on forward foreign currency
  contracts, net of income taxes ....................   (2,109)         880         (908)       2,442
Other ...............................................     (100)          --         (100)          --
                                                       -------      -------      -------      -------
          Total comprehensive income (loss) .........  $(4,308)     $(1,491)     $(7,798)     $   535
                                                       =======      =======      =======      =======
</TABLE>

   Accumulated other comprehensive income (loss) presented in the accompanying
consolidated balance sheets consist of the cumulative foreign currency
translation adjustments, net unrealized gains (losses) on certain forward
foreign currency contracts, and unamortized pension assets.

5. LEGAL AND ENVIRONMENTAL MATTERS

   See Part II., Item 1.

6. SEGMENT REPORTING

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

   In 2000, the Company realigned its business units to support growth in
telecommunications and other strategic markets. The Company's current structure
includes four operating groups, the Laser Group, the Passive Telecommunications
Group, the Active Telecommunications Group, and Spectra-Physics Distribution.

   The Laser Group (LG) primarily produces high power solid state and
conventional lasers for sale in all of the Company's principal markets. The
Passive Telecommunications Group (PTG) primarily produces passive components for
sale to telecommunication customers and for use by the Laser Group in the
Company's laser products. The Active Telecom Group (ATG) primarily produces
semiconductor lasers for sale to telecommunication, medical, industrial
manufacturing and image recording customers and for use by the Laser Group in
the Company's solid state laser products. The Spectra-Physics Distribution (SPD)
business unit is primarily responsible for selling and servicing products
directly in the United States, Japan, and Europe, and through approximately 30
independent distributors throughout the remainder of the world. Certain 2000
segment information has been reclassified to conform to the 2001 presentation.

MEASUREMENT OF SEGMENT PROFIT OR LOSS AND SEGMENT ASSETS

   The Company evaluates performance and allocates resources based on Earnings
Before Interest and Taxes (EBIT), before restructuring and other charges. 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 the Company's Annual Report on Form 10-K for the year
ended December 31, 2000.

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




                                       7
<PAGE>

FACTORS MANAGEMENT USED TO IDENTIFY THE COMPANY'S REPORTABLE SEGMENTS

   The Company's reportable segments are identified by Group. The reportable
segments are each managed separately because they manufacture and distribute
distinct products with different production methods.

   Information about segments (in thousands):

<TABLE>
<CAPTION>
                                                                                                   ALL
                                               LG          PTG           ATG          SPD         OTHERS        TOTAL
                                           --------     --------      --------     ---------      -------     ---------
<S>                                        <C>          <C>           <C>          <C>            <C>         <C>
Three months ended September 30, 2001
  Net sales to external customers ......   $    360     $     --      $     --     $  47,613      $ 1,274     $  49,247
  Intersegment net sales ...............     33,599        4,346         9,579            --           --        47,524
  Segment EBIT .........................      3,979       (2,421)       (1,322)       (3,103)       1,274        (1,593)
  Segment assets .......................     58,510       31,296        47,529        86,285           --       223,620
</TABLE>

<TABLE>
<CAPTION>
                                                                                                   ALL
                                               LG          PTG           ATG          SPD         OTHERS        TOTAL
                                           --------     --------      --------     ---------      -------     ---------
<S>                                        <C>          <C>           <C>          <C>            <C>         <C>
Three months ended September 30, 2000
  Net sales to external customers ......   $    198     $      3      $    733      $ 44,247     $     663      $45,844
  Intersegment net sales ...............     34,983        4,733         8,280            --           --        47,996
  Segment EBIT .........................      6,283       (1,579)          173        (3,858)         663         1,682
  Segment assets .......................     54,176       19,999        37,827        74,665           --       186,667
</TABLE>

<TABLE>
<CAPTION>
                                                                                                   ALL
                                               LG          PTG           ATG          SPD         OTHERS        TOTAL
                                           --------     --------      --------     ---------      -------     ---------
<S>                                        <C>          <C>           <C>          <C>            <C>         <C>
Nine months ended September 30, 2001
  Net sales to external customers ......   $  1,030     $     14      $  1,704     $ 151,584      $ 3,983     $ 158,315
  Intersegment net sales ...............    112,247       16,350        28,083            --           --       156,680
  Segment EBIT .........................     17,822       (4,472)       (2,393)       (9,336)       3,983         5,604
</TABLE>

<TABLE>
<CAPTION>
                                                                                                   ALL
                                               LG          PTG           ATG          SPD         OTHERS        TOTAL
                                           --------     --------      --------     ---------      -------     ---------
<S>                                        <C>          <C>           <C>          <C>            <C>         <C>
Nine months ended September 30, 2000
  Net sales to external customers ......   $    379     $     11      $  2,580     $ 125,743      $   348     $ 129,061
  Intersegment net sales ...............     97,511       11,761        21,404            --           --       130,676
  Segment EBIT .........................     20,687       (3,955)         (755)       (8,799)         348         7,526
</TABLE>

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

<TABLE>
<CAPTION>
                                                              THREE MONTHS ENDED           NINE MONTHS ENDED
                                                                 SEPTEMBER 30,                SEPTEMBER 30,
                                                            ----------------------      ------------------------
                                                              2001          2000          2001           2000
                                                            --------      --------      ---------      ---------
<S>                                                         <C>           <C>           <C>            <C>
Net Sales:
Total external sales for reportable segments .............  $ 47,973      $ 45,181      $ 154,332      $ 128,713
Intersegment sales for reportable segments ...............    47,524        47,996        156,680        130,676
Other sales ..............................................     1,274           663          3,983            348
Elimination of intersegment sales ........................   (47,524)      (47,996)      (156,680)      (130,676)
                                                            --------      --------      ---------      ---------
   Total consolidated net sales ..........................  $ 49,247      $ 45,844      $ 158,315      $ 129,061
                                                            ========      ========      =========      =========
Income (loss) before income taxes and cumulative
  effect of change in accounting method:
Total EBIT for reportable segments .......................  $ (2,867)     $  1,019      $   1,621      $   7,178
Other EBIT ...............................................     1,274           663          3,983            348
Corporate expenses .......................................    (1,593)       (1,757)        (5,452)        (4,136)
Other expenses not allocated to segments .................       593          (583)          (868)          (164)
Excess inventory charges .................................        --            --         (5,400)            --
In process research and development ......................        --        (1,500)            --         (1,500)
Restructuring ............................................      (256)           --         (1,068)           115
Provision for doubtful accounts ..........................      (700)           --         (1,000)            --
Litigation expenses ......................................      (329)           --           (758)            --
Financing expenses .......................................        --            --           (421)            --
Interest income (expense) ................................      (356)           69           (851)           551
Foreign currency gain (loss) .............................        27           (84)          (139)           260
                                                            --------      --------      ---------      ---------
         Total consolidated income (loss) before income
           taxes and cumulative effect of change in
           accounting method .............................  $ (4,207)     $ (2,173)     $ (10,353)     $   2,652
                                                            ========      ========      =========      =========
</TABLE>




                                       8
<PAGE>

7. RESTRUCTURING CHARGE

   In 2001, the Company announced measures to reduce its workforce, principally
in the Passive Telecommunications Group, and to centralize all of its European
distribution operations in one location. As a result the Company recognized a
one-time charge to operations principally for severance payments of
approximately $1.1 million covering 160 employees, all of whom were terminated
by September 30, 2001. At September 30, 2001, $0.9 million was paid and $0.2
million was expected to be paid through December 31, 2001. During the nine
months ended September 30, 2000, the Company reversed $0.1 million of unused
excess restructuring reserves from its 1999 restructuring activities.

8. REVENUE RECOGNITION

   Effective January 1, 2000, the Company adopted Staff Accounting Bulletin No.
101, "Revenue Recognition in Financial Statements", as amended ("SAB 101"),
issued by the Securities and Exchange Commission in December 1999. The adoption
of SAB 101 resulted in a change in method of accounting for revenue related to
certain product shipments. The cumulative effect of this accounting change was
$2.0 million (net of taxes). The accounting change did not have a material
effect on revenue and quarterly earnings during 2000. The Company restated its
results for the first three quarters of the year ended December 31, 2000, as
reflected in footnote 10 of the Notes to the Company's Consolidated Financial
Statements included in the Annual Report on Form 10-K for the year ended
December 31, 2000

9. CREDIT FACILITIES

   At September 30, 2001, the Company had outstanding a $9.4 million term loan
with a bank which had an original balance of $15.0 million. The term loan is
repayable in eight equal quarterly installments through December 2002. The loan
bears interest at LIBOR (2.3% at September 30, 2001) plus 1.75%. At September
30, 2001 the Company was not in compliance with certain financial covenants of
this loan and did not obtain a waiver of this non-compliance from the bank.
Accordingly, the balance of the loan at September 30, 2001 of $9.4 million is
included in current liabilities.

   In November 2001 this term loan was repaid in full from proceeds received
from Thermo Electron Corporation.

10. INCOME TAX BENEFIT

   The Company's income taxes payable has been reduced, and stockholders' equity
increased, by tax benefits of $5.9 million associated with dispositions of
employee stock options. The Company received an income tax benefit calculated as
the difference between the fair market value of the stock issued at the time of
exercise and the option price, tax effected.




                                       9
<PAGE>

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 and Section 21E of the
Securities Exchange Act of 1934. Certain forward-looking statements can be
identified by the use of forward-looking terminology such as, "believes,"
"expects," "may," "will," "should," "seeks," "approximately," "intends,"
"plans," "estimates," "anticipates," or "hopeful," or the negative thereof or
other comparable terminology, or by discussions of strategy, plans or
intentions. Forward-looking statements involve risks and uncertainties,
including those described in the Risk Factors section of Item 1 of
Spectra-Physics, Inc's (the "Company's") Annual Report on Form 10-K for the year
ended December 31, 2000, which could cause actual results to be materially
different than those in the forward-looking statements. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of the date hereof. The Company assumes no obligation to update such
information.

OVERVIEW

     We design, develop, manufacture and distribute semiconductor-based lasers
and laser optics for a variety of end-markets. Our forty years of laser and
optic experience has enabled us to offer passive and active optical component
products to the telecommunications industry. We have been shipping lasers for
commercial applications since the early 1960s and we began shipping optical
components for the telecommunications industry in 1999. Thermo Electron
Corporation, a company whose common stock is traded on the New York Stock
Exchange, indirectly owns approximately 78.6% of our outstanding common stock at
September 30, 2001. Prior to its acquisition by Thermo Electron Corporation in
February 1999, Spectra-Physics AB, a Swedish company, beneficially owned
approximately 80% of our outstanding common stock.

   Thermo Electron Corporation has announced its intention to commence a cash
tender offer for Spectra-Physics by November 16, 2001 at a cash price of $17.50
per share. Thermo Electron had previously delayed an earlier announced tender
offer for our common shares while it analyzed the impact on Spectra-Physics of
the worsening economic conditions following the events of September 11. Thermo
Electron has announced that the goal of its tender is to bring its ownership of
Spectra-Physics to at least 90 percent, whereupon it plans to acquire all
remaining outstanding shares of our common stock through a subsequent
short-form merger. The timing of the short-form merger would be announced at
a later date and Thermo Electron has announced that those shareholders who do
not participate in the tender offer would receive $17.50 in cash per Company
common share.

   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 computer and microelectronics manufacturing,
industrial manufacturing, medical, image recording, research and development and
telecommunications 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. During the last few years, we also
began 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 significant efforts on increasing revenues to
telecommunications customers.

   We recognize revenue when persuasive evidence of an arrangement exists,
delivery has occurred, the sales price is fixed or determinable and
collectibility is probable. Generally, these criteria are met at the time
product is shipped. Provision is made at the time the related revenue is
recognized for estimated product returns. We provide for the estimated cost of
product warranties upon shipment. We warrant our products for 12 to 24 months
depending on the product line. When other significant obligations remain after
products are delivered, revenue is recognized only after such obligations are
fulfilled. Revenue earned from services is recognized ratably over the
contractual period or as the services are performed. Shipping and handling costs
are included in cost of goods sold.

   Effective January 1, 2000, we adopted Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements", as amended ("SAB 101"), issued by
the Securities and Exchange Commission in December 1999. Our adoption of SAB 101
resulted in a change in method of accounting for revenue related to certain
product shipments. The cumulative effect of this accounting change was $2.0
million (net of taxes). The accounting change did not have a material effect on
revenue and quarterly earnings during 2000. We restated our results for the
first three quarters of the year ended December 31, 2000, as reflected in
footnote 10 of the Notes to our Consolidated Financial Statements included in
the Annual Report on Form 10-K for the year ended December 31, 2000.

   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.




                                       10
<PAGE>

   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 for
products for all six of our principal markets. For example, in 2001 and 2000, we
expended a significant amount of research and development effort on ultra-violet
semiconductor-based lasers and telecommunications products. We expect to
continue to spend substantial resources in developing high power
semiconductor-based lasers and optical components products for our six principal
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.

   In 2000, we realigned our business units to support growth in
telecommunications and other strategic markets. Our current structure includes
four operating groups, the Laser Group, the Passive Telecommunications Group,
the Active Telecommunications Group, and Spectra-Physics Distribution. Reference
is made to the footnotes of our consolidated financial statements included in
our annual report on Form 10-K for the year ended December 31, 2000,
incorporated by reference herein for disclosures of certain financial
information related to the reportable segments.

   We review our long-lived assets for impairment whenever events or changes in
business circumstances indicate that the carrying amount of such assets may not
be fully recoverable. This review requires significant judgment and estimates by
management related to future demand for our products. An impairment loss would
be recognized when estimated undiscounted cash flows expected to result from the
use of the assets and their eventual disposition is less than the assets'
carrying amount. Impairment, if any, is assessed, using discounted cash flows.
To the extent actual future market conditions differ significantly from our
current estimates, the estimated carrying value of our long-lived assets could
change which may result in a future impairment charge and such charge, if any,
may be material.

RESULTS OF OPERATIONS

   The following table sets forth, for the periods indicated, the Company's
results of operations as a percentage of net sales:

<TABLE>
<CAPTION>
                                                           THREE MONTHS ENDED      NINE MONTHS ENDED
                                                              SEPTEMBER 30,          SEPTEMBER 30,
                                                           -----------------       -----------------
                                                            2001        2000        2001        2000
                                                           -----       -----       -----       -----
<S>                                                        <C>         <C>         <C>         <C>
Net sales .............................................    100.0%      100.0%      100.0%      100.0%
                                                           -----       -----       -----       -----
Gross margin ..........................................     27.2        31.9        28.3        37.0
Operating expenses:
  Research and development ............................     11.1        12.5        10.8        13.4
  Selling, general and administrative .................     21.4        20.9        21.3        21.1
  Selling, general and administrative--provision for
          doubtful accounts ...........................      1.4          --         0.6          --
  Other ...............................................      1.2         3.3         1.4         1.1
                                                           -----       -----       -----       -----
          Total operating expenses ....................     35.1        36.7        34.1        35.6
                                                           -----       -----       -----       -----
          Operating income (loss) .....................     (7.9)       (4.7)       (5.9)        1.4
                                                           -----       -----       -----       -----
Other income (expense):
  Interest income (expense) ...........................     (0.7)        0.2        (0.5)        0.4
  Foreign currency gain (loss) ........................      0.0        (0.2)       (0.1)        0.2
                                                           -----       -----       -----       -----
           Total other income (expense) ...............     (0.7)        0.0        (0.6)        0.6
                                                           -----       -----       -----       -----
    Income (loss) before income taxes and cumulative
     effect of change in accounting method ............     (8.5)       (4.7)       (6.5)        2.1
Provision for (benefit of) income taxes ...............     (3.4)       (1.2)       (2.6)        1.0
                                                           -----       -----       -----       -----
Income (loss) before cumulative effect of change in
     accounting method ................................     (5.1)%      (3.6)%      (3.9)%       1.1%
                                                           =====       =====       =====       =====
</TABLE>

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000




                                       11
<PAGE>

Net sales

   Net sales were $49.2 million and $45.8 million in the three months ended
September 30, 2001 and 2000, respectively, representing an increase of 7.4%. Net
sales for the three months ended September 30, 2001, calculated using foreign
currency exchange rates for the same period in 2000, increased 8.2%.

   Net sales in the following end user markets were:

<TABLE>
<CAPTION>
                                                           THREE MONTHS ENDED
                                                             SEPTEMBER 30,
                                                         --------------------
                                                           2001         2000
                                                         -------      -------
                                                            (IN THOUSANDS)
        <S>                                              <C>          <C>
        Computer and microelectronics manufacturing ..   $ 5,842      $ 8,203
        Industrial manufacturing .....................     5,876        5,640
        Medical ......................................     6,416        7,810
        Image recording ..............................     4,417        2,823
        Research and development .....................    24,379       18,170
        Telecommunications ...........................     1,118        1,200
        Other ........................................     1,199        1,998
                                                         -------      -------
                                                         $49,247      $45,844
                                                         =======      =======
</TABLE>

   Sales of semiconductor-based lasers, telecommunications and conventional
products were 65.3%, 2.3% and 32.4% of total net sales in the three months ended
September 30, 2001, compared to 62.0%, 2.6% and 35.4% in the three months ended
September 30, 2000.

   Net sales in the following geographic markets were:

<TABLE>
<CAPTION>
                                                           THREE MONTHS ENDED
                                                             SEPTEMBER 30,
                                                         --------------------
                                                           2001         2000
                                                         -------      -------
                                                            (IN THOUSANDS)
        <S>                                              <C>          <C>
        North America ................................   $23,795      $24,858
        Japan ........................................    12,102        7,699
        Europe .......................................     9,013        9,612
        Other Asia ...................................     2,060        2,897
        Rest of the World ............................     2,277          778
                                                         -------      -------
                                                         $49,247      $45,844
                                                         =======      =======
</TABLE>

   Net sales are attributed in the above table 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 Spectra-Physics' European and Japan sales subsidiaries,
respectively. Export sales to countries not located in Asia are included in Rest
of the World.

   Net sales at actual currency exchange rates percentage increase/(decrease)
were as follows:

<TABLE>
<CAPTION>
                                                                     2000 TO
                                                                       2001
                                                                     -------
        <S>                                                          <C>
        North America.............................................    -4.3%
        Japan.....................................................    57.2%
        Europe....................................................    -6.2%
        Other Asia................................................   -28.9%
        Rest of World.............................................   192.7%
        Worldwide.................................................     7.4%
</TABLE>

   Net sales at constant currency exchange rates percentage increase/(decrease)
were as follows:

<TABLE>
<CAPTION>
                                                                     2000 TO
                                                                       2001
                                                                     -------
        <S>                                                          <C>
        North America.............................................    -4.3%
        Japan.....................................................    63.1%
        Europe....................................................    -7.0%
        Other Asia................................................   -28.9%
        Rest of World.............................................   192.7%
        Worldwide.................................................     8.2%
</TABLE>



                                       12
<PAGE>


   Net sales were $158.3 million and $129.1 million in the nine months ended
September 30, 2001 and 2000, respectively, representing an increase of 22.7%.
Net sales for the nine months ended September 30, 2001, calculated using foreign
currency exchange rates for the same period in 2000, increased 24.5%.

   Net sales in the following end user markets were:

<TABLE>
<CAPTION>
                                                            NINE MONTHS ENDED
                                                              SEPTEMBER 30,
                                                         ----------------------
                                                           2001          2000
                                                         --------      --------
                                                            (IN THOUSANDS)
        <S>                                              <C>           <C>
        Computer and microelectronics manufacturing ..   $ 20,987       $24,740
        Industrial manufacturing .....................     20,429        15,316
        Medical ......................................     26,716        20,944
        Image recording ..............................     11,356         7,920
        Research and development .....................     68,176        53,249
        Telecommunications ...........................      7,183         2,273
        Other .......................................       3,468         4,619
                                                         --------      --------
                                                         $158,315      $129,061
                                                         ========      ========
</TABLE>

   Sales of semiconductor-based lasers, telecommunications and conventional
products were 64.3%, 4.5% and 31.2% of total net sales in the nine months ended
September 30, 2001, compared to 64.0%, 1.8% and 34.2% in the nine months ended
September 30, 2000.

   Net sales in the following geographic markets were:

<TABLE>
<CAPTION>
                                                               NINE MONTHS ENDED
                                                                 SEPTEMBER 30,
                                                            ----------------------
                                                              2001          2000
                                                            --------      --------
                                                                (IN THOUSANDS)
        <S>                                                 <C>           <C>
        North America ................................      $ 75,346      $ 64,135
        Japan ........................................        40,362        30,340
        Europe .......................................        28,465        23,966
        Other Asia ...................................         6,783         6,730
        Rest of the World ............................         7,359         3,890
                                                            --------      --------
                                                            $158,315      $129,061
                                                            ========      ========
</TABLE>

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

   Net sales at actual currency exchange rates percentage increase/(decrease)
were as follows:

<TABLE>
<CAPTION>
                                                                     2000 TO
                                                                       2001
                                                                     -------
        <S>                                                          <C>
        North America.............................................    17.5%
        Japan.....................................................    33.0%
        Europe....................................................    18.8%
        Other Asia................................................     0.8%
        Rest of World.............................................    89.2%
        Worldwide.................................................    22.7%
</TABLE>

   Net sales at constant currency exchange rates percentage increase/(decrease)
were as follows:

<TABLE>
<CAPTION>
                                                                     2000 TO
                                                                       2001
                                                                     -------
        <S>                                                          <C>
        North America.............................................    17.5%
        Japan.....................................................    38.3%
        Europe....................................................    22.1%
        Other Asia................................................     0.8%
        Rest of World.............................................    89.2%
        Worldwide.................................................    24.5%
</TABLE>




                                       13
<PAGE>

Cost of products sold and gross margin

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

   Gross margin was $13.4 million and $14.6 million for the three months ended
September 30, 2001 and 2000, respectively, representing a decrease of 8.6%. As a
percentage of net sales, gross margin was 27.2% and 31.9% in the three months
ended September 30, 2001 and 2000, respectively. Gross margin was $44.7 million
and $47.8 million for the nine months ended September 30, 2001 and 2000,
respectively, representing a decrease of 6.3%. As a percentage of net sales,
gross margin was 28.3% and 37.0% in the nine months ended September 30, 2001 and
2000, respectively. Included in cost of sales for the nine months ended
September 30, 2001 was $5.4 million of excess inventory charges. These excess
inventory charges related principally to inventories for optical components and
other inventories of telecommunications products and were reflective of the
current telecommunications market conditions. The charges reduced the carrying
value of inventories to net realizable value following a decrease in demand from
telecommunication customers. Excluding the $5.4 million inventory charge
discussed above, gross margin for the nine months ended September 30, 2001 was
31.7% of sales and increased 5.0% over the nine months ended September 30, 2000.

   The principal reasons for the decrease in gross margin, excluding the
inventory charges, as a percentage of net sales in the three and nine months
periods ended September 30 2001 compared to September 30, 2000, was under
absorption of fixed costs and infrastructure investments and the effects of
foreign currency exchange rates and to a lesser extent, product mix.

Operating expenses

   Operating expenses totaled $17.3 million and $16.8 million in the three
months ended September 30, 2001 and 2000, respectively, representing an increase
of 2.7%. As a percentage of net sales, operating expenses were 35.1% and 36.7%
in the three months ended September 30, 2001 and 2000, respectively. Included in
operating expenses for the three months ended September 30, 2001 were $0.7
million for an increase in the allowance for doubtful accounts receivable
related to sales of optical components, $0.3 million of restructuring expenses
and $0.3 million of certain legal expenses related to a patent litigation
described in Part II, Item 1. Included in operating expenses for the three
months ended September 30, 2000 was a charge for purchased in process research
and development expenses of $1.5 million.

   Operating expenses totaled $54.1 million and $45.9 million in the nine months
ended September 30, 2001 and 2000, respectively, representing an increase of
17.9%. As a percentage of net sales, operating expenses were 34.1% and 35.6% in
the nine months ended September 30, 2001 and 2000, respectively. Included in
operating expenses for the nine months ended September 30, 2001 were $1.0
million for an increase in the allowance for doubtful accounts receivable
related to sales of optical components, $2.2 million of restructuring expenses
and certain legal and accounting expenses related to a litigation described in
Part II, Item 1 and to a potential financing transaction. Included in operating
expenses for the nine months ended September 30, 2000 was a reversal of excess
restructuring reserves of $0.1 and a charge for purchased in process research
and development expenses of $1.5 million.

   Research and development expenses represent expenses associated with our
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 $5.5 million and $5.7 million for
the three months ended September 30, 2001 and 2000, respectively, representing a
decrease of 4.5%. As a percentage of net sales, research and development
expenses were 11.1% and 12.5% in the three months ended September 30, 2001 and
2000, respectively. Research and development expenses totaled $17.1 million and
$17.3 million for the nine months ended September 30, 2001 and 2000,
respectively, representing a decrease of 0.9%. As a percentage of net sales,
research and development expenses were 10.8% and 13.4% in the nine months ended
September 30, 2001 and 2000, respectively.

   Selling, general and administrative expenses include the expenses of our
sales and support subsidiaries in Europe, Japan and North America, and other
marketing and administrative expenses.




                                       14
<PAGE>
 Selling, general and administrative expenses totaled $11.2 million and $9.6
million for the three months ended September 30, 2001 and 2000, respectively,
representing an increase of 17.0%. As a percentage of net sales, selling,
general and administrative expenses were 22.8% and 20.9% in the three months
ended September 30, 2001 and 2000, respectively. Included in selling, general
and administrative expenses for the three months ended September 30, 2001 was
$0.7 million for an increase in the allowance for doubtful accounts receivable
related to sales of optical components. Excluding this charge, selling, general
and administrative expenses for the three months ended September 30, 2001 were
21.4% of sales and increased 9.7% over the three months ended September 30,
2000. Selling, general and administrative expenses totaled $34.7 million and
$27.2 million for the nine months ended September 30, 2001 and 2000,
respectively, representing an increase of 27.5%. As a percentage of net sales,
selling, general and administrative expenses were 21.9% and 21.1% in the nine
months ended September 30, 2001 and 2000, respectively. Included in selling,
general and administrative expenses for the nine months ended September 30, 2001
was $1.0 million for a provision for doubtful accounts receivable related to
sales of optical components. Excluding this charge, selling, general and
administrative expenses for the nine months ended September 30, 2001 were 21.3%
of sales and increased 23.8% over the nine months ended September 30, 2000. The
principal reason for the increase in selling, general and administrative
expenses is the continued expansion of OEM/industrial sales efforts.

Interest income (expense)

   Net interest expense totaled $0.4 million in the three months ended September
30, 2001, and net interest income totaled $0.1 million in the three months ended
September 30, 2000. Net interest expense totaled $0.9 million in the nine months
ended September 30, 2001, and net interest income totaled $0.6 million in the
nine months ended September 30, 2000. We incurred interest expense under our
credit facilities and earned interest income on our invested cash and cash
equivalents. Most of the increases in net interest expense for the three and
nine month periods ended September 30, 2001 compared to September 30, 2000
resulted from increased borrowings under our credit facilities during the
period.

Foreign currency gain (loss)

   At September 30, 2001, we had contracts for the sale of foreign currencies
and the purchase of U.S. dollars totaling $57.9 million. At September 30, 2001,
we had deferred gains relating to our foreign currency contracts of
approximately $0.4 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, 2001. 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....................................     $32,163    114.7936
        British Pound Sterling..........................       3,099      0.6940
        Australian Dollar...............................         321      1.9276
        Euro............................................      22,308      1.1118
                                                             -------
                                                             $57,891
                                                             =======
        Estimated fair value............................     $   396
                                                             =======
</TABLE>

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

   During the three months ended September 30, 2001 and 2000, we recorded a
foreign currency gain of $0.1 million and a foreign currency loss of $0.1
million, respectively. During the nine months ended September 30, 2001 and 2000,
we recorded a foreign currency loss of $0.1 million and a foreign currency gain
of $0.3 million, respectively. These losses and gains related principally to
foreign exchange rate movements on unhedged accounts receivable.




                                       15
<PAGE>

Income tax expense (benefit)

   We recorded income tax benefits of $1.7 million and $0.5 million in the three
months ended September 30, 2001 and 2000, respectively. We recorded an income
tax benefit of $4.1 million for the nine months ended September 30, 2001 and
income tax expense of $1.2 million for the nine months ended September 30, 2000.
For the nine months ended September 30, 2001, our effective tax rate was 40.0%.

LIQUIDITY AND CAPITAL RESOURCES

   At September 30, 2001, we had working capital of $37.1 million, including
cash and cash equivalents of $7.3 million, compared to working capital at
December 31, 2000 of $55.0 million, including cash and cash equivalents of $22.6
million.

   Cash used by operating activities was $7.2 million for the nine months ended
September 30, 2001 compared to cash provided by operating activities of $3.0
million in the nine months ended September 30, 2000. Substantially all the net
cash used by operating activities in the nine months ended September 30, 2001
represented the net loss for the period ($6.2 million) adjusted for the non-cash
impact of depreciation and amortization ($8.7 million), income tax benefit from
exercise of stock options ($5.9 million), and deferred taxes ($4.6 million),
offset by the use of cash for operating assets and liabilities ($11.1 million).
Substantially all the net cash provided by operating activities in the nine
months ended September 30, 2000 represented the net loss for the period ($0.6
million) adjusted for the non-cash impact of depreciation and amortization ($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 ($7.8 million).

   Cash used in investing activities, primarily purchases of property, plant and
equipment, was $21.7 million and $15.1 million in the nine months ended
September 30, 2001 and 2000, respectively.

   Cash provided by financing activities was $14.1 million and $11.5 million in
the nine months ended September 30, 2001 and 2000, respectively. During the nine
months ended September 30, 2001, financing activities were primarily net
borrowings under credit facilities of $9.9 million, and exercises of employee
stock options and purchases of common stock under the Employee Stock Purchase
Plan of $4.3 million. During the nine months ended September 30, 2000, financing
activities were primarily net borrowings on credit facilities of $6.9 million
and exercises of employee stock options of $4.6 million.

   The effect of foreign currency exchange rate changes on cash were losses of
$0.6 million and $1.3 million in the nine months ended September 30, 2001 and
2000, respectively.

   These activities resulted in decreases in cash and cash equivalents of $15.3
million and $1.8 million in the nine months ended September 30, 2001 and 2000,
respectively.

   We have a short-term credit facility in Japan. The credit facility is with
several banks, is unsecured, allows aggregate borrowings of 2.7 billion Yen
($22.8 million), bears interest at 1.75% per annum and expires at various times
in April 2002. At September 30, 2001, there were approximately $16.9 million of
borrowings outstanding under this facility. Our foreign subsidiaries in Europe
have credit facilities aggregating $3.8 million, of which $1.4 million was
outstanding as of September 30, 2001. From time to time, the amount available
under credit facilities will be reduced by the amount of performance bonds
outstanding guaranteed by the applicable bank to our customers, foreign currency
contracts outstanding with the applicable bank and similar arrangements.

   At September 30, 2001, we had outstanding a $9.4 million term loan with a
bank which had an original balance of $15.0 million. The term loan is repayable
in eight equal quarterly installments through December 2002. The loan bears
interest at LIBOR (2.3% at September 30, 2001) plus 1.75%. At September 30, 2001
we were not in compliance with certain financial covenants of this loan and did
not obtain a waiver of this non-compliance from the bank. Accordingly, the
balance of the loan at September 30, 2001 of $9.4 million is included in current
liabilities. In November 2001 this term loan was repaid in full from proceeds
received from Thermo Electron Corporation.

   We have a short-term credit facility with Thermo Electron Corporation. The
agreement provides for a one year, $20.0 million revolving credit facility
through March 2002. At September 30, 2001, there were approximately $12.0
million of borrowings outstanding under this facility. The facility bears
interest at 2.75% above the prevailing LIBOR rate.

   We have reviewed our short and long term liquidity needs. We expect our
liquidity needs for at least the next 12 months will be satisfied by existing
cash balances, cash available from operations, and borrowings currently
available under our credit facilities.




                                       16
<PAGE>

IMPACT OF RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

   In July 2001, the FASB issued SFAS No. 141, "Business Combinations," and SFAS
No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 provides new
guidance on the accounting for a business combination at the date a business
combination is completed. Specifically, it requires use of the purchase method
of accounting for all business combinations initiated after June 30, 2001,
thereby eliminating use of the pooling-of-interests method. SFAS No. 142
establishes new guidance on how to account for goodwill and intangible assets
after a business combination is completed. Among other things, it requires that
goodwill and certain other intangible assets with indefinite lives no longer be
amortized and will be tested for impairment at least annually and written down
only when impaired. The Company will follow the requirements of SFAS No. 141 for
any future business acquisitions. The adoption of SFAS No. 142 will not have a
material impact on the Company's financial position, results of operations, or
cash flows.

   In October 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment
or Disposal of Long-Lived Assets." SFAS No. 144 supercedes SFAS No. 121 by
requiring that one accounting model be used for long-lived assets to be disposed
of by sale, whether previously held and used or newly acquired and by broadening
the presentation of discontinued operations to include more disposal
transactions. The Statement will be effective for fiscal years beginning after
December 15, 2001. The adoption of SFAS No. 144 will not have a material impact
on the Company's financial position or results of operations.

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, 2001. We believe the euro will have no
material impact on our systems in the remainder of 2001. 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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

   There has been no material change in our exposure to market risk since
December 31, 2000. See Spectra-Physics, Inc.'s Annual Report on Form 10-K dated
December 31, 2000.





                                       17
<PAGE>

                          PART II -- OTHER INFORMATION


ITEM 1. 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. The trial has been scheduled to commence on February 25, 2002. 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
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.

   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.




                                       18
<PAGE>

ITEM 2. CHANGES IN SECURITIES

   Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

   At September 30, 2001, the Company had outstanding a $9.4 million term loan
with a bank which had an original balance of $15.0 million. The term loan is
repayable in eight equal quarterly installments through December 2002. The loan
bears interest at LIBOR (2.3% at September 30, 2001) plus 1.75%. At September
30, 2001 the Company was not in compliance with certain financial covenants of
this loan and did not obtain a waiver of this non-compliance from the bank.
Accordingly, the balance of the loan at September 30, 2001 of $9.4 million is
included in current liabilities. In November 2001 this term loan was repaid in
full from proceeds received from Thermo Electron Corporation.

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

   None.

ITEM 5. OTHER INFORMATION

   None.





                                       19
<PAGE>

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

   (a) EXHIBITS:

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

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

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

      10.1        Amendment to Loan Agreement
</TABLE>

   (b) REPORTS ON FORM 8-K:

   None.




                                       20
<PAGE>

                                   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, Inc.



Date: November 9, 2001                         /s/ PATRICK L. EDSELL
                                 -----------------------------------------------
                                                Patrick L. Edsell
                                 Chairman, President and Chief Executive Officer


Date: November 9, 2001                           /s/ SETH S. HALIO
                                 -----------------------------------------------
                                                  Seth S. Halio
                                     Vice President, Finance, and Treasurer
                                          (Principal Financial Officer)




                                       21
<PAGE>

                                  EXHIBIT INDEX



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

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

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

 10.1        Amendment to Loan Agreement
</TABLE>






                                       22