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


                                    FORM 10-K


(MARK ONE)
[X]     Annual Report Pursuant To Section 13 Or 15(d) of the Securities 
        Exchange Act of 1934.

        For the Fiscal Year Ended September 30, 1997.*

[  ]    Transition Report pursuant to Section 13 or 15(d) of the Securities 
        Exchange Act of 1934.

        For the transition period from __________to __________.

                         Commission File Number: 0-11348

                           SILICON VALLEY GROUP, INC.
             (Exact name of Registrant as specified in its charter)

               DELAWARE                                      94-2264681
  (State or other jurisdiction of                         (I.R.S. Employer
  incorporation or organization)                       Identification Number)

             101 METRO DRIVE, SUITE 400, SAN JOSE, CALIFORNIA 95110
               (Address of principal executive offices) (Zip Code)

       Registrant's telephone number, including area code: (408) 441-6700

           Securities registered pursuant to Section 12(g) of the Act:
                          Common Stock, $.01 Par Value

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

        Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ( )

        The aggregate market value of the voting stock held by persons other
than those who may be deemed affiliates of the Registrant, as of November 28,
1997, was approximately $679,538,563. Shares of Common Stock held by each
executive officer and director and by each person who owns 5% or more of the
outstanding Common Stock have been excluded in that such persons may under
certain circumstances be deemed to be affiliates. This determination of
executive officer or affiliate status is not necessarily a conclusive
determination for other purposes.

        The number of shares outstanding of the Registrant's Common Stock as of
November 28, 1997 was 30,183,777.

* See Part II, Item 8 of this report for information regarding Registrant's
  fiscal year.



<PAGE>   2



DOCUMENTS INCORPORATED BY REFERENCE


Portions of the following documents are incorporated by reference into the parts
of this Form 10-K indicated:
<TABLE>
<S>                                                                              <C>      
   Proxy Statement for Annual Meeting of Stockholders to be held on 
     February 19, 1998                                                           Part III

   Annual Report to Stockholders for fiscal year ended September 30, 1997        Parts II & IV
</TABLE>




<PAGE>   3
                                     PART I

ITEM 1.  BUSINESS.

        The information in this report contains forward looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934, as amended. Such statements are subject
to certain risks and uncertainties, including those discussed below and set out
in the Annual Report incorporated by reference herein, that could cause actual
results to differ materially from those described herein. Readers are cautioned
not to place undue reliance on these forward looking statements, which speak
only as of the date hereof. Forward looking statements are indicated by an
asterisk (*) following the sentence in which such statement is made. The Company
undertakes no obligation to publicly release the results of any revisions to
these forward looking statements which may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.

        Silicon Valley Group, Inc. (the "Company" or "SVG") designs,
manufactures, markets and services semiconductor processing equipment used in
the fabrication of integrated circuits. The fabrication of integrated circuits
involves repeating a complex series of process steps to a semiconductor wafer.
The three broad categories of wafer processing steps are deposition,
photolithography and etching. SVG has three principal product groups which focus
primarily on photolithography, photoresist processing, and deposition for
oxidation/diffusion and low pressure chemical vapor deposition ("LPCVD"). The
Company's products incorporate proprietary technologies and unique processes,
and focus on providing process and product technologies and productivity
enhancements to its customers. SVG works closely with its existing and potential
customers in the development of new systems and technologies and supports its
products through a network of worldwide service and technical support
organizations.

        The Company manufactures and markets its photolithography exposure
products through its wholly-owned subsidiary, SVG Lithography Systems, Inc.
("SVGL"), its photoresist processing products through its Track Systems Division
("Track") and its oxidation/diffusion and LPCVD products through its Thermco
Systems Division ("Thermco").

INDUSTRY BACKGROUND

        Continuous improvements in semiconductor process and design technologies
have led to the production of smaller, more complex and more reliable devices at
a lower cost per function. As performance has increased and size and cost have
decreased, the demand for semiconductors has expanded in computer systems,
telecommunications systems, automotive products, consumer goods and industrial
automation and control systems. Semiconductor content as a percentage of system
cost has also increased. The Company believes that these long-term trends will
continue and will be accompanied by a growing demand for semiconductor
production equipment that can produce advanced integrated circuits in high
volumes with a low cost of ownership.*

        The rapid development of advanced semiconductor applications requires
semiconductor manufacturers to continually improve their core technology and
manufacturing capabilities to remain competitive within the industry. As a
consequence, semiconductor manufacturers demand increasingly sophisticated, cost
effective processing equipment from semiconductor equipment suppliers. The
increasing diversity and complexity of semiconductor products, the demands of
technological change and the costs associated with keeping pace with industry
developments have contributed to the emergence of cooperative development and
manufacturing alliances both between semiconductor manufacturers and between
semiconductor manufacturers and semiconductor equipment suppliers. The Company
believes it is essential to have customer alliances to provide access to
valuable product and process technologies. These factors result in customers
concentrating their business with a small number of key suppliers.





                                       1
<PAGE>   4

STRATEGY

        The Company's objective is to strengthen its position as a leading
worldwide semiconductor equipment supplier that offers a broad line of
technologically advanced products. The Company's strategy incorporates the
following key elements:

        o       Technological Innovation. The Company is committed to developing
                new products, improving processes and enhancing existing
                products through substantial investment in research and
                development. The Company designs and manufactures sophisticated
                semiconductor manufacturing systems for advanced fabrication
                facilities. Its products incorporate proprietary technologies in
                photolithography, control software, optics and particulate
                control and unique processes focusing on providing process and
                product technologies and productivity enhancements to customers.
                Additionally, the Company works with universities and
                laboratories to leverage new concepts for its advanced projects.

        o       Customer Collaboration. The Company's objective is to strengthen
                its position as a leading worldwide semiconductor equipment
                supplier by offering a broad line of technologically advanced
                products. The Company works closely with its existing and
                potential customers, industry consortia and research
                institutions to improve current products and processes and to
                define new product development opportunities. These efforts
                enable the Company to participate in the development of new
                technologies, to influence the design of new fabrication
                processes and to position itself as a principal supplier for
                volume equipment orders. The Company believes that cooperative
                working relationships with leading semiconductor manufacturers
                are critical to ensuring that its products are designed in
                conjunction with the development of the semiconductor
                manufacturers' advanced process requirements.

        o       Continuous Improvement. The industry requires that equipment
                suppliers provide cost effective products that are based on
                extendible technology. Cost of ownership and the ability to
                satisfy customer delivery requirements are critical ingredients
                in the selection process for advanced equipment. To address
                these issues, the Company is responding by expanding certain of
                its facilities and deploying capital for manufacturing and test
                equipment to respond to the requirements of the semiconductor
                industry. Additionally, the Company continues to implement
                programs to increase the effectiveness of its -- material
                procurement, reduce manufacturing cycle times and improve
                production methods and processes to gain additional
                efficiencies.

        o      Expanding Worldwide Customer Service and Support. The Company's
               customers are concentrating their business with a smaller number
               of key suppliers and demanding higher levels of support and
               service from these suppliers as the semiconductor fabrication
               process becomes increasingly complex. The Company has responded
               to this trend by making substantial investments in its global
               service and support capabilities.

SVG LITHOGRAPHY SYSTEMS, INC. (SVGL)

        SVGL designs, manufactures, markets and services advanced
photolithography exposure systems. Photolithography is one of the most critical
and expensive steps in integrated circuit fabrication, representing
approximately one-third or more of the fabrication cost. Consequently,
integrated circuit manufacturers focus on obtaining advanced photolithography
equipment to help them produce critical layers for increasingly complex devices
reliably, efficiently and cost-effectively.

        In the photolithography step of the fabrication process, the integrated
circuit patterns are projected through masks, or reticles, onto the silicon
wafers. As semiconductors have become more complex, the patterns have become
finer, with line widths as narrow as 0.25 micron (approximately 10 millionths of
an inch) and below in many of today's more advanced integrated circuits. As the
patterns become finer, photolithography exposure systems must be capable of
projecting the patterns through the masks with ever finer resolution. The
resolution 



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capability of a photolithography exposure system is a function of numerical
aperture (a measure of its light gathering characteristics) and the wavelength
of the light used in exposure. With the advancement of photolithography
technology has come a trend toward the reduction in wavelength from G-line (436
nanometer) to I-line (365 nanometer) to Deep UV (248 and 193 nanometer) and the
increase in numerical aperture from 0.2 to 0.6.

        Historically, there have been two major approaches to photolithography
exposure systems: full field scanning projection aligners ("scanners") and
refractive steppers ("steppers). Scanners project a full scale mask image onto a
moving full wafer, while steppers sequentially expose a small section of a wafer
in a stepped sequence of exposures, but do so by reducing the size of a mask
image by several fold (typically 5 times). Thus, scanners offer large exposure
fields while steppers offer masks that are easier to make and have a lower cost.
These strengths are combined in the step and scan system, a technology pioneered
by SVGL.

        Micrascan. The Company believes that its Micrascan photolithography step
and scan exposure system provides the increased resolution required for current
advanced logic and memory devices and for succeeding generations of complex,
fine geometry integrated circuits through its use of Deep UV lamp or laser light
source and unique projection optics design. Micrascan overcomes the line-width
limitations of steppers over a large exposure field by combining the elements of
both steppers and scanners into the Micrascan's step and scan technology.*

        The Micrascan combines advantages of scanning projection aligners and
steppers by scanning a portion of the wafer, then "stepping" to another portion
of the wafer and repeating the process as necessary. Each scan has the
capability to expose a large segment of the wafer. The large exposure field
enables Micrascan to fabricate larger devices in a single scan than steppers,
thus avoiding the necessity of "stitching" a circuit together through two
different exposures. In addition, Micrascan continuously modifies the position
of the wafer surface during the scan, using its on-the-fly focus system to keep
the wafer in the optimal focal plane, thus providing a larger usable depth of
focus. The larger the usable depth of focus field is, the more tolerant of
variations in the wafer surface the equipment will be. The Company believes
Micrascan's greater tolerance of wafer surface variations can reduce the number
of defective devices on a wafer, thereby contributing to higher yields.* It
further believes that scanning across the field instead of exposing the entire
field at one time also enables Micrascan to achieve greater uniformity of
resolution across the entire exposure field and contributes to higher yields of
faster devices.*

        The Company believes that SVGL has substantial technological expertise
and process knowledge in developing Deep UV step and scan photolithography
systems. SVGL has developed internal capability to design and fabricate optical
lenses, mirrors and coatings. This includes a combination of purchased and
proprietary optical metrology using phase measuring interferometry to precisely
measure and test the optical elements it produces. Micrascan incorporates both
mirrors and lenses in its optical system, which the Company believes allows for
an optical projection system that is less sensitive to environmental variants
and accommodates the use of light sources with broader spectral bandwidth (than
refractive optics), with the additional benefits of reduced running cost and
increased reliability.*

        In addition to the optical system technology described above, SVGL has
developed certain proprietary mechanical systems incorporated in the Micrascan
to control the position of the wafer and the reticules prior to and during the
wafer exposure step. The Company believes that these servo controlled systems
contribute to the Micrascan's ability to scan the exposure field at high speeds
with no substantial loss of resolution, thereby increasing the throughput
capability of the machine.*

        The Company believes that the photolithography exposure equipment market
is one of the largest segments of the semiconductor processing equipment
industry and that SVGL's Micrascan family of photolithography systems are
currently the most technically advanced step-and-scan machines shipping in
multiple quantities to global semiconductor manufacturers.* Micrascan II+
systems capable of printing .30 micron line widths sell for up to approximately
$5,300,000, depending upon configuration. The Micrascan QML lamp-based systems
and Micrascan III laser-based systems, each capable of printing .25 micron line
widths, sell for up to approximately $7,200,000, depending upon configuration.


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<PAGE>   6

        Uncertain Market for Micrascan Products. To address the market for
advanced photolithography exposure systems, the Company has invested and expects
to continue to invest substantial resources in SVGL's Micrascan technology and
its family of Micrascan deep ultraviolet ("Deep UV") step and scan
photolithography systems, capable of producing line widths of .25 micron and
below. The development of a market for the Company's Micrascan step and scan
photolithography products will be highly dependent on the continued trend
towards finer line widths in integrated circuits and the ability of other
lithography manufacturers to keep pace with this trend through either enhanced
technologies or improved processes. Lithography manufacturers have been
successful in extending the capability of I-Line steppers which have been
utilized in the fabrication of complex semiconductor devices with line widths of
less than 0.5 micron, such as 64 megabit DRAMs. The Company believes Deep UV
lithography will be required to fabricate devices with line widths below 0.3
micron.* Semiconductor manufacturers can purchase Deep UV steppers to produce
product at .25 micron line widths. However, the Company believes that as devices
increase in complexity and size and require finer line widths, the technical
advantages of Deep UV step and scan systems as compared to Deep UV steppers will
enable semiconductor manufacturers to achieve finer line widths with improved
critical dimension control which will result in higher yields of faster
devices.* The Company also believes that the transition to Deep UV step and scan
systems will accelerate in calendar 1998 and that advanced semiconductor
manufacturers are beginning to require volume quantities of production equipment
as advanced as the current and pending versions of Micrascan.* Currently,
competitive Deep UV step and scan equipment capable of producing .25 micron line
widths is available in limited quantities from two competitors, and the Company
believes that at least one other manufacturer of advanced photolithography
systems will begin limited shipments of step and scan machines in the near
future.* There can be no assurance that the Company will be successful in
competing with such systems.* Further, if manufacturers of I-Line or Deep UV
steppers are able to further enhance existing technology to achieve finer line
widths sufficiently to erode the competitive and technological advantages of
Deep UV step and scan systems, demand for the Micrascan technology may not
develop as the Company expects.*

        The Company believes that advanced logic devices and DRAMs will require
increasingly finer line widths.* Consequently, SVGL must continue to develop
advanced technology equipment capable of meeting its customers' current and
future requirements while offering those customers a progressively lower cost of
ownership.* In particular, the Company believes that it must continue its
development of future systems capable of printing line widths finer than .25
micron and processing 300mm wafers.*

   The Company believes that for SVGL to succeed in the long term, it must sell
its Micrascan products on a global basis. The Japanese and Pacific Rim markets
(including fabrication plants located in other parts of the world which are
operated by Japanese and Pacific Rim semiconductor manufacturers) represent a
substantial portion of the overall market for photolithography exposure
equipment. To date, the Company has not been successful penetrating either of
these markets. (See "Importance of the Japanese and Pacific Rim Markets".)

        Micralign. SVGL also sells a family of scanning projection aligners
known as "Micralign." The most advanced product in this family, the Micralign
700, is used primarily in the production of semiconductor devices with minimum
feature sizes above 1.25 microns, or in the fabrication of less critical layers
within more sophisticated semiconductor devices. Micralign products are a mature
product family and sales of Micralign products have declined in recent years as
steppers have supplanted scanning projection aligners. The Company anticipates
that such sales will continue to decline.* A large installed base of Micralign
systems exists throughout the world and a majority of SVGL's Micralign related
revenues is derived from servicing that installed base and the sales of spare
parts. The list price of the Micralign 700 is approximately $1,250,000.

TRACK SYSTEMS DIVISION (TRACK)

        Track designs, manufactures, markets and services photoresist processing
equipment which performs all the steps necessary to process semiconductor wafers
prior to photolithography exposure, including cleaning, adhesion promotion and
photoresist coating, and which performs all the steps required to treat wafers
after photolithography exposure prior to etching, including developing and
baking. As photoresist processing technology has evolved the Company has
developed increasingly advanced products for this market, which are 



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capable of handling integrated circuits with line widths as narrow as 0.18
micron. Each product line includes the principal processing capabilities
described above and is generally sold in customer-specified configurations that
can include specially engineered features and capabilities. All Track products
are available in fully automated cassette-to-cassette configurations either as
stand-alone processing stations or as in-line integrated manufacturing systems.
The equipment is modular in design to allow configuration to customer
requirements. Each semiconductor manufacturer may require certain of the
processing stations to effect its proprietary or specialized processes.

        As a result of being able to supply its customers with both SVGL's
Micrascan photolithography systems and Tracks photoresist processing products,
the Company believes it offers the only clustered solution manufactured by a
single supplier. Additionally, Track's 90 Series and its soon to be released
200APS systems are designed to interface with all other lithography exposure
products, regardless of manufacture.

        Track's product lines correspond to the development of successive
generations of wafer processing technologies. In general, it has been the
Company's experience that introduction of new Track products has been followed
by lower order levels for older products.

        200-APS. Announced in July 1996, the 200-APS is designed for eight inch
advanced fabrication processes for integrated circuits with line widths down to
 .18 micron, such as 256 megabit DRAMs. The system is smaller than the Company's
90-SE and potentially offers customers a lower cost-of-ownership through
improvements in productivity such as a smaller floorspace requirement, direct
module-to-module robotic wafer-transfer, and reduced photoresist consumption.
The 200-APS has improved process capabilities including improved wafer coating
uniformities, highly precise wafer transport timing controls and proprietary
photoresist dispense technologies. The Company initially expected to ship
production units of the 200-APS during the second quarter of fiscal 1997.
However, certain design difficulties have delayed the introduction of the
200-APS and SVG believes that it will ship the first such units in the second
quarter of fiscal 1998.* Prices of the 200-APS will range from approximately
$1,000,000 to $2,500,000.

        90 Series. The 90 Series, the 90-S and the 90-SE photoresist processing
systems are designed for use in fabrication processes for integrated circuits
with line widths as narrow as 0.25 micron, such as is required for 64 megabit
DRAMs. The 90 Series incorporates a proprietary wafer transfer system to
increase throughput and provides features allowing it to interface with factory
automation systems, such as those using automated guided vehicles. The 90 Series
can process wafers up to eight inches in diameter. The 90-S and the more recent
90-SE offer improved cost of ownership through increased productivity and a
smaller floor space requirement. Prices of the 90 Series range from
approximately $650,000 to $1,500,000.

        8800 Series. The 8800 Series is designed to meet market needs for
photoresist contamination control and photoresist processing down to 0.8 micron
line widths. The 8800 Series incorporates such automation features as beltless
wafer handling, compatibility with low contamination wafer storage and movement
techniques, advanced software and communications capabilities and certain
process control improvements. The 8800 Series can process wafers from three to
six inches in diameter. Prices of the 8800 Series range from approximately
$350,000 to $750,000.

THERMCO SYSTEMS DIVISION (THERMCO)

        Thermco designs, manufactures, markets and services large batch thermal
processing products which address the oxidation/diffusion and LPCVD steps of the
semiconductor fabrication process. Thermco products are used for a broad range
of processing applications required in the fabrication of most semiconductor
devices, including growing insulating layers on the wafers, diffusing dopants
into the silicon structure and depositing insulating or conducting films on the
wafer surface. Thermco's products incorporate proprietary technology the Company
has developed in the areas of thermal control, gas handling, particle control
and automated wafer handling.



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<PAGE>   8

        There are two major configurations of thermal processing equipment,
commonly referred to as vertical and horizontal, corresponding to the
orientation of their reaction chamber(s). Vertical processing systems represent
an increasing portion of the market for oxidation/diffusion and LPCVD processing
equipment. Vertical reactors generally consist of a single, fully automated
cylindrical reaction chamber, individually controlled by a dedicated computer
control system. Vertical systems generally provide greater process uniformity
and lower particle contamination than do horizontal systems, due to improved
thermal control and an increased ability to maintain environmental integrity,
thereby achieving higher yields in wafer processing. Additionally, vertical
systems provide more flexibility in manufacturing configurations. Horizontal
thermal processing systems, which are typically much larger and less automated
than vertical reactors, were the standard of the semiconductor processing
equipment industry and are still used for a broad range of processes.

        Rapid Vertical Processor - 300 ("RVP-300"). Announced in 1997, the
RVP-300 is the latest addition to the vertical furnace product line. RVP-300 is
designed for processing of 300mm (12 inch) wafers addressing requirements for
0.18um technology and beyond. The design of RVP-300 focuses on maximizing
productivity and throughput. This is done by utilizing features such as fast
temperature ramp up and ramp down capability, Model Based Temperature Control
(MBTC) for optimized temperature control across the wafer, and a dual boat
configuration. Initial shipments of the RVP-300 are scheduled to ship in the
first half of 1998. Prices of the RVP-300 will range from $1,500,000 to
$1,800,000, depending on configuration.

        Series 9000 Rapid Vertical Processor ("RVP"). Introduced in 1996, the
RVP is based on the Advanced Vertical Processor ("AVP") platform, processes both
eight inch and six inch wafers and meets sub-.50 micron technology requirements.
The RVP features a proprietary and patented design that enables it to ramp up
and ramp down temperatures anywhere between twice and ten times as fast as the
AVP and offers faster throughput and tighter junction depth control for critical
anneals. By utilizing the AVP platform, the Company believes that the RVP, which
incorporates key features of the AVP, such as 16-cassette wafer handling and
model based temperature control (MBTC), offers the high reliability of the
established AVP product line. The typical price range of an RVP system is
$1,100,000 to $1,500,000, depending on process configuration.

        Series 8000 Advanced Vertical Processor ("AVP"). Initially shipped in
September 1992, the AVP is a vertical furnace designed to meet the eight and six
inch wafer requirements of sub-.50 micron processing. The Series 8000 single
tube systems include advanced process control, data acquisition software,
advanced automation, a proprietary process chamber design and an option for
atmospheric control within the wafer handling area. Key features of the AVP
system include storage capacity for sixteen 25-wafer cassettes ( 400 wafers),
and model based temperature control (MBTC) for accurate wafer temperature
regulation. The AVP system is designed to offer customers a low cost of
ownership, through high productivity and a low square footage requirement. The
typical price range of an AVP system is $700,000 to $1,000,000, depending on
process configuration.

        Vertical Thermal Reactor ("VTR"). Thermco's VTR processes wafers from
100mm to 200mm in diameter. It operates under computer control, providing
specialized process recipe introduction, cassette-to cassette automation,
monitoring of critical system functions and automated loading of wafers into the
reaction chamber. In general, the VTR offers comparable reliability, lower
contamination and better process uniformity than horizontal reactors. The VTR
can be installed through-the-wall in a customer's clean room facility and is
compatible with industry standard software interfaces. The VTR 7000PLUS, in
comparison to earlier versions of VTR's, offers improved process control,
uniformity, reduced particle levels, higher throughput, internal storage
capabilities and the industry's standard mechanical interface (SMIF). Typical
prices for the Company's VTR products range from approximately $500,000 to
$900,000.

        Horizontal Processing Systems. The typical horizontal system consists of
four separately controlled cylindrical reaction chambers which are mounted
horizontally, one directly above the other. Horizontal systems are a mature
product family. Sales of these systems have been declining in recent years, as
semiconductor manufacturers have increasingly installed vertical reactors in
their newer fabrication facilities and the Company expects this trend to
continue. However, the Company believes that manufacturers of less complex
devices will continue to have some need for horizontal processing systems for
the foreseeable future, but at successively declining rates.* In addition, the
existing installed base of horizontal processing systems enables the Company to




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generate revenues through the sale of spare parts and upgrades. Prices for
horizontal systems range from approximately $400,000 to $900,000.

CUSTOMERS

        The Company's customer base includes companies that manufacture
semiconductor devices primarily for sale to others and companies that
manufacture semiconductor devices primarily for internal use. Repeat sales to
existing customers represent a significant portion of the Company's processing
equipment sales. The Company believes that its installed customer base
represents a significant competitive advantage.* By working closely with its
established customer base, the Company is able to identify new product
development opportunities. The Company's major customers during fiscal 1997
included the following:

<TABLE>

<S>                                <C>                                <C>  
   Hewlett-Packard                 Motorola                            SGS-Thomson
   IBM                             Phillips Semiconductor              Samsung
   Intel                           ProMos Technologies                 Siemens
   Macronix International
</TABLE>

        The Company relies on a limited number of customers for a substantial
percentage of its sales. In fiscal 1996, Intel, Motorola and IBM represented
31%, 10% and 7%, respectively, of sales and the Company's largest five customers
represented 60% of sales. For fiscal 1997, Intel and IBM represented 38% and
22%, respectively, of sales and the Company's largest five customers represented
74% of sales. In fiscal 1996 and 1997, Intel represented a substantial portion
of the total sales of both Track and SVGL. The loss of a significant customer
(and in particular the loss of Intel as a Track or SVGL customer), a delay in
shipment due to customer rescheduling or any substantial reduction in orders by
a significant customer, including reductions in orders due to market, economic
or competitive conditions in the semiconductor industry, would adversely affect
the Company's business and results of operations. *

MARKETING, SALES AND SERVICE

        The Company markets and sells its products primarily to independent
manufacturers of semiconductor devices and computer, telecommunications and
other companies that manufacture semiconductor devices for their own use. The
market for the Company's products is worldwide. The Company sells its products
in the United States principally through its direct sales organization. The
Company sells its products overseas through a direct sales staff, independent
distributors and independent representatives in Europe, Israel and the Far East.
The following table sets forth the Company's revenues by geographic area as a
percentage of net sales for the three fiscal years ended September 30, 1997:

<TABLE>
<CAPTION>
                                         YEARS ENDED SEPTEMBER 30,
                                    1995           1996          1997

<S>                                 <C>             <C>           <C>
United States                       68%             65%           72%
Western Europe                      24              25            18
Far East                             8              10            10
</TABLE>

        Reliability, which is commonly measured in up-time and mean time between
failure, and performance are increasingly important factors by which customers
evaluate the potential suppliers of sophisticated processing systems. The
Company believes that its field service and process support capabilities are
major factors in its selection as an equipment supplier. Increasingly,
semiconductor manufacturers are requiring seven-day, around the clock, on site
or on call support. To meet this need, the Company continues to expand its field
service organization, increase its technical and process support personnel,
enhance its training programs and increase spare part inventories deployed at
both customer sites and regional field depots. Service personnel are based in
field offices throughout the United States, Western Europe, Japan and the
Pacific Rim and increasingly on site at particularly large customer locations.



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        The Company warrants its products against defects in design, materials
and workmanship, generally for periods ranging from one to two years.

BACKLOG

   At September 30, 1997 and 1996, the Company had backlog of approximately
$421,000,000 and $395,000,000, respectively. The Company includes in backlog
only those orders to which a purchase order number has been assigned by the
customer and for which delivery has been specified within 12 months. Such orders
are subject to cancellation by the customer with limited charges. Because of the
possibility of customer changes in delivery schedules, cancellation of orders
and potential delays in product shipments, the Company's backlog as of any
particular date may not be representative of actual sales for any succeeding
period. During the first quarter of calendar 1996 (the Company's second fiscal
quarter), the growth rate of the worldwide semiconductor industry, measured in
terms of its book-to-bill ratio, declined. During the four fiscal quarters ended
March 1997, the Company's quarterly customer order bookings ("bookings") were
substantially below first half fiscal 1996 levels and the Company experienced
customer deferrals of scheduled equipment delivery dates and, to a lesser
extent, customer order cancellations. Notwithstanding a significant increase in
bookings during the third and fourth quarters of fiscal 1997, the Company's
fiscal 1997 shipments were below fiscal 1996 levels as a result of the lower
bookings in the preceding fiscal quarters. There can be no assurance that the
Company will not again experience customer delivery deferrals, order
cancellations or a prolonged period of customer orders at reduced levels, any or
a combination of which would have an adverse effect on its operating results.*

        Approximately 10% of the Company's backlog at September 30, 1997
consisted of orders from customers in the Pacific Rim. In light of the recent
economic downturn in certain Asian countries, there can be no assurance that the
Company will be able to obtain additional orders or that it will not experience
cancellations or deferrals of existing orders from customers in such countries,
any of which would have an adverse effect on the Company's business and results
of operations.*

RESEARCH, DEVELOPMENT AND RELATED ENGINEERING

        The market served by the Company is characterized by rapid technological
change. Accordingly, the Company's product and process development programs are
devoted to the development of new systems and processes, including new
generations of products for existing markets, enhancements and extensions of
existing products and custom engineering for specific customers. The Company
believes that its future success will depend, in part, upon its ability to
successfully introduce and manufacture new and enhanced products and processes
which satisfy a broad range of customer needs and achieve market acceptance.
Accordingly, the Company works closely with semiconductor manufacturers,
industry consortia, and research institutions to respond to the industry's
evolving product and process requirements. The Company's research staff
collaborates with key customers in order to evaluate designs, specifications and
prototypes of the Company's new products.

        The Company believes that in selecting a photolithography equipment
manufacturer, customers look for a supplier with a long term product development
strategy and the ability to fund that development since photolithography
exposure equipment can represent a substantial portion of the equipment cost of
a fabrication facility. Semiconductor manufacturers may be unwilling to rely on
a relatively small supplier such as the Company for a critical element of the
fabrication process if they believe that the Company does not have sufficient
capital to implement its product development strategy. The Company depends in
part on external sources to fund its photolithography development efforts. The
agreements which are currently in effect are discussed in detail below.

        In September 1994, the Company and SEMATECH entered into a series of
agreements whereby the Company sold SEMATECH warrants to purchase the Company's
Common Stock and SEMATECH agreed, based upon the Company achieving certain
performance milestones, to provide, through 1997, $17,500,000 of funding for the
development of the Micrascan technology and $4,500,000 to increase SVGL's
manufacturing capability and capacity. As of September 30, 1997, the Company had
recognized all of the SEMATECH funding. Under the 



                                       8
<PAGE>   11

agreements with SEMATECH, the Company was obligated to provide certain funds
from its own resources. The Company has fulfilled these contractual obligations.

        During fiscal 1996, the Company entered into agreements with certain
customers (the "Participants") whereby each agreed to assist in funding the
Company's development of an advanced technology 193 nanometer Micrascan system.
In exchange for such funding, each Participant received the right to purchase
one such system and, in addition, received a right of first refusal (ratable
among such Participants) to all such machines manufactured during the first two
years following the initial system shipments. For each initial system ordered,
each Participant agreed to fund $5,000,000 in such development costs. The
agreements call for each Participant to pay $1,000,000 of initial development
funding and four subsequent payments of $1,000,000 upon the completion of
certain development milestones. The Participants may withdraw from the
development program without penalty, but payments made against completed
development milestones are not refundable and all preferential rights to future
equipment are forfeited. At September 30, 1997, the Company had received
$16,000,000 in development funding from six Participants, of which $8,085,000
had been recognized and offset against research and development expenditures. In
March 1997, one participant withdrew from the program. There can be no
assurances that the other Participants will remain in the program.* In the event
that the Company does not receive the funding anticipated under the agreements,
it would be required to replace the shortfall from its own funds or other
sources. If the Company were required to use its own funds, its research and
development expenses would increase and its operating income would be reduced
correspondingly. The agreements with the Participants stipulate that if the
Company receives funding for the development program in excess of $25,000,000,
it will issue, ratably to the Participants, credits totaling such excess in the
form of a cash discount which can be applied to the purchase of additional
systems by each Participant.

        The Company anticipates that it will need to continue to make
substantial research and development expenditures, particularly in its
photolithography products, in order to remain competitive in the semiconductor
equipment industry. There is no assurance that the Company will receive all
funding which it currently anticipates or that it will be able to obtain future
outside funding beyond that which it is currently receiving. If the Company were
not able to secure additional external funding, its new product development and
product enhancement efforts would either be impaired or would have an adverse
effect on the Company's results of operations.

        In connection with the Company's acquisition of SVGL in 1990, SVGL
received an equity investment and research and development funding commitments
for Micrascan from IBM. Under the terms of the related research and development
agreement, SVGL owed IBM certain royalties based on future operating results.
During the second quarter of fiscal 1997, the Company satisfied its obligation,
recognized an expense of $32,582,000, which represented royalties related to
products currently under development, and recorded a prepayment of $5,418,000,
which represented royalties related to existing products which are being
amortized through fiscal 2000 in proportion to the related product sales.

        The Company has historically devoted a significant portion of its
personnel and financial resources to research and development programs. For
fiscal years 1997, 1996, and 1995, total research and development expenditures
were approximately $82,000,000, $72,000,000, and $53,000,000, respectively, of
which approximately $8,000,000, $5,000,000, and $13,000,000, respectively, was
funded by outside parties. Substantially all of the development funding has been
received by SVGL for the development of its Micrascan technology and systems.
During prior years, the majority of development funding was received from
SEMATECH. In fiscal 1997, the funding was received primarily from the
Participants for the development of the advanced technology 193 nanometer
system.

COMPETITION

        The semiconductor equipment industry is intensely competitive. The
Company faces substantial competition both in the United States and other
countries in all of its products. The Company's competitors include Tokyo
Electron, Ltd. ("TEL") and DaiNippon Screen Mfg. Co., Ltd. in photoresist
processing equipment; TEL and Kokusai Electric Co., Ltd. in oxidation/diffusion
and LPCVD equipment; and Nikon, Canon, ASM Lithography and other suppliers of
photolithography exposure equipment, including manufacturers of steppers and
projection aligners. The trend toward consolidation in the semiconductor
processing equipment 



                                       9
<PAGE>   12

industry has made it increasingly important to have the financial resources
necessary to compete effectively across a broad range of product offerings, to
fund customer service and support on a worldwide basis and to invest in both
product and process research and development. Significant competitive factors
include technology and cost of ownership, a formula which includes such data as
initial price, system throughput and reliability and time to maintain or repair.
Other competitive factors include familiarity with particular manufacturers'
products, established relationships between suppliers and customers, product
availability and technological differentiation. Occasionally, the Company has
encountered intense price competition with respect to particular orders and has
had difficulty establishing new relationships with certain customers who have
long-standing relationships with other suppliers. The Company believes that
outside Japan and the Pacific Rim it competes favorably with respect to most of
these factors.* (See "Importance of Japanese and Pacific Rim Markets".)

        Many of the Company's competitors are Japanese corporations. With the
current strength of the U.S. dollar in relation to the Japanese yen, the
Company's ability to compete on the basis of price has been and may continue to
be impaired. In light of the recent economic downturn in certain Asian countries
which represent significant markets for such competitors, the Company believes
that it may encounter more severe price competition in its non-Asian markets.

        Certain of the Company's existing and potential competitors have
substantially greater name recognition, financial, engineering, manufacturing
and marketing resources and customer service and support capabilities than the
Company. Additionally, the Company is a relative newcomer in the
photolithography exposure market. Nikon, and to a lesser extent Canon, have long
established relationships as suppliers of photolithography equipment to most of
the semiconductor manufacturers. Although the Company has supplied Track and
Thermco equipment to many of these customers, it has not previously sold
meaningful quantities of Micrascan photolithography equipment to them.

        The Company's competitors can be expected to continue to improve the
design and performance of their current products and processes and to introduce
new products and processes with improved price/performance characteristics.

        The Micralign products manufactured by SVGL are generally not
competitive with steppers for fabrication of semiconductor devices with line
widths smaller than 1.25 micron. In marketing Micrascan systems, SVGL continues
to face competition from suppliers employing other technologies, principally
I-Line and Deep UV steppers, including Nikon Corp., Canon and ASM Lithography.
Additionally, two competitors, Nikon and ASM Lithography have begun shipping
initial quantities of .25 micron step and scan photolithography systems which
utilize Deep UV light sources, and the Company believes that Canon will begin
initial shipments of a similar step and scan system in the near future.* Stepper
manufacturers have been successful in extending the capability of I-Line
steppers which have been utilized in the fabrication of complex semiconductor
devices with line widths of less than 0.5 micron, such as 64 megabit DRAMs. The
Company believes Deep UV lithography will be required to fabricate devices with
line widths below 0.3 micron.* Semiconductor manufacturers can purchase Deep UV
steppers to produce product at .25 micron line widths. However, the Company
believes that as devices increase in complexity and size and require finer line
widths, the technical advantages of Deep UV step and scan systems as compared to
Deep UV steppers will enable semiconductor manufacturers to achieve finer line
widths with improved critical dimension control to produce higher yields of
faster devices.* There can be no assurance that the Company will be successful
in competing with such systems.* The availability of limited quantities of .25
micron step and scan systems from Nikon, as well as ASM Lithography, or
announcements of competitive product introductions by Canon or some other
supplier, may cause customers to delay purchases from the Company until such new
products have been evaluated.* Further, if manufacturers of I-Line or Deep UV
steppers are able to further enhance existing technology to achieve finer line
widths sufficiently to erode the competitive and technological advantages of
Deep UV step and scan systems, demand for the Micrascan technology may not
develop as the Company expects.*




                                       10
<PAGE>   13

 IMPORTANCE OF THE JAPANESE AND PACIFIC RIM MARKETS

        The Company's customers are heavily concentrated in the United States
and Europe. The Japanese and Pacific Rim markets (including fabrication plants
located in other parts of the world which are operated by Japanese and Pacific
Rim semiconductor manufacturers) represent a substantial portion of the overall
market for semiconductor manufacturing equipment. To date, neither the Company's
shipments into Japan nor into the Pacific Rim have been significant. The Company
believes that the Japanese companies with which it competes have a competitive
advantage because their dominance of the Japanese and Pacific Rim semiconductor
equipment market provides them with the sales and technology base to compete
more effectively throughout the rest of the world. The Company is not engaged in
any significant collaborative effort with any Japanese or Pacific Rim
semiconductor manufacturers. As a result, the Company may be at a competitive
disadvantage to the Japanese equipment suppliers which are engaged in such
collaborative efforts with Japanese and Pacific Rim semiconductor manufacturers.
The Company believes that it must substantially increase its share of these
markets if it is to compete as a global supplier.* Further, in many instances,
Japanese and Pacific Rim semiconductor manufacturers fabricate devices such as
dynamic random access memory devices ("DRAMs"), with potentially different
economic cycles than those affecting the sales of devices manufactured by the
majority of the Company's U.S. and European customers. Failure to secure
customers in these markets may limit the global market share available to the
Company and may increase the Company's vulnerability to industry or geographic
downturns.*

        In the past, several of the Company's larger customers have entered into
joint ventures ("JV") with European, Japanese or Pacific Rim semiconductor
manufacturers. In such cases, the Company has encountered intense price
competition from foreign competitors who are suppliers to the non-U.S. member of
the JV. Further, in certain instances the Company has not secured the equipment
order when the non-U.S. member has had the responsibility for selecting the
equipment to be used by the JV in its U.S. operations. There can be no assurance
that as the Company's customers form additional alliances, whether in the U.S.
or in other parts of the world, that the Company will be successful in obtaining
equipment orders or that it will be able to obtain orders with sufficient gross
margin to generate profitable transactions, either of which could have an
adverse effect on the Company's results of operations.*

        In the Pacific Rim, the Company has been investing in the staffing and
facilities necessary to sell, service and support customers, primarily in Korea,
and intends to commence such investments in Taiwan.* Throughout the Pacific Rim,
the Company will be competing with established equipment suppliers with
significant market share and anticipates that it will encounter significant
price competition as well as competition based on technological ability.* There
can be no assurance that the Company's Pacific Rim operations will be
profitable, even if it is successful in obtaining significant sales into this
region.* Further, in light of the recent economic downturn in certain Asian
countries, there can be no assurance that the Company will be able to obtain
additional orders or that it will not experience cancellations or deferrals of
existing orders from customers in such countries, any of which would have an
adverse effect on the Company's business and results of operations.*

MANUFACTURING AND RAW MATERIALS

        The Company manufactures its products from standard components and from
components manufactured by others according to the Company's design
specifications. Track products are manufactured in San Jose, California. Thermco
manufactures most of its products in Orange, California and has a limited
manufacturing facility in Billingshurst, West Sussex, England. SVGL
photolithography exposure products are manufactured in Wilton and Ridgefield,
Connecticut.

        From time-to-time, the Company has experienced delays in the
introduction of its products and product enhancements due to technical,
manufacturing and other difficulties and may experience similar delays in the
future.* For example, during fiscal 1996, the Company announced a new Track
product, the 200-APS. Initial shipments of the 200-APS were scheduled to
commence during the second quarter of fiscal 1997, but have been delayed by
approximately twelve months.* There can be no assurance that the Company will
not experience manufacturing problems as a result of instability of the design
of either the hardware or software elements of the new technology, or be able to
efficiently manufacture the 200-APS or other products.* These issues could
result in product delivery 



                                       11
<PAGE>   14


delays and a subsequent loss of future sales.* Semiconductor manufacturers tend
to select either a single supplier or a primary supplier for a certain type of
equipment. The Company believes that prolonged delays in delivering initial
quantities of newly developed products to multiple customers, whether due to the
protracted release of product from engineering into manufacturing or due to
manufacturing difficulties, could result in semiconductor manufacturers electing
to install competitive equipment in their fabrication facilities and could
preclude industry acceptance of the Company's products.* Therefore, the
Company's inability to effect the timely production of new products or any
failure of these products to achieve market acceptance could have a material
adverse effect on the Company's business and results of operations.*

        Historically, the unit cost of the Company's products has been the
highest when they are newly introduced into production and cost reductions have
come over time through engineering improvements, economies of scale and
improvements in the manufacturing process.* As a result, new products have, at
times, had an unfavorable impact on the Company's gross margins and results of
operations. There can be no assurance that the initial shipments of new products
will not have an adverse effect on the Company's profitability or that the
Company will be able to attain design improvements, manufacturing efficiencies
or manufacturing process improvements over time.* Further, the potential
unfavorable effect of newly introduced products on profitability can be
exacerbated when there is intense price competition in the marketplace.*

        Based upon its forecast of continued high growth in demand for
photolithography equipment and potential future demand for advanced lithography
products, the Company is increasing SVGL's production capacity under an
extremely aggressive expansion schedule.* In August 1996, as part of this
expansion, the Company purchased from The Perkin-Elmer Corporation a 243,000
square foot facility occupied by SVGL in Wilton, Connecticut and an additional
201,000 square foot building, which SVGL now occupies, in Ridgefield,
Connecticut. During fiscal 1997, the Company has invested in significant further
capital improvements related to the buildings purchased and the equipment
required to expand the production capabilities of SVGL.* In addition to the
timely construction and equipping of facilities, successful completion of this
expansion will require the recruitment, training and retention of a high quality
workforce, and the achievement of satisfactory manufacturing results on a scale
greater than SVGL has attempted in the past. There can be no assurance that the
Company can manage these efforts successfully. Any failure to manage such
efforts could result in product delivery delays and a subsequent loss of future
revenues. In particular, the Company believes that protracted delays in
delivering quantities of Micrascan products could result in semiconductor
manufacturers electing to install competitive equipment in their advanced
fabrication facilities, which could impede acceptance of the Micrascan products
on an industry-wide basis. In addition, the Company's operating results could
also be adversely affected by the increase in fixed costs and operating expenses
related to increases in production capacity if net sales do not increase
commensurately.

        One of the most critical components of the Micrascan systems are the
projection optics, which are primarily manufactured by SVGL. As part of its
overall investment in capacity, the Company is increasing SVGL's optical
manufacturing floorspace, procuring metrology equipment, and in some instances
fabricating test stands. The Company believes that in order for SVGL to attain
it goals, it must successfully reduce the cycle times required to build
projection optics and increase the optical manufacturing output.*

        On November 26, 1997, the Company acquired Tinsley Laboratories, Inc.
("TLI") in exchange for approximately 1,091,000 shares of Company Common Stock.
TLI designs, manufactures and sells precision optical components, assemblies and
systems to customers in a variety of industries and research endeavors. A
primary reason for the acquisition was TLI's technology and expertise relating
to aspherical lenses, a key component of SVGL's photolithography products, and
to have TLI commence fabrication of non-aspherical lenses which are currently
produced by SVGL.* However, there can be no assurance that TLI's technology is
scalable, or that such expertise can be transferred without substantial time or
expense, if at all. The inability of SVGL to transfer this production technology
for use in processes of a substantially larger scale could have a material
adverse effect on the Company's ability to realize any significant benefits from
the acquisition of TLI.

        Most raw materials and components not produced by the Company are
available from more than one supplier. However, certain raw materials,
components and subassemblies are obtained from single sources or a limited group
of suppliers. Although the Company seeks to reduce its dependence on these sole
and limited source 


                                       12
<PAGE>   15

suppliers and the Company has not experienced significant production delays due
to unavailability or delay in procurement of component parts or raw materials to
date, disruption or termination of certain of these sources could occur and such
disruptions could have at least a temporary adverse effect on the Company's
business and results of operations. Moreover, a prolonged inability to obtain
certain components could have a material adverse effect on the Company's
business and results of operations and could result in damage to customer
relationships.

        The raw material for a proprietary component of the optical system for
the Micrascan is available from only one supplier and SVGL's projected demand
will require that supplier to expand its capacity. The supplier has committed to
expand its capacity to meet SVGL's projected requirements in exchange for a
long-term, non-cancelable supply agreement. The agreement specifies quantities
of material that increase over time and the supplier is obligated to create and
store certain defined quantities of safety stock. Additionally, a version of the
Company's Micrascan III photolithography system utilizes an Excimer laser
manufactured in volume by only one supplier. There can be no assurance that
either supplier will be able to supply the quantities of material required by
SVGL. If either supplier was unable to meet its commitments, SVGL would be
unable to manufacture the quantity of systems required to meet the anticipated
future demand, which would have a material adverse effect on the Company's
business and results of operations. SVGL is currently working to qualify an
additional source of lasers for its current and future versions of Micrascan
systems. However, there can be no assurance that these efforts will be
successful.

PATENTS AND LICENSES

        The Company owns several domestic and foreign patents relating to the
businesses of Track, Thermco and SVGL. Although the Company has historically
relied and continues to rely on the technical and marketing competence and
creative ability of its personnel, rather than patents, to maintain its
competitive position, it has begun to pursue both domestic and foreign patent
protection more aggressively.

        As is typical in the semiconductor equipment industry, the Company has
from time to time received, and may in the future receive, communications from
third parties asserting patents or copyrights on certain of the Company's
products and technologies. At least one of the Company's customers has notified
the Company that it has received a notice of infringement from Jerome H.
Lemelson, alleging that equipment used in the manufacture of electronic devices
infringes patents issued to Mr. Lemelson relating to "machine vision" or
"barcode reader" technologies. The customer has put the Company on notice that
it intends to seek indemnification from the Company for any damages and expenses
resulting from this matter if found liable or if the customer settles the claim.
Although the Company has not received any recent communications on this subject,
it cannot predict the outcome of this or any similar claim or its effect upon
the Company, and there can be no assurance that any such litigation or claim
would not have a material adverse effect upon the Company's financial condition
or results of operations.

ENVIRONMENTAL REGULATION

        To date, the Company has not encountered significant issues regarding
the discharge of material into the environment or otherwise relating to the
protection of the environment and therefore has not been required to spend
significant amounts for capital or non-capital expenditures in order to comply
with laws and regulations pertaining thereto.

        In August 1996, the Company purchased from Perkin-Elmer, approximately
50 acres of land and a 201,000 square foot building thereon (the "Property")
located in Ridgefield, Connecticut. At the time the Company purchased the
Property, it was aware that certain groundwater and soil contamination was
present and that the Property was subject to a clean-up order being performed by
Perkin-Elmer under the jurisdiction of the Connecticut Department of
Environmental Protection. Agreements between the Company and Perkin-Elmer
provide that Perkin-Elmer has sole responsibility for all obligations or
liabilities related to the clean-up order. While the Company believes that it
has been adequately indemnified, if for some reason Perkin-Elmer was unable to
comply or did not comply with the clean-up order, the Company could be required
to do so.

        The Company does not anticipate any material capital expenditures for
environmental control facilities in 1998.*



                                       13
<PAGE>   16

BUSINESS INTERRUPTION

        The Company manufactures its Track products in San Jose, California and
substantially all of its Thermco products in Orange, California. SVGL's
photolithography exposure products are manufactured in Wilton and Ridgefield,
Connecticut. If the Company were to lose the use of one of its facilities as a
result of an earthquake, flood or other natural disaster, the resultant
interruptions in operations would have a material adverse effect on the
Company's results of operations and financial condition. The Company's
California facilities are located in seismically active regions.

EMPLOYEES

        At September 30, 1997, the Company had 3,099 full-time employees and 290
part-time employees and contract personnel, including 674 in research and
development, 1,507 in manufacturing, 1,047 in marketing, sales and customer
service and support and 161 in administration. None of the Company's employees
are represented by a union. Management considers its relations with its
employees to be good.

        The Company's future success is dependent upon its ability to attract
and retain qualified management, technical, sales and support personnel for its
operations. In particular, SVGL's growth is very dependent on the Company's
ability to attract and retain key skilled employees, particularly those related
to the optical segment of its business. The competition for such personnel is
intense. Some key positions in the Company are held by persons who have only
recently been appointed to such positions. The Company's growth has increased
its dependence on key management personnel. The loss of certain key people, the
failure of key persons to perform in their current positions or the Company's
inability to attract and retain new key employees could materially adversely
affect the Company's performance.



                                       14
<PAGE>   17

EXECUTIVE OFFICERS OF THE REGISTRANT

        The executive officers of the Company are as follows:

<TABLE>
<CAPTION>
        NAME                       AGE                    POSITION
<S>                                <C>      <C>
Papken S. Der Torossian            58       Chairman of the Board and Chief Executive Officer
William A. Hightower               54       President and Chief Operating Officer
Russell G. Weinstock               54       Vice President, Finance and Chief Financial Officer
Edward A. Dohring                  64       Vice President, President, SVG Lithography Systems, Inc.
Steven L. Jensen                   48       Vice President, Worldwide Sales and Service
Jeffrey M. Kowalski                44       Vice President, President, Thermco Systems Division
Boris Lipkin                       50       Vice President, Corporate
John W. Mathews                    49       Vice President, Worldwide Service
Larry W. Sonsini                   56       Secretary
</TABLE>

        Mr. Der Torossian became Chairman of the Board and Chief Executive
Officer in July 1991, and has been a director of the Company since October 1984.

        Mr. Hightower became President and Chief Operating Officer in August
1997. He has been a member of the Board of Directors of the Company since 1994.
From January 1996 to August 1997, Mr. Hightower was the Chairman of the Board of
Directors and Chief Executive Officer of Cadnet Corporation and from August 1989
to December 1995, he was the President and Chief Executive Officer of Telematics
International, Inc.

        Mr. Weinstock has been Vice President of Finance and Chief Financial
Officer of the Company and Vice President of Finance and Chief Financial Officer
of SVGL since July 1990.

        Mr. Dohring became a Vice President of the Company in July 1992. He
became President of SVG Lithography Systems, Inc. in October 1994. From June
1992 to October 1994, he was President of Track.

        Mr. Jensen became a Vice President of the Company in July 1992 and Vice
President, Worldwide Sales in April 1992.

        Mr. Kowalski became a Vice President of the Company and President of
Thermco in January 1995. From November 1992 to January 1995 he was the Vice
President of Marketing of Thermco, as well as its Vice President of Technology
from November 1993. Mr. Kowalski joined the Company in 1987 and prior to
November 1992 held various management positions in its engineering organization.

        Mr. Lipkin became a Vice President of the Company in March 1995. From
August 1992 to March 1995 he was the Vice President and General Manager of the
Thin Film Systems business unit of Varian Associates.

        Mr. Mathews joined the Company in September 1993 and became a Vice
President in October 1993. From November 1994 he has been Vice President,
Worldwide Service. From September 1993 to November 1994 he was Vice President,
Corporate Operations. From October 1992 to September 1993, Mr. Mathews was Vice
President and General Manager of Acume Technologies, Inc.

        Mr. Sonsini has been Secretary since November 1988. He was a member of
the Board of Directors of the Company from 1991 to 1997. Mr. Sonsini is a member
of the law firm of Wilson Sonsini Goodrich & Rosati, Professional Corporation,
counsel to the Company, and is the Chairman of the firm's Executive Committee.
Mr. Sonsini serves on the boards of directors of Lattice Semiconductor
Corporation, Novell, Inc., and PIXAR.

                                       15
<PAGE>   18



ITEM 2.  PROPERTIES.

        The Company's corporate headquarters are located in San Jose, California
in 36,000 square feet of office space. This space is under a lease that expires
in 2006 and has a current base rental of approximately $60,000 per month.

        The Company's Track Systems Division has two leased facilities in San
Jose, California. The first is a 90,000 square foot, two-story building with a
current monthly base rental of approximately $95,000 and a lease expiration of
2004. The second is also a two story building consisting of approximately 83,000
square feet. The monthly base rental for this facility is approximately $84,000
under a lease expiring in 1998.

        In March 1996, the Company purchased approximately nine acres of land
adjacent to one of the Track facilities in San Jose, California. Although the
Company currently has no plans to develop the parcel, it provides the
flexibility for future expansion of the Company's Track operations and its
thermal processing lab.

        The Thermco Systems Division has two facilities in Orange, California.
The first facility consists of approximately 92,000 square feet with a base
monthly rent expense of approximately $50,000 under a lease expiring in 1999.
The second facility consists of approximately 77,000 square feet with a base
monthly rental expense of approximately $43,500 under a lease expiring in 1999.

        SVGL owns two facilities in Fairfield County, Connecticut. The first
consists of approximately 29 acres of land and buildings totaling approximately
243,000 square feet, located in Wilton, Connecticut. The second consists of
approximately 50 acres of land and a 201,000 square foot building located in
Ridgefield, Connecticut. As part of its expansion of SVGL's capacity, the
Company is in the process of adding an additional 33,000 square feet to the
Wilton facility.

        The Company also leases storage and warehouse space near its
headquarters in San Jose, office space near its Thermco facilities in Orange,
sales and service offices in key locations throughout the United States, Western
Europe and the Pacific Basin, and space for a limited manufacturing operation in
the United Kingdom.

ITEM 3.  LEGAL PROCEEDINGS.

        The Company, from time to time, is party to various legal actions
arising out of the normal course of business, none of which is expected to have
a material effect on the Company's financial position or operating results.

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

        No matter was submitted to a vote of the Company's security holders
during the fiscal quarter ended September 30, 1997.

                                       16
<PAGE>   19
                                     PART II


ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

        The information required by this Item is set forth in Registrant's
Annual Report to Stockholders for the fiscal year ended September 30, 1997, at
page 33 under the caption "Common Stock Prices", which information is
incorporated herein by reference.

ITEM 6.  SELECTED FINANCIAL DATA.

        The information required by this Item is set forth in Registrant's
Annual Report to Stockholders for the fiscal year ended September 30, 1997, at
page 33 under the caption "Five-Year Selected Financial Data", which information
is incorporated herein by reference.

ITEM  7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
          RESULTS OF OPERATIONS.

        The information required by this Item is set forth in Registrant's
Annual Report to Stockholders for the fiscal year ended September 30, 1997, at
pages 34 to 44 under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations", which information is
incorporated herein by reference.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

        The information required by this Item is set forth in Registrant's
Annual Report to Stockholders for the fiscal year ended September 30, 1997, at
pages 13 to 32, which information is incorporated herein by reference.

        The Company observes a 52-53 week fiscal year ending on the Friday
closest to September 30. Under this practice, the Company's last three fiscal
years ended September 29, 1995, September 27, 1996, and October 3, 1997. For
convenience, this Report and the Company's Consolidated Financial Statements
refer to all such fiscal years as ending at September 30. Fiscal 1995 and fiscal
1996 each included 52 weeks. Fiscal 1997 included 53 weeks.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.

        Not applicable.

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

        With the exception of the information expressly incorporated by
reference from the Annual Report to Stockholders into Parts II and IV of this
Form 10-K, the Company's Annual Report to Stockholders is not to be deemed filed
as part of this report.

                                       17
<PAGE>   20
                                    PART III


        Certain information required by Part III is omitted from this Report in
that the Registrant will file its definitive Proxy Statement for the Annual
Meeting of Stockholders to be held on February 19, 1998, pursuant to Regulation
14A of the Securities Exchange Act of 1934 (the "Proxy Statement"), not later
than 120 days after the end of the fiscal year covered by this Report, and
certain information included in the Proxy Statement is incorporated herein by
reference.

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

        (a)  Executive  Officers. See the section entitled "Executive Officers
of the Registrant" in Part I, Item 1.

        (b) Directors. The information required by this Item is incorporated by
reference to the section entitled "Election of Directors" in the Proxy
Statement.

ITEM 11.  EXECUTIVE COMPENSATION.

        The information required by this Item is incorporated by reference to
the section entitled "Executive Compensation" in the Proxy Statement.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

        The information required by this Item is incorporated by reference to
the section entitled "Stock Ownership of Certain Beneficial Owners and
Management" in the Proxy Statement.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

        The information required by this Item is incorporated by reference to
the section entitled "Certain Transactions" in the Proxy Statement.

                                       18
<PAGE>   21
                                     PART IV


ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K.

        (a) 1. FINANCIAL STATEMENTS.

               The following consolidated financial statements of the Company
        included in the Company's Annual Report to Stockholders for the fiscal
        year ended September 30, 1997, are incorporated by reference:

                Independent Auditors' Report.

                Consolidated Balance Sheets at September 30, 1997 and 1996.

                Consolidated Statements of Income for the Years Ended September
                30, 1997, 1996 and 1995.

                Consolidated Statements of Stockholders' Equity for the Years
                Ended September 30, 1997, 1996 and 1995.

                Consolidated Statements of Cash Flows for the Years Ended
                September 30, 1997, 1996 and 1995.

                Notes to Consolidated Financial Statements.

            2.  SUPPLEMENTAL SCHEDULE.

                Independent Auditors' Report.

                Schedule II -- Valuation and Qualifying Accounts.


Financial Statement Schedules, other than the schedule listed above, have been
omitted because the required information is contained in the Consolidated
Financial Statements and the Notes thereto, or because such schedules are not
required or applicable.


                                       19
<PAGE>   22
             3.  EXHIBITS.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER
<S>        <C>
 10.42**   Employment Agreement between Registrant and Papken S. Der
           Torossian, dated August 1, 1997.

 10.43**   Employment Agreement between Registrant and William A.
           Hightower, dated August 1, 1997.

 10.44**   Employment Agreement between Registrant and Russell G.
           Weinstock, dated August 1, 1997.

 10.45**   Employment Agreement between Registrant and Boris Lipkin, dated 
           August 1, 1997.

 13.1      Selected data from Annual Report to Stockholders for fiscal year
           ended September 30, 1997.

 21.1      Registrant's wholly-owned subsidiaries are (i) SVG Lithography
                Systems, Inc., a Delaware Corporation (SVGL), (ii) Tinsley
                Laboratories, Inc., a California Corporation ("TLI"), (iii)
                Silicon Valley Group, K.K., a Japanese corporation, (iv) SVG
                International Service, a California corporation ("SVG
                International"), (v) Silicon Valley Group FSC Incorporated, a
                Barbados corporation, (vi) SVG Israel, Inc., a Delaware
                corporation and (vii) SVG Thailand, Inc., a Delaware
                corporation. SVG Lithography Japan Co., Ltd., a Japanese
                Corporation, SVG Lithography (Europe) B.V., a Netherlands
                Corporation, SVG Lithography Systems Korea, Inc., a Delaware
                corporation, SVG France S.A.R.L., a French corporation, and SVG
                Lithography Systems FSC, Inc., a Barbados corporation are
                wholly-owned by SVGL. Century Precision Industries, Inc., a
                California Corporation is wholly-owned by TLI. SVG Europe
                Limited, a United Kingdom corporation ("SVG Europe"), SVG
                France, S.A.R.L., a French corporation, Silicon Valley Group
                Deutschland GmbH, a German corporation, SVG Systems (Asia) Pte.
                Ltd., a Singapore corporation and Thermco Systems (Far East)
                Limited, a Hong Kong corporation are wholly-owned by SVG
                International. UK Systems Limited, an English corporation, is
                wholly-owned by SVG Europe.

 23.1      Consent of Deloitte & Touche LLP, independent auditors.

 24.1      Power of Attorney (see page 22).

 27        Financial Data Schedule.
</TABLE>

--------------------------------------
**      Management contract or compensatory plan or arrangement required to be
        filed as an exhibit to this Form 10-K pursuant to Item 14(c) of this
        report.

                (b)  REPORTS ON FORM 8-K.  None

                (c)  EXHIBITS. See (a) above.

                (d)  FINANCIAL STATEMENT SCHEDULES.  See (a) above.



                                       20
<PAGE>   23

                          INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Stockholders of
Silicon Valley Group, Inc.:

      We have audited the consolidated financial statements of Silicon Valley
Group, Inc. and subsidiaries as of September 30, 1996 and 1997, and for each of
the three years in the period ended September 30, 1997, and have issued our
report thereon dated October 27, 1997; such consolidated financial statements
and report are included in your 1997 Annual Report to Stockholders and are
incorporated herein by reference. Our audits also included the financial
statement schedule of Silicon Valley Group, Inc., listed in Item 14(a)2. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion based on our audits. In our opinion,
such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.


/s/ Deloitte & Touche LLP
-------------------------
DELOITTE & TOUCHE LLP
San Jose, California
October 27, 1997




                                       21
<PAGE>   24

                                   SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) 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.

                                      SILICON VALLEY GROUP, INC.
December 30, 1997

                                      By:  /s/ Papken S. Der Torossian
                                         -------------------------------------
                                               Papken S. Der Torossian,
                                               Chairman of the Board and
                                               Chief Executive Officer


                                POWER OF ATTORNEY

        KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Papken S. Der Torossian and Russell G.
Weinstock, and each of them, as his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all amendments
to this report on Form 10-K, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.

        Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been duly signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>

        SIGNATURE                                       TITLE                      DATE
<S>                                       <C>                                    <C> 
                                             Chairman of the Board,              December 30, 1997
/s/   Papken S. Der Torossian                   Chief Executive
----------------------------------       Officer and Director (Principal
      Papken S. Der Torossian                  Executive Officer)

                                                   President                     December 30, 1997
/s/   William A. Hightower                 Chief Operating Officer
----------------------------------              and Director
      William A. Hightower                      

                                             Vice President, Finance             December 30, 1997
/s/   Russell G. Weinstock                and Chief Financial Officer
----------------------------------          (Principal Financial and
      Russell G. Weinstock                     Accounting Officer)


/s/   William L. Martin                            Director                      December 30, 1997
----------------------------------
      William L. Martin

/s/   Nam P. Suh                                   Director                      December 30, 1997
----------------------------------
      Nam P. Suh

/s/   Lawrence Tomlinson                           Director                      December 19, 1997
----------------------------------
      Lawrence Tomlinson                           
</TABLE>


                                       22
<PAGE>   25

<TABLE>
<CAPTION>
EXHIBIT NO.                       EXHIBIT

<S>        <C>
10.42      Employment Agreement between Registrant and Papken S. Der
           Torossian, dated August 1, 1997.

10.43      Employment Agreement between Registrant and William A.
           Hightower, dated August 1, 1997.

10.44      Employment Agreement between Registrant and Russell G.
           Weinstock, dated August 1, 1997.

10.45      Employment Agreement between Registrant and Boris Lipkin, 
           dated August 1, 1997.

13.1       Selected data from Annual Report to Stockholders for fiscal 
           year ended September 30, 1997.

23.1       Consent of Deloitte & Touche, independent auditors.

27         Financial Data Schedule.
</TABLE>

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



                                       23
<PAGE>   26
                           SILICON VALLEY GROUP, INC.

                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                         Balance at     Charged to                              Balance
                                         Beginning      Costs and                                at End
Description                              of Period       Expenses    Other   Deductions (1)     of Period
-----------------------------------------------------------------------------------------------------------
<S>                                       <C>            <C>          <C>      <C>              <C>     
YEAR ENDED 9/30/95:
      Allowance for
      Doubtful Accounts                   $  2,630       $  2,026     $ ---    $   (549)        $  4,107

      Product
      Warranty Reserves                     18,325         35,830       ---     (21,552)          32,603

YEAR ENDED 9/30/96:
      Allowance for
      Doubtful Accounts                      4,107          2,018       ---        (122)           6,003

      Product
      Warranty Reserves                     32,603         64,068       ---     (53,772)          42,899

YEAR ENDED 9/30/97:
      Allowance for
      Doubtful Accounts                      6,003          7,611       ---      (7,009)           6,605

      Product
      Warranty Reserves                     42,899         42,320       ---     (41,685)          43,534
</TABLE>


(1) Write-offs of uncollectible accounts and costs incurred for warranty
repairs.