<PAGE>   1
 
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                       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, 1998*
 
      [ ]   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.
       [SVG LOGO](EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
<TABLE>
<S>                                              <C>
                    DELAWARE                                        94-2264681
        (STATE OR OTHER JURISDICTION OF                           (IRS EMPLOYER
         INCORPORATION OR ORGANIZATION)                       IDENTIFICATION NUMBER)
</TABLE>
 
             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 27, 1998,
was approximately $301,562,808. 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 27, 1998 was 32,816,577.
 
     * See Part II, Item 8 of this report for information regarding Registrant's
fiscal year.
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
     Portions of the following documents are incorporated by reference into the
parts of this Form 10-K as indicated herein:
 
<TABLE>
<S>                                                           <C>
Proxy Statement for Annual Meeting of Stockholders to be
  held on
  February 23, 1999.........................................       Part III
Annual Report to Stockholders for fiscal year ended
  September 30, 1998........................................  Parts II & IV
</TABLE>
 
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<PAGE>   2
 
                                     PART I
 
     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.
 
ITEM 1. BUSINESS.
 
     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"). In addition, a precision
optics group supplies certain components for the Company's photolithography
products, government markets and lens systems to the cinematography industry.
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.
 
     Herein the Company refers to its photolithography exposure products as SVG
Lithography Systems, Inc. "SVGL" products, its photoresist processing products
as "Track" products and its oxidation/diffusion and LPCVD products as "Thermco"
products.
 
INDUSTRY BACKGROUND
 
     Continuous improvements in semiconductor process and design technologies
have led to the production of smaller, more complex and more reliable
semiconductor 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.
 
     The semiconductor industry into which the Company sells its products is
highly cyclical and historically experienced periodic downturns that have had a
severe effect on the semiconductor industry's demand for semiconductor
processing equipment. As a result of the Asian economic crisis, an oversupply of
 
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<PAGE>   3
 
certain semiconductor products, the impact of low cost personal computers, and
various other factors, semiconductor manufacturers have reduced planned
expenditures and cancelled or delayed the construction of new fabrication
facilities. This slowdown in demand began to impact the Company during the
fourth quarter of calendar 1997 (the Company's first fiscal quarter of 1998) as
the Company experienced lower customer bookings, customer deferrals of scheduled
equipment delivery dates and, to a lesser extent, customer order cancellations
which continued through the third calendar quarter of 1998 (the Company's fourth
fiscal quarter of 1998). These events have caused the Company to significantly
reduce its work force, consolidate and combine certain functions and redirect
product lines which necessitated a fourth quarter 1998 pretax restructuring
charge of $33,680,000. As a result of the lower bookings, order rescheduling and
cancellations, the Company believes sales during the first half of fiscal 1999
will be lower than sales during the second half of fiscal 1998.* There can be no
assurance that the Company will not experience further customer delivery
deferrals, additional order cancellations or a prolonged period of customer
orders at reduced levels, any or a combination of which would have a material
adverse effect on the Company's business and results of operations.*
 
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:
 
     - 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.
 
     - 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.
 
     - 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 long term requirements
       of the semiconductor industry. 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.
 
     - 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.
 
                                        2
<PAGE>   4
 
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 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 DUV (248 and 193
nanometer) and the increase in numerical aperture from 0.2 to approximately 0.7.
Additionally, efforts are commencing to investigate, and in some instances
develop 157 nanometer and post-optical technology to advance product line widths
as fine as .07 microns.
 
     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 DUV 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, and depending on the size of the chip provides the ability
to expose more than one device in an exposure field. 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 ultraviolet ("DUV") 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
 
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<PAGE>   5
 
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. Micrascan III+
capable of producing line widths of .15 micron sell for approximately
$8,300,000. Although the Company specifies that its systems to produce certain
line widths, it is commonplace that the combination of the tool's robustness and
the customer's process technology achieves finer line widths than those
specified.
 
     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 DUV step-and-scan photolithography systems, capable of
producing line widths of .18 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. The
Company believes DUV lithography will be required to fabricate devices with line
widths below 0.3 micron.* Semiconductor manufacturers can purchase DUV 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 DUV step-and-scan systems, as compared to DUV 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 DUV step-and-scan
systems will accelerate in calendar 1999 and that advanced semiconductor
manufacturers are beginning to require volume quantities of production equipment
as advanced as the current and pending versions of Micrascan to produce both
critical and to some degree sub-critical layers of semiconductor devices.*
Currently, competitive DUV 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 DUV
steppers are able to further enhance existing technology to achieve finer line
widths sufficiently to erode the competitive and technological advantages of DUV
step-and-scan systems, or other manufacturers of step-and-scan systems are
successful in supplying sufficient quantities of product in a timely manner that
are technically equal to or better than the Micrascan, 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 .18
micron and processing 300mm wafers.* Any failure by the Company to develop the
advanced technology required by its customers at progressively lower costs of
ownership could have a material adverse impact on the Company's financial
condition and results of operations.*
 
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<PAGE>   6
 
     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 $1,350,000.
 
TRACK SYSTEMS (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 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 Track's photoresist processing products,
the Company believes it offers the only clustered solution manufactured by a
single supplier. Additionally, Track's 90 Series is 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.
 
     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 $1,700,000.
 
     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. The 8800 series is a mature product and sales have
declined in recent years. The Company anticipates that such sales will continue
to decline.* Prices of the 8800 Series range from approximately $200,000 to
$550,000.
 
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THERMCO SYSTEMS (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.
 
     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 0.18 micron
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 occurred in the second quarter of fiscal 1998.
Prices of the RVP-300 range from $1,200,000 to $1,500,000, 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
$1,000,000 to $1,300,000, 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
 
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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
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 1998
included the following:
 
<TABLE>
<S>                                <C>
Hewlett-Packard                    Phillips Semiconductor
IBM                                ProMos Technologies
Intel                              SGS-Thomson
LSI Logic                          Siemens
Motorola                           White Oak Semiconductor
</TABLE>
 
     The Company relies on a limited number of customers for a substantial
percentage of its sales. For fiscal 1998, Intel, IBM and Motorola represented
40%, 17% and 13%, respectively, of sales and the Company's largest five
customers represented 76% of sales. In fiscal 1997 and 1998, Intel represented a
substantial portion of the total sales of both Track and SVGL products. The loss
of a significant customer (and in particular the loss of Intel as a Track or
SVGL customer -- See "Manufacturing and Raw Materials"), 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. 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:
 
<TABLE>
<CAPTION>
                                                YEARS ENDED SEPTEMBER 30,
                                                -------------------------
                                                1996      1997      1998
                                                -----     -----     -----
<S>                                             <C>       <C>       <C>
United States.................................   66%       72%       65%
Western Europe................................   24        18        31
Far East......................................   10        10         4
</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
 
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<PAGE>   9
 
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 enhance its training programs and deploy spare part inventories 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.
 
     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, 1998 and 1997, the Company had a backlog of approximately
$254,130,000 and $437,668,000, 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. As a result of the current semiconductor environment, the Company did
receive in each quarter of fiscal 1998 customer deferrals and order
cancellations of product with scheduled delivery dates. This led to reduced
levels of shipments in the second half of fiscal 1998 and the decline will
potentially continue in the first half of fiscal 1999.* There can be no
assurance that the Company will not continue to 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.*
 
     As of September 30, 1998, the Company had recognized net sales of
approximately $53,000,000 from two customers who accepted and took title to the
related equipment and agreed to normal credit payment terms, but requested that
the Company store the equipment until predetermined shipment dates.
 
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.
 
     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
                                        8
<PAGE>   10
 
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, 1998, the Company had received $20,000,000 in development funding
from six Participants, of which $19,765,000 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 stipulates 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 a material
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
1998, 1997, and 1996, total research and development expenditures were
approximately $99,000,000, $82,000,000, and $72,000,000, respectively, of which
approximately $12,000,000, $8,000,000, and $5,000,000, 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 the
industry consortium of semiconductor manufacturers, SEMATECH. In fiscal 1997 and
1998, 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, and projection aligners. The trend toward consolidation in
the semiconductor processing equipment 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
                                        9
<PAGE>   11
 
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. As a result of
the strength of the U.S. dollar in relation to the Japanese yen, the Company is
at a disadvantage when competing on the basis of price. 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. To compete effectively in these
markets, the Company may be forced to reduce prices, which could cause further
reduction in net sales and gross margins and, consequently, have a material
adverse effect on the Company's financial condition and results of operations.*
 
     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
DUV 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
DUV light sources, and the Company believes that Canon will begin initial
shipments of a similar step-and-scan system in the near future.* The Company
believes DUV lithography will be required to fabricate devices with line widths
below 0.3 micron.* Semiconductor manufacturers can purchase DUV 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 DUV step-and-scan systems as compared to DUV steppers
will enable semiconductor manufacturers to achieve finer line widths with
superior 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, ASM Lithography, 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 DUV steppers are able to
further enhance existing technology to achieve finer line widths sufficiently to
erode the competitive and technological advantages of DUV step-and-scan systems,
or lithography manufacturers are able to supply step-and-scan systems in
sufficient quantity that are technically equal or better than Micrascan, demand
for the Micrascan technology may not develop as the Company expects.*
 
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 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
 
                                       10
<PAGE>   12
 
Japanese or Pacific Rim semiconductor manufacturers. As a result, the Company
may be at a competitive disadvantage to the Japanese equipment suppliers that
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.* Recent economic difficulties in certain Asian
countries, particularly Korea, will adversely affect the Company's ability to
penetrate such markets.*
 
     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.*
 
     Throughout the Pacific Rim, the Company is attempting to compete with major
equipment suppliers having significant market share and established service and
support infrastructures in place. Although the Company has invested in the
staffing and facilities that it believes are necessary to sell, service and
support customers in the Pacific Rim, it 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, due to recent economic issues in certain Asian countries,
particularly Korea, the Company's ability to penetrate such markets has been
more difficult. Failure to secure customers in these markets 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
products are primarily manufactured in Orange, California and limited
manufacturing in Billingshurst, West Sussex, England, which the Company
announced will be closed and product responsibility transferred to Orange,
California. Tinsley manufactures optical components in Richmond and North
Hollywood, California. 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 the subsequently terminated
200-APS Track product. Initial shipments of the 200-APS were scheduled to
commence during the second quarter of fiscal 1997, and were delayed until the
second quarter of fiscal 1998. This delay, as well as industry developments,
caused the Company to implement a plan, which was announced on September 30,
1998, to terminate future development and shipments of its 200-APS products, and
to concentrate its efforts on completing a new product which has been in
development for approximately one year. There can be no assurance that the
Company will not experience delays in development or manufacturing problems
related to its new product 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 new product or other products.* These issues could
result in product delivery 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
                                       11
<PAGE>   13
 
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.* For example, the
Company's largest Track customer has decided to secure deliveries from another
source, a decision the Company believes is primarily due to the delay and
subsequent termination of the 200-APS. The release into the market of a new
technology Track product will not be accomplished for a number of quarters.* As
a result, competitors will increase their market share, and it will be
increasingly more difficult for the Company to regain market position.* 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.*
 
     The Company believes that its ability to supply systems in volume will be a
major factor in customer decisions to commit to the Micrascan technology.* Based
upon its forecast of continued growth in demand, the transition from steppers to
step-and-scan equipment for photolithography equipment, and potential future
demand for advanced lithography products, the Company has been in the process of
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. Through fiscal 1998, the Company has
invested in significant capital improvements related to the buildings purchased
and the equipment required to expand the production capabilities of SVGL. While
the Company intends to continue certain of the expansion activities, it may not
invest in all of the metrology and other equipment required to maximize
manufacturing capacity until industry demand recovers.* However, the Company
plans to continue increasing capacity to produce optical components, thus
enabling it to quickly respond to customer requirements. Once demand recovers,
the timely construction and equipping of facilities to successfully complete the
increase in capacity will require the continued recruitment, training and
retention of a high quality workforce, as well as 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 delivery quantities of current and
future Micrascan products could result in semiconductor manufacturers electing
to install competitive equipment in their advanced fabrication facilities, which
could impede acceptance of the Micascan products on an industry-wide basis.*
This could result in the Company's operating results being adversely affected by
the increase in fixed costs and operating expenses related to increases in
production capacity if net sales, for any reason, do not increase
commensurately.*
 
     The time required to build a Micascan system is significant. If SVGL is to
be successful in supplying increased quantities of Micrascan systems, it will
not only need to be able to build more systems, it will need to build them
faster.* SVGL will require additional trained personnel, additional raw
materials and components and improved manufacturing and testing techniques to
both facilitate volume increases and shorten manufacturing cycle time.* To that
end, SVGL is continuing to develop its vendor supply infrastructure, and
implement manufacturing improvements.* Additionally, the Company believes that
once industry demand recovers, it must resume increasing its factory, field
service and technical support organization staffing and infrastructure to
support the anticipated customer requirements.* There can be no assurance that
the Company will not experience manufacturing difficulties or encounter problems
in its attempt to increase production and upgrade or expand existing
operations.*
 
                                       12
<PAGE>   14
 
     One of the most critical components of the Micrascan systems is the
projection optics, which are primarily manufactured by SVGL. As part of its
overall investment in capacity, the Company has increased SVGL's optical
manufacturing floorspace. The Company believes that in order for SVGL to be a
viable supplier of advanced lithography systems in the future, it must
successfully reduce the cycle times required to build projection optics.*
 
     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. The
primary reasons for the acquisition were TLI's technology and expertise relating
to aspherical lenses, a key component of SVGL's photolithography products, the
adaptation of certain of TLI's manufacturing processes by SVGL and TLI's
commencement of the fabrication of non-aspherical lenses which are currently
produced by SVGL. However, there can be no assurance that TLI's manufacturing
technology is scaleable, 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 or
the inability of TLI to manufacture non-aspherical lenses for SVGL in sufficient
quantities to realize efficiencies of scale could adversely affect the Company's
ability to realize any significant benefits from the acquisition of TLI.*
 
     The Company believes that protracted delays in delivering quantities of
both current and future generations of Micrascan products to multiple customers
could result in semiconductor manufacturers electing to install competitive
equipment in their advanced fabrication facilities, and could preclude industry
acceptance of the Micrascan technology and products.* 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 and
field service and technical support activities if net sales do not increase
commensurately.*
 
     SVGL -- Sole Source Materials and Components. 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
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. The supplier has expanded its
capacity to meet SVGL's projected long-term requirements and has created and
stored agreed upon quantities of safety stock. There can be no assurance that
the supplier will be able to provide acceptable quantities of material required
by SVGL.* Additionally, a version of the Company's Micrascan III
photolithography system utilizes an Excimer laser that is manufactured in volume
by only one supplier, which until the first quarter of fiscal 1998 was the only
supplier the Company had determined could meet its specifications. SVGL has
recently qualified an additional source of lasers for its current and future
versions of Micrascan products, allowing the potential for the integration of
such lasers into its system configurations.* However, there can be no assurance
that its customers will be receptive to procuring products with lasers from this
supplier, or the supplier will be able to provide product of sufficient quantity
and quality. If these suppliers were unable to meet their commitments, SVGL
would be unable to manufacture the quantity of products required to meet the
anticipated future demand, which would have a material adverse effect on the
Company's business and results of operations.*
 
PATENTS AND LICENSES
 
     The Company owns several domestic and foreign patents relating to the
businesses of Track, Thermco and SVGL products. Although the Company has
historically relied and continues to rely on the technical and
 
                                       13
<PAGE>   15
 
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. Two of the Company's customers have notified the Company that they
have 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 customers have 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. The Company
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 1999.*
 
BUSINESS INTERRUPTION
 
     The Company manufactures its Track products in San Jose, California and
substantially all of its Thermco products in Orange, California. Tinsley's
optical components are manufactured in Richmond and North Hollywood, California.
These California facilities are located in seismically active regions. 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.*
 
YEAR 2000
 
     As the Year 2000 approaches, a universal issue has emerged regarding how
existing application software programs and operating systems can accommodate
date values. The Company has completed the modification of its internal-use
computer software for the Year 2000. The third party costs associated with such
modifications were not material and were expensed in fiscal 1998. The Company
does not segregate internal costs incurred to assess and remedy deficiencies
related to the Year 2000 problem or modifications to its products, however, the
Company has incurred approximately $124,000 with third parties to identify and
modify its internal-use computers systems. Although the company believes that
the solutions, which were extensively tested, have resulted in its internal-use
systems being Year 2000 compliant, there can be no assurance that unforeseen
problems that could disrupt operations will arise, or that the Company could be
required to expend further cost and effort to solve such problems.*
 
                                       14
<PAGE>   16
 
     The Company has evaluated its products and identified those areas
containing date sensitive Year 2000 issues. The Company has informed its
customers of ship dates for Year 2000 compliant products and has made available
for potential sale the necessary modifications to bring previously shipped
products into compliance. The Company is in the process of contacting its
suppliers and service providers to ascertain their state of readiness and
compliance for Year 2000 issues. The Company will continue to monitor their
progress and compliance for these issues. There can be no assurance, however,
that the Company's suppliers and service providers will timely provide the
Company with products or services which are Year 2000 compliant. Any failure to
do so by such third parties could have a material adverse impact on the
Company's results of operations.*
 
     At this time the Company does not feel it is necessary to develop a
contingency plan. As risks are identified, plans will be developed and
implemented as required.
 
     Although the Company believes its Year 2000 plans will be successful, there
can be no assurance that unforeseen problems will not happen which could have a
material adverse effect on the Company.*
 
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
     The Company is exposed to financial market risks, including changes in
foreign currency exchange rates and interest rates. The Company attempts to
minimize its currency fluctuation risk by actively managing the balances of
current assets and liabilities denominated in foreign currencies. The Company
does not use derivative financial instruments. A 10% change in the foreign
currency exchange rates would not have a material impact on the Company's
results of operations.
 
     The Company has investments in marketable debt securities that are subject
to interest rate risk. However, due to the short-term nature of the Company's
debt investments the impact of interest rate changes would not have a material
impact on the value of such investments.
 
     The Company is also exposed to interest rate risk on its fixed rate debt
obligations. At September 30, 1998 fixed rate debt obligations totaled
$6,505,000. The fixed rate obligations range between 8.25% to 12% with a
weighted average of 8.35% and maturity dates between April 1999 and February
2007. Due to the relatively insignificant principal balance of outstanding debt
obligations, the Company does not actively manage the risk associated with these
obligations. The impact of interest rate changes would not have a material
impact on the Company's results of operations.
 
EMPLOYEES
 
     At September 30, 1998, the Company had 2,616 full-time employees and 44
part-time employees and contract personnel, including 531 in research and
development, 1,072 in manufacturing, 909 in marketing, sales and customer
service and support and 148 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 future 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.
 
                                       15
<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...........  59    Chairman of the Board and Chief Executive Officer
William A. Hightower..............  55    President and Chief Operating Officer
Russell G. Weinstock..............  55    Vice President, Finance and Chief Financial Officer
Edward A. Dohring.................  65    Vice President, President, SVG Lithography Systems, Inc.
Steven L. Jensen..................  49    Vice President, Worldwide Sales and Service
Jeffrey M. Kowalski...............  45    Vice President, President, Thermco Systems
Boris Lipkin......................  51    Vice President, Corporate
Larry W. Sonsini..................  57    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 and
announced his retirement effective December 31, 1998. 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. 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. 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.
 
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.
 
                                       16
<PAGE>   18
 
     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 2004. 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.
 
     Tinsley owns two facilities in Richmond, California. The first consists of
approximately three acres of land and a building totaling 56,000 square feet.
The second consists of two acres of land currently under development for future
expansion of the Company's precision optical components. In addition, Tinsley
occupies two warehouses in Richmond, California with leases that expire in 1999
with a monthly base rent of approximately $5,600.
 
     Tinsley, which owns Century Precision Optics, has two facilities in North
Hollywood, California. The first facility consists of approximately 21,000
square feet with a base monthly rent expense of approximately $21,300 under a
lease expiring in 2004. The second facility consists of approximately 5,000
square feet with a base monthly rent expense of approximately $4,000. This lease
is on a month to month basis.
 
     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.
 
     On or about August 12, 1998, Fullman International and Fullman Company
(collectively, "Fullman") initiated a lawsuit in the United States District
Court for the District of Oregon alleging a cause of action for fraudulent
transfer in connection with a settlement the Company had previously entered into
resolving its claims against a Thailand purchaser of the Company's equipment. In
its complaint against the Company, the plaintiff, another creditor of the
Thailand purchaser, alleges damages of approximately $11,500,000 plus interest.
The Company has successfully moved to transfer the case to the United States
District Court for the Northern District of California.
 
     While the outcome of such litigation is uncertain, the Company believes it
has meritorious defenses to the claims and intends to conduct a vigorous
defense. However, an unfavorable outcome in this matter could have a material
adverse effect on the Company's financial condition.*
 
     In addition to the above, 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, 1998.
 
                                       17
<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, 1998, at page 32
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, 1998, at page 32
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, 1998, at pages 33
to 46 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, 1998, at pages 13
to 31, 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 27, 1996, October 3, 1997, and October 2, 1998. For convenience,
this Report and the Company's Consolidated Financial Statements refer to all
such fiscal years as ending at September 30. Fiscal 1996 and fiscal 1998 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.
 
                                    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 23, 1999, 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 of this Report.
 
     (b) Directors. The information required by this Item is incorporated by
reference to the section entitled "Election of Directors" in the Proxy
Statement.
 
                                       18
<PAGE>   20
 
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.
 
                                    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, 1998, are incorporated by reference:
 
        Independent Auditors' Report.
 
        Consolidated Balance Sheets at September 30, 1998 and 1997.
 
        Consolidated Statements of Operations for the Years Ended September 30,
        1998, 1997 and 1996.
 
        Consolidated Statements of Stockholders' Equity for the Years Ended
        September 30, 1998, 1997 and 1996.
 
        Consolidated Statements of Cash Flows for the Years Ended September 30,
        1998, 1997 and 1996.
 
        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>   21
 
     3. EXHIBITS.
 
<TABLE>
<CAPTION>
    EXHIBIT NO.                              EXHIBIT
    -----------                              -------
    <C>            <S>
       10.46       First Amendment to Credit Agreement, dated October 23, 1998,
                   by and among the Registrant, ABN Amro Bank, N.V. as Agent
                   and certain Lenders with respect thereto.
       10.47       Retirement Agreement, dated as of November 16, 1998, by and
                   between the Registrant and Edward A. Dohring.
       13.1        Selected data from Annual Report to Stockholders for fiscal
                   year ended September 30, 1998.
       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, (vii) SVG Thailand, Inc., a
                   Delaware corporation and (viii) SVG Korea, Inc., a Korean
                   corporation. SVG Lithography Japan Co., Ltd., a Japanese
                   corporation, Silicon Valley Group 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"),
                   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>
 
---------------
(b) REPORTS ON FORM 8-K. None
 
(c) EXHIBITS. See (a) above.
 
(d) FINANCIAL STATEMENT SCHEDULES. See (a) above.
 
                                       20
<PAGE>   22
 
                          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, 1997 and 1998, and for each of
the three years in the period ended September 30, 1998, and have issued our
report thereon dated October 26, 1998; such consolidated financial statements
and report are included in your 1998 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 26, 1998
 
                                       21
<PAGE>   23
 
                                   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.
 
December 30, 1998                         SILICON VALLEY GROUP, INC.
 
                                          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>
                     SIGNATURES                                   TITLE                    DATE
                     ----------                                   -----                    ----
<C>                                                      <S>                         <C>
             /s/ PAPKEN S. DER TOROSSIAN                 Chairman of the Board,      December 30, 1998
-----------------------------------------------------    Chief Executive Officer
               Papken S. Der Torossian                   and Director (Principal
                                                         Executive Officer)
 
              /s/ WILLIAM A. HIGHTOWER                   President Chief             December 30, 1998
-----------------------------------------------------    Operating Officer and
                William A. Hightower                     Director
 
              /s/ RUSSELL G. WEINSTOCK                   Vice President, Finance     December 30, 1998
-----------------------------------------------------    and Chief Financial
                Russell G. Weinstock                     Officer (Principal
                                                         Financial and Accounting
                                                         Officer)
 
                /s/ WILLIAM L. MARTIN                    Director                    December 30, 1998
-----------------------------------------------------
                  William L. Martin
 
                   /s/ NAM P. SUH                        Director                    December 30, 1998
-----------------------------------------------------
                     Nam P. Suh
</TABLE>
 
                                       22
<PAGE>   24
 
<TABLE>
<CAPTION>
                     SIGNATURES                                   TITLE                    DATE
                     ----------                                   -----                    ----
<C>                                                      <S>                         <C>
               /s/ LAWRENCE TOMLINSON                    Director                    December 30, 1998
-----------------------------------------------------
                 Lawrence Tomlinson
 
               /s/ KENNETH M. THOMPSON                   Director                    December 30, 1998
-----------------------------------------------------
                 Kenneth M. Thompson
</TABLE>
 
                                       23
<PAGE>   25
 
                              SILICON VALLEY GROUP
 
                                  SCHEDULE II
                       VALUATION AND QUALIFYING ACCOUNTS
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                   BALANCE AT     CHARGED                      BALANCE AT
                                                   BEGINNING    TO COSTS AND                      END
                   DESCRIPTION                     OF PERIOD      EXPENSES     DEDUCTIONS(1)   OF PERIOD
                   -----------                     ----------   ------------   -------------   ----------
<S>                                                <C>          <C>            <C>             <C>
YEAR ENDED 9/30/96:
  Allowance for Doubtful Accounts................   $ 4,156       $ 2,044        $   (122)      $ 6,078
  Product Warranty Reserves......................    32,603        64,068         (53,772)       42,899
YEAR ENDED 9/30/97:
  Allowance for Doubtful Accounts................     6,078         7,725          (7,009)        6,794
  Product Warranty Reserves......................    42,899        42,320         (41,685)       43,534
YEAR ENDED 9/30/98:
  Allowance for Doubtful Accounts................     6,794         3,273          (1,835)        8,232
  Product Warranty Reserves......................    43,534        64,138         (58,729)       48,943
</TABLE>
 
---------------
(1) Write-offs of uncollectible accounts and costs incurred for warranty
    repairs.
<PAGE>   26
 
                               INDEX TO EXHIBITS
 
<TABLE>
<CAPTION>
EXHIBIT NO.                              EXHIBIT
-----------                              -------
<C>            <S>
   10.46       First Amendment to Credit Agreement, dated October 23, 1998,
               by and among the Registrant,
               ABN Amro Bank, N.V. as Agent and certain Lenders with
               respect thereto.
   10.47       Retirement Agreement, dated as of November 16, 1998, by and
               between the Registrant and
               Edward A. Dohring.
   13.1        Selected data from Annual Report to Stockholders for fiscal
               year ended September 30, 1998.
   23.1        Consent of Deloitte & Touche, independent auditors.
   27          Financial Data Schedule.
</TABLE>
<PAGE>   27
 
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