<PAGE>   1
 
================================================================================
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
 
                            ------------------------
 
                                   FORM 10-K
                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                      THE SECURITIES EXCHANGE ACT OF 1934
 
                     FOR THE FISCAL YEAR ENDED MAY 31, 1997
                         COMMISSION FILE NUMBER 0-26784
 
                          SPEEDFAM INTERNATIONAL, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
<TABLE>
<S>                                           <C>
                   ILLINOIS                                     36-2421613
       (STATE OR OTHER JURISDICTION OF                       (I.R.S. EMPLOYER
        INCORPORATION OR ORGANIZATION)                     IDENTIFICATION NO.)
            305 NORTH 54TH STREET                                 85226
              CHANDLER, ARIZONA                                 (ZIP CODE)
   (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
 
                 REGISTRANT'S TELEPHONE NUMBER: (602) 705-2100
 
        SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
 
          SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
 
                           COMMON STOCK, NO PAR VALUE
                                (TITLE OF CLASS)
 
     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.  [ ]
 
     State the aggregate market value of the voting stock held by non-affiliates
of the registrant: $512,107,352 as of August 22, 1997.
 
     Indicate the number of shares outstanding of each of the issuer's classes
of common stock: 13,470,036 as of August 22, 1997.
 
                      DOCUMENTS INCORPORATED BY REFERENCE:
 
     Part III, Proxy Statement relating to 1997 Annual Meeting of Shareholders
(except for the Report of the Compensation Committee of the Board of Directors
and the Performance Graph).
================================================================================
<PAGE>   2
 
                               TABLE OF CONTENTS
 
<TABLE>
<CAPTION>
ITEM NO.                                    CAPTION                                     PAGE
--------   -------------------------------------------------------------------------  --------
<C>        <S>                                                                        <C>
  PART I
    1.     Business.................................................................     2
    2.     Properties...............................................................     13
    3.     Legal Proceedings........................................................     14
    4.     Submission of Matters to a Vote of Security Holders......................     14
 
PART II
    5.     Market for Common Equity and Related Shareholder Matters.................     14
    6.     Selected Financial Data..................................................     15
    7.     Management's Discussion and Analysis of Financial Condition and Results
             of Operations..........................................................     16
    8.     Financial Statements and Supplementary Data..............................     25
    9.     Changes in and Disagreements with Accountants on Accounting and Financial
             Disclosure.............................................................     61
 
PART III
   10.     Directors and Executive Officers of the Company..........................     61
   11.     Executive Compensation...................................................     61
   12.     Security Ownership of Certain Beneficial Owners and Management...........     61
   13.     Certain Relationships and Related Transactions...........................     61
 
PART IV
   14.     Exhibits, Financial Statement Schedules, and Reports on Form 8-K.........     61
           Signatures...............................................................     62
           List of Exhibits.........................................................  EXHIBIT
                                                                                       INDEX
</TABLE>
 
                                        1
<PAGE>   3
 
ITEM 1.  BUSINESS
 
     SpeedFam International, Inc. (the "Company") was incorporated in Illinois
in 1959 as SpeedLap Corporation. SpeedFam International, Inc. is a holding
company operating through three wholly owned subsidiaries, and also owns
interests in two joint ventures. The Company operates through SpeedFam
Corporation in the U.S. ("SpeedFam U.S.") and SpeedFam Limited ("SpeedFam U.K.")
and SpeedFam GmbH ("SpeedFam Germany") in Europe. SpeedFam International, Inc.
owns 50% of each of two joint ventures, SpeedFam Co., Ltd. (together with its
subsidiaries and joint ventures, the "Far East Joint Venture") and Fujimi
Corporation (the "Fujimi Joint Venture"). The Far East Joint Venture primarily
produces and sells products in the Far East similar to those produced by the
Company, and the Fujimi Joint Venture sells slurries and pads in North America.
 
     Unless the context otherwise requires, the "Company" and "SpeedFam" refer
only to SpeedFam International, Inc., an Illinois corporation, and its wholly
owned subsidiaries. The Company's principal executive offices are located at 305
North 54th Street, Chandler, Arizona 85226 and its telephone number is (602)
705-2100.
 
     The Company designs, develops, manufactures, markets and services chemical
mechanical planarization, or "CMP," systems used in the fabrication of
semiconductor devices and other high throughput precision surface processing
systems used in the fabrication of thin film memory disk media, semiconductor
wafers and general industrial components. In addition, the Company markets and
distributes slurries and parts and expendables used in its customers'
manufacturing processes. The Company's processing systems include polishing,
grinding, lapping, and pre-deposition cleaning equipment.
 
JOINT VENTURES
 
     Since 1971, the Company has owned a 50% interest in the Far East Joint
Venture. The remaining 50% is owned by Obara Corporation, a privately-owned
Japanese company that supplies products to the automotive industry. Generally,
the Far East Joint Venture designs, produces and markets in the Far East
equipment similar to that produced by the Company in the U.S. Prior to 1971, the
Company marketed its products in Japan through Japanese trading companies;
however, the Company believed that the most effective method to further
penetrate the Japanese market was with a Japanese partner. See "Joint Venture
Arrangements -- Far East Joint Venture." In 1984, the Company established the
Fujimi Joint Venture with Fujimi Incorporated, a publicly-traded Japanese
manufacturer of slurries. The Fujimi Joint Venture sells slurries manufactured
by Fujimi Incorporated, primarily to silicon wafer manufacturers and general
industrial manufacturers in North America. See "-- Manufacturing and Suppliers"
and "Joint Venture Arrangements -- Fujimi Joint Venture."
 
PRODUCTS
 
     SpeedFam's products include polishing, grinding and lapping equipment and
systems; cleaning systems; other high precision surface processing equipment;
and certain other products used in its customers' manufacturing process,
including slurries. During fiscal years 1995, 1996 and 1997, 54.5%, 78.5% and
84.8%, respectively, of the Company's total revenue (including commissions) was
attributable to the sale of capital equipment, parts and expendables and 45.5%,
21.5% and 15.2%, respectively, of the Company's total revenue was attributable
to sales of slurries.
 
     Applications.  Polishing is a process used to change the characteristics of
the surface of a semiconductor wafer or thin film memory disk. Polishing is a
complex science, often involving multiple steps, each at a specified set of
process parameters such as polishing speed, pressure, time, and temperature, as
well as slurry pH and particle size, hardness and shape. Polishing improves the
flatness (planarity), smoothness and optical properties of a surface. A typical
flat polishing system consists of a moving platen that is covered with a
polishing pad, in combination with a polishing liquid (or slurry) containing
abrasive particles that impinge on the surface, thereby creating the desired
surface qualities. This liquid slurry can be chemically active such that the
surface of the component being polished is chemically modified, thus
accelerating and improving the polishing process. The combination of chemical
action from the acidic or alkaline slurry and mechanical
 
                                        2
<PAGE>   4
 
action from the abrasive slurry is used to process silicon wafers, thin film
memory disk media and advanced semiconductor devices.
 
     Processes similar to polishing include lapping (a process where no
polishing pad is used and the workpiece is pressed into the slurry which is
applied to a cast-iron lapping wheel) and free abrasive machining ("FAM," a
process similar to lapping except that instead of a cast iron wheel, a high
alloy hardened steel wheel is used). Lapping and free abrasive machining result
in higher removal rates than polishing but produce rougher surface finishes.
Grinding is a conventional machining process in which abrasive particles are
contained within a fixed medium (grinding stone), rather than a liquid. Grinding
results in much higher removal rates than lapping but produces a coarser surface
finish. Dimensional tolerance, surface finish, quantity of material to be
removed along with production rates required and cost of operation are the
primary variables considered in the determination of the best process for a
specific application. Polishing and other surface treatment processes are
typically followed by a cleaning process. Thin film memory disk cleaning systems
offered by SpeedFam incorporate ultrasonics, PVA (polyvinyl alcohol) brush
scrubbing, rinsing and drying in a Class 1 cleanroom-compatible system.
 
EQUIPMENT
 
     Semiconductor Chemical Mechanical Polishing (CMP).  The Auriga is a five
head, two polishing table CMP system capable of processing 65-90 wafers per hour
based on a two-minute polishing cycle. The Auriga system, which began shipping
commercially in November 1996, incorporates certain modifications from the
Company's original system for chemical mechanical planarization of semiconductor
devices, the CMP-V, in the control and automation system in order to decrease
the time interval between processes, thereby increasing the number of wafers
processed. The Company's CMP process is currently characterized and in
production for oxide and metal (tungsten) applications. The system incorporates
full cassette-to-cassette automation. Robotics remove the wafers from the
cassette and place them into the buffer tray. The wafers are then staged for
batch pickup by the polishing heads. Once secured by the polishing heads, the
wafers are moved onto the primary polishing pad and the process is initiated.
The polishing table, covered with a flat polishing pad, rotates at a variable
speed throughout the polishing cycle. Upon completion of the initial polish, the
wafers are transported either to a rinsing station or to a second polishing
table for an additional polishing or buffing step. The wafers are then rinsed
and placed into the output buffer tray, scrubbed on both sides with a wet PVA
sponge and placed wet into the output cassettes. The system is self-enclosed,
and has its own air filtration and air flow management system. The Auriga offers
compatibility with all commonly used slurry chemistries. Both the Auriga and the
CMP-V are produced solely by the Company.
 
     Thin Film Memory Disk Media.  The Company sells polishing machines,
pre-deposition cleaning machines and grinding machines for producing aluminum,
nickel-plated and glass substrates for the thin film memory disk media market.
 
     The DSM line of manual and automated machines are used in the manufacture
of thin film memory disk media for grinding the aluminum substrate as well as
polishing after deposition of the nickel plating. The DSM line of machines
simultaneously processes both sides of a disk substrate and is available in
various sizes. The automated machines in the DSM line are currently manufactured
solely by the Far East Joint Venture.
 
     The MD line of cleaning systems are used to clean the substrate at various
stages of the manufacturing process, including the critical cleaning immediately
prior to the deposition of the magnetic layers. Cleaning systems distributed by
the Company are produced solely by the Far East Joint Venture.
 
     Semiconductor Wafers.  The Company supplies chemical mechanical polishing,
double-sided lapping and, more recently, edge polishing systems to the
semiconductor substrates market.
 
     The Company's DSM line of double-sided lapping systems is available in
various sizes and is used to create the initial flatness and thickness of the
silicon wafer after it is sliced from an ingot. The lapping process also removes
saw marks remaining after slicing and provides a surface finish suitable for
subsequent polishing processes. DSM double sided polishers for silicon wafer
polishing are also available.
 
                                        3
<PAGE>   5
 
     The SP line utilizes a chemical mechanical polishing process to remove the
shallow damage layer remaining from previous process steps and to attain the
specified flatness and surface finish. A 50-inch model is manufactured by the
Company in the U.S. and a 59-inch model is manufactured by the Far East Joint
Venture.
 
     The Company began distributing the EP line of edge polishing systems during
fiscal 1995. Edge polishing has emerged as a new technology that is being
incorporated into high volume silicon wafer manufacturing. This technology was
developed and introduced for the purpose of making the wafer's edge easier to
clean, thereby increasing semiconductor device manufacturing yields. The Far
East Joint Venture produces the EP line that is marketed and distributed by the
Company.
 
     General Industrial.  The Company offers a broad line of lapping, grinding
and polishing systems for the general industrial market. The line includes
approximately 35 models of single-side processing machines, double-side
processing machines, in-line grinding systems and optics polishing machines. The
product offering is available in a wide range of sizes from a 12 inch plate
diameter up to a 150 inch plate diameter. Each system typically consists of a
specialized machining plate, a rotating spindle, a means to fix and apply
pressure to the workpieces, an abrasive distribution system and a control
system.
 
PARTS AND EXPENDABLES
 
     The Company markets a broad line of parts and expendables. These products
include general spare parts, bearings, grinding stones, lapping plates,
workpiece carriers, seals, retaining rings, workholders and polishing pads.
These products are typically obtained from outside vendors and are generally
manufactured to the Company's specifications. The Company maintains spare parts
inventories at six U.S. locations and two European locations. The Company
believes that its ability to quickly supply parts and expendables is an
important factor in its ability to provide customers with a total solution.
 
SLURRIES
 
     The Company offers a broad line of slurry and slurry components (including
vehicles and abrasives) used in surface treatment processes as part of a total
process solution. Polishing slurry consists of abrasive particles contained in a
liquid vehicle that may contain a suspension agent and may be chemically active.
The slurries marketed by the Company are used by manufacturers of thin film
memory disk media, semiconductor wafers and other products as part of their
polishing processes. Substantially all of the slurries sold by the Company are
manufactured by Fujimi Incorporated.
 
     The Company has entered into a joint venture (the "Fujimi Joint Venture")
with Fujimi Incorporated to sell certain products in North and South American
markets, including slurry and slurry components. The Company distributes thin
film memory disk polishing slurry and related products supplied by Fujimi
Incorporated, while the Fujimi Joint Venture distributes other products supplied
by Fujimi Incorporated. To date, no material sales of products have been made to
South American markets by the Fujimi Joint Venture. See "Joint Venture
Arrangements -- Fujimi Joint Venture."
 
     The slurry for thin film memory disk media polishing applications is
available in different varieties to address the varying needs of each specific
process. Some formulations allow higher stock removal rates and others emphasize
surface finish results. There are also a variety of slurry formulations
available for silicon wafer processing. Slurry is an essential process component
in chemical mechanical polishing. The chemical action of this process is
implemented by designing the slurry to be chemically active with the surface to
be polished, typically by adjusting the pH of the slurry vehicle. The mechanical
portion of the process is accomplished by abrasive particles in the slurry.
 
     The Company believes that meeting the evolving slurry requirements of each
customer is vital to providing a total process solution. The Company intends to
continue to maintain an emphasis on slurry distribution and to work closely with
Fujimi Incorporated in developing, designing and formulating customized slurries
that address specific customer needs.
 
                                        4
<PAGE>   6
 
CUSTOMERS
 
     The Company sells its products to leading manufacturers of semiconductor
devices, thin film memory disks, semiconductor wafers and for various general
industrial applications. Certain of the Company's top customers in fiscal 1995,
1996 and 1997 in the semiconductor device, thin film memory disk media,
semiconductor wafer and general industrial application markets are listed below:
 
        SEMICONDUCTOR DEVICE: Advanced Micro Devices; Rockwell; Siemens;
        Hewlett-Packard; Promos Technology.
 
        THIN FILM MEMORY DISK MEDIA: Komag; HMT; IBM; Seagate; Akashic.
 
        SEMICONDUCTOR WAFER: MEMC; Mitsubishi Siltec; Sumitomo Sitix; Wacker
        Siltronic.
 
        GENERAL INDUSTRIAL APPLICATIONS: Hayward Quartz; Heraeus Amersil;
        IBM; Manufacturing Technology; Motorola.
 
     One customer, Komag, accounted for 20.6%, 17.8% and 10.3% of the Company's
total revenue in fiscal years 1995, 1996 and 1997, respectively. AMD accounted
for 12.8% of the Company's total revenue for 1997. In addition, during fiscal
1995, Akashic accounted for 10.9% of the Company's total revenue. The Company's
ten largest customers accounted for 66.9%, 64.4% and 59.8% of the Company's
total revenue in fiscal years 1995, 1996 and 1997, respectively.
 
SALES AND MARKETING
 
     The Company markets and sells its products in North America through a
combination of direct sales personnel and distributors. The Company sells
directly to the semiconductor and thin film memory disk media industries and
uses a network of 14 regional distributors for its general industrial product
lines. In its European operations, the Company uses direct sales personnel and a
small number of distributors. The Company markets and sells its products in the
Far East through the sales and marketing arm of the Far East Joint Venture.
 
     The Company's sales strategy emphasizes direct interaction with customers,
particularly in the semiconductor and memory disk industries, where ongoing
customer support and service are critical. The Company's direct sales force is
divided into focused units for each of the semiconductor device, thin film
memory disk media and semiconductor wafer industries.
 
     At May 31, 1997, the U.S. direct sales organization had a total of 23 sales
personnel. The Company's main sales offices are in Chandler, Arizona, Austin,
Texas and Elk Grove Village, Illinois. The Company also had an aggregate of nine
direct sales personnel in the SpeedFam U.K. and SpeedFam Germany offices. To
enhance its sales capabilities, the Company maintains process development and
demonstration laboratories in the U.S. and Europe. Sales and marketing
activities in the Far East are conducted by the Far East Joint Venture. See
"Joint Venture Arrangements -- Far East Joint Venture."
 
     The Company's marketing strategy includes involvement with SEMATECH, Inc.,
a consortium of major semiconductor manufacturers and equipment suppliers,
attendance at Semicon, Diskcon, IMTS and other trade shows worldwide and the
sponsorship of technical conferences, which include the presentation of
technical papers written by customers, university scientists and the Company's
own senior technologists. The Company believes these initiatives serve to
promote acceptance of the Company's products and process technologies in the
semiconductor, thin film memory disk and other industries.
 
CUSTOMER SERVICE AND SUPPORT
 
     The Company believes that providing highly responsive service is an
essential factor in providing a total solution to its customers. In order to
provide customers with experienced service and support personnel, the Company
has structured its service operations into distinct service units responsible
for each of the semiconductor device, thin film memory disk media, semiconductor
wafer and general industrial products industries. Elements of the Company's
customer service and support program include system installation and
 
                                        5
<PAGE>   7
 
process certification, process support, machine repair, providing spare parts
inventories, internal training programs, external customer training,
documentation and formation of customer user groups. At May 31, 1997, the
Company had 137 service employees in the U.S. and Europe. For large users of the
Company's systems, the Company often creates a customized service arrangement
designed to meet the specific requirements of the customer.
 
     The Company generally provides a one year warranty on all equipment it
sells. Field service personnel provide warranty service, post-warranty service,
and equipment installations. Field service engineers are located in various
locations throughout the world, including dedicated site-specific engineers in
place at certain customer locations pursuant to contractual arrangements. The
Company also provides service and maintenance training as well as process
application training for its customers' personnel. The Company maintains an
extensive inventory of spare parts at its primary locations and at its satellite
service sites. This provides the Company the ability to provide same day or
overnight delivery for many parts.
 
BACKLOG
 
     Backlog of orders for capital equipment, parts, expendables and slurries
increased to approximately $66.3 million at July 31, 1997, from approximately
$52.1 million at July 31, 1996. Approximately $55.9 million, or 84.3% of the
total backlog at July 31, 1997, is comprised of orders for capital equipment.
The Company's backlog does not include orders for capital equipment or other
products manufactured by the Far East Joint Venture and distributed by the
Company in the U.S. and Europe for which the Company receives commissions. The
time between the placing of orders and shipment of parts, expendables and
slurries is significantly less than for capital equipment and as a result, the
Company's backlog consists primarily of orders for capital equipment. The
Company includes in its backlog only those customer orders for which it has
accepted signed purchase orders with assigned delivery dates within 12 months.
Orders generally carry a stipulation that customers may incur a penalty in the
event of cancellation. However, there can be no assurance that orders will not
be cancelled by customers or that the Company will obtain a meaningful penalty
payment. As a result of systems and equipment ordered and shipped in the same
quarter, possible changes in delivery schedules, occasional cancellation of
orders and delays in product shipments, the Company's backlog at any particular
date may not be indicative of actual sales for any succeeding period.
 
RESEARCH, DEVELOPMENT AND ENGINEERING
 
     The markets in which the Company competes are characterized by evolving
industry standards and frequent improvements in products and service. To compete
effectively in its markets, the Company must continually improve its products
and its process technologies and develop new technologies and products that
compete effectively on the basis of price and performance and that adequately
address current and future customer requirements. The Company's research,
development and engineering expenditures during fiscal 1995, 1996 and 1997, were
approximately $2.7 million, $11.5 million and $19.8 million, respectively.
 
     At May 31, 1997, the Company had an engineering staff of 55 employees and a
research and development staff of 62 employees. Because of the complex and
highly specialized design, testing and manufacturing requirements of the
Company, these employees must be experienced in a wide range of engineering
disciplines. The Company's philosophy is to maintain strong technical expertise
in each of its core competencies and to utilize consulting engineers for
non-critical portions of product development projects. The Company believes that
this approach provides flexibility and allows the Company to shorten time to
market for new products.
 
     Product Development.  The Company began shipments of the Auriga, an
enhanced version of the CMP-V, its original system, in the second quarter of
fiscal 1997. The Company intends to periodically develop and introduce enhanced
versions of its CMP system. The Company has also recently introduced the
Capella, a post-CMP cleaning system. The Company has integrated this cleaning
system with the Auriga to provide a dry-in/dry-out system, the Auriga-C.
Deliveries of the Auriga-C for revenue are expected to begin in the second
quarter of fiscal 1998. The Company is also developing additional products and
product enhancements for the thin film memory disk and silicon wafer markets.
 
                                        6
<PAGE>   8
 
     Typically, the Company cultivates a "user-group" of current and potential
customers to act as technical advisors during the conceptualization of a new
product. The Company's CMP system was developed in a similar manner and its
development was assisted through technical collaboration with and sponsorship by
SEMATECH, Inc. and several SEMATECH, Inc. member companies that are leaders in
the use of CMP technology. From time to time, the Company also engages in
formal, funded joint development projects with customers from the semiconductor
and thin film memory disk industries as a means to enhance its product
development efforts.
 
     Process Development.  In addition to product development, the Company
continually seeks to enhance existing processes. The Company maintains process
development laboratories in both the U.S. and Europe that are staffed with
process engineers. The Company's process engineers frequently work directly with
customers' engineers, often working within the customers' facilities. The
Company is continuing to develop new processing capability in the CMP area for
additional film layers such as copper. The Company has also developed and
recently introduced an end-point detection metrology system, the Altair, for the
purpose of measuring the film thickness of oxide and metal layers of advanced
semiconductor devices. In the thin film memory disk area, the Company also
continues to pursue the development of automated machines and enhanced processes
enabling lower head flying heights. For the silicon wafer market, the Company is
currently focusing on the development of 300mm and enhanced edge polishing
systems.
 
MANUFACTURING AND SUPPLIERS
 
     The Company assembles its equipment and systems from components and
fabricated parts manufactured and supplied by others, including stainless steel
plates and gears, frames and weldments, power supplies, process controllers,
robots and polishing heads. Certain of the items manufactured by others are made
to the Company's specifications. All final assembly and system tests are
performed within the Company's manufacturing/assembly facilities. Quality
control is maintained through incoming inspection of components, in-process
inspection during equipment assembly and final inspection and operation of all
manufactured equipment prior to shipment. Substantially all of the Company's
non-CMP manufacturing is located in its Illinois facilities. The Company's CMP
system development and manufacturing are located at the Company's headquarters
in Chandler, Arizona.
 
     Certain of the components and sub-assemblies included in the Company's
products are obtained from a single supplier or limited group of suppliers. The
disruption or termination of these sources could have a material adverse effect
on the Company's operations. The Company is dependent upon Fujimi Incorporated,
a Japanese company, as the sole supplier of substantially all of the slurries
sold by the Company, consisting primarily of thin film memory disk polishing
slurry. Approximately 43.4%, 19.7% and 14.4% of the Company's total revenue in
fiscal 1995, 1996 and 1997, respectively, was derived from the sale of slurries
and other products supplied by Fujimi Incorporated. Accordingly, any disruption
in the supply provided by Fujimi Incorporated or in the overall relationship
between the Company and Fujimi Incorporated would have a material adverse effect
upon the Company. The Company has the exclusive right to distribute Fujimi
Incorporated thin film memory disk polishing slurry in North America until
October 1, 1999. See "Joint Venture Arrangements -- Fujimi Joint Venture."
 
COMPETITION
 
     The Company competes in several distinct markets. These markets include the
semiconductor device equipment market (specifically for CMP), the thin film
memory disk media equipment market, the semiconductor wafer equipment market,
the general industrial applications market, and the related parts and
expendables market. In all markets, the Company competes on the basis of
technology, overall cost of ownership, product quality, price, availability,
size of installed base, breadth of product line and customer service and
support.
 
     The Company faces substantial competition from both established competitors
and from potential new entrants, some of which have substantially greater
financial, engineering, manufacturing and marketing resources than the Company.
In the semiconductor device equipment market, the Company faces significant
competition from current competitors and any others that may enter this market
in the future. IPEC
 
                                        7
<PAGE>   9
 
currently has the largest installed base of CMP equipment. Other companies in
this market are in various stages of development of CMP machines. Specifically,
Applied Materials, a large semiconductor capital equipment supplier with
significant resources, has introduced a multiple head CMP machine and IPEC has
begun volume shipments of multiple head CMP systems. In addition, certain of the
Company's competitors have longer-standing relationships than the Company with
particular customers, including device manufacturers. These longer-standing
relationships may make it more difficult for the Company to sell its CMP system
to such semiconductor device manufacturers. Consolidation among CMP equipment
suppliers or the acquisition of CMP equipment suppliers by large, established
suppliers of non-CMP capital equipment to semiconductor device manufacturers or
others could materially adversely affect the Company's ability to compete and
would have a material adverse effect on the Company's results of operations. In
the thin film memory disk and semiconductor wafer equipment markets, the Company
competes with relatively few but significant competitors.
 
     Competition in the general industrial products markets is fragmented; no
one competitor currently holds a dominant position. The Company faces
significant competitive pressure in the sale of slurries, particularly with
regard to pricing, resulting in decreased margins for certain products of the
Company in recent periods. In the thin film memory disk slurry market, the
Company competes primarily with Praxair, a large chemical company that
manufactures and sells its own products. In addition, the loss of the Company's
distribution rights to slurry and other products supplied by Fujimi Incorporated
would have a material adverse effect on the Company.
 
EMPLOYEES
 
     At May 31, 1997, the Company had 513 full time employees in the U.S. and
Europe, including 142 in manufacturing, 45 in marketing and sales, 137 in field
service, 55 in engineering, 62 in research and development and 72 in general
administration. In addition, the Company had 32 temporary contract employees
engaged principally in its assembly operations at its Chandler, Arizona and Des
Plaines, Illinois facilities. The Company believes that the use of temporary
employees allows the Company to respond more rapidly to fluctuations in assembly
and product demand and enables the Company to better control the labor component
of its manufacturing costs. None of the Company's employees is represented by a
labor union and the Company has never experienced a work stoppage or strike. The
Company considers its employee relations to be good.
 
INTELLECTUAL PROPERTY
 
     The Company currently holds numerous United States patents and additional
foreign patents in Japan and several Asian and European countries and has
several United States patent applications and foreign patent applications
pending. In addition, the Company believes that such factors as continued
innovation, technical expertise and know-how of its personnel and other factors
are also important. The Company holds numerous United States and foreign patents
and has a number of patent applications pending in the United States and in
foreign countries. The Company owns eight U.S. trademark registrations. The
Company also owns numerous foreign trademarks.
 
     There can be no assurance that the Company's pending patent applications
will be allowed or that the issued or pending patents will not be challenged or
circumvented by competitors. There can be no assurance that any of these rights
held by the Company will not be challenged, invalidated or circumvented, or that
such rights will provide competitive advantages to the Company.
 
     There are no pending lawsuits against the Company regarding infringement of
any existing patents or other intellectual property rights or any unresolved
claims by third parties that the Company is infringing intellectual property
rights of such third parties. There can be no assurance that infringement claims
will not be asserted by third parties in the future. There also can be no
assurance in the event of such claims of infringement that the Company will be
able to obtain licenses on reasonable terms, if at all. The Company's
involvement in any patent dispute or other intellectual property dispute or
action could have a material adverse effect on the Company's business. Adverse
determinations in any litigation relating to intellectual property
 
                                        8
<PAGE>   10
 
could possibly subject the Company to significant liabilities to third parties,
require the Company to seek licenses from third parties and prevent the Company
from manufacturing and selling one or more of its products. Any of these events
could have a material adverse effect on the Company.
 
     SPEEDFAM, FAM, SPITFIRE, and the SPEEDFAM logo are registered trademarks of
the Company.
 
EXECUTIVE OFFICERS OF THE COMPANY
 
<TABLE>
<CAPTION>
                                                         HELD PRESENT       OTHER POSITIONS HELD
               NAME AND POSITION                 AGE     OFFICE SINCE      DURING PAST FIVE YEARS
-----------------------------------------------  ---     ------------     -------------------------
<S>                                              <C>     <C>              <C>
James N. Farley................................  68          1993         Chief Executive Officer
  Chairman of the Board                                                   President
Makoto Kouzuma.................................  57          1997         Chief Operating Officer
  President and Chief Executive Officer                                   Executive Vice President
Roger K. Marach................................  52          1988
  Treasurer, Chief Financial Officer and
Assistant
  Secretary
Christopher E. Augur...........................  37          1993         Executive Vice President
  President of SpeedFam Corporation                                       of SpeedFam Corporation
                                                                          and General Manager of
                                                                          SpeedFam Corporation
Robert R. Smith................................  54          1974
  Managing Director of SpeedFam Limited
</TABLE>
 
                           JOINT VENTURE ARRANGEMENTS
 
FAR EAST JOINT VENTURE
 
     SpeedFam Co., Ltd. (together with its subsidiaries and joint ventures, the
"Far East Joint Venture"), is headquartered in Kanagawa Prefecture, Japan.
Generally, the Far East Joint Venture designs, produces and markets in the Far
East equipment similar to that produced by the Company in the U.S. The Far East
Joint Venture conducts operations primarily in Japan but has subsidiaries and
branches located in China, Hong Kong, India, Korea, Singapore, Taiwan, Thailand,
and Malaysia and owns a majority interest in a Japanese subcontract
manufacturing organization, Saku Seiki Co., Ltd. The Far East Joint Venture
operations in China, Hong Kong, Singapore, Korea and Thailand are primarily
marketing, sales and service functions. The subsidiaries in Taiwan and India
also include manufacturing facilities where certain of the equipment sold by the
subsidiaries is produced. Through a joint venture with Met-Coil Systems
Corporation (a U.S. company), the Far East Joint Venture manufactures and
markets in the Far East sheet metal forming equipment developed by Met-Coil
Systems Corporation.
 
     Background.  During the late 1960's, the Company marketed its products in
Japan through Japanese trading companies. At that time, the Company believed
that a presence in the Japanese market would enhance its competitive position in
the U.S. as well as provide additional sources of income and access to
technology. For numerous business and cultural reasons, the Company believed it
could most effectively penetrate the Japanese market with the aid of a Japanese
partner. In 1970 the Company entered into a joint venture with a Japanese
company, Obara Corporation ("Obara"), pursuant to which the Far East Joint
Venture was formed. The Company and Obara each own a 50% interest in the Far
East Joint Venture. Obara, a privately-owned company, principally supplies
welding guns and tips and related products to the automotive industry; its
business is unrelated to that of the Company and the Far East Joint Venture.
 
     Terms of the Joint Venture Agreement.  Pursuant to the terms of an
agreement between the Company and Obara dated November 14, 1970 (the "Joint
Venture Agreement"), the Far East Joint Venture will continue as long as
SpeedFam Co., Ltd. is in corporate existence and both the Company and Obara are
shareholders. Both parties to the Joint Venture Agreement have agreed to refrain
from competing with the joint venture in Japan. The agreement may, however, be
terminated upon 90-days notification by either party in the event of a
substantial breach by the other party if such breach is not cured within the
90-day period. In
 
                                        9
<PAGE>   11
 
the event that either the Company or Obara desires to sell its interest in the
Far East Joint Venture, it must first offer its interest to the other party,
which then has 60 days to purchase the interest at a price to be mutually agreed
upon. If the interest is not purchased within the 60-day period, the party
desiring to sell its interest may sell it to a third party free of the right of
first offer provisions, provided that the price is not less than the price
initially offered by the other party.
 
     Pursuant to the terms of a License and Technical Assistance Agreement
between the Company and SpeedFam Co., Ltd. dated November 14, 1970 (the
"Technology Agreement"), the Company licensed to the Far East Joint Venture
certain trademarks and technology, and granted to the Far East Joint Venture the
exclusive right to manufacture and sell in Japan, Korea, Taiwan, Hong Kong,
China, India, the Philippines, Thailand, Vietnam, Malaysia, Singapore and
Indonesia, and such other countries as the parties may agree to from time to
time, products similar to those manufactured and distributed by the Company. In
exchange for such rights, the Far East Joint Venture agreed to pay to the
Company a royalty of 4% of the total net sales of products sold by the Far East
Joint Venture that incorporate the technology. The Company also agreed to
provide technical assistance and to communicate to the Far East Joint Venture
all developments and improvements related to the technology. In addition, the
Far East Joint Venture agreed to communicate to the Company all developments and
improvements known to the Far East Joint Venture relating to the technology, and
the Company agreed to pay to the Far East Joint Venture a 2% royalty fee on
machines sold by the Company that utilize certain of that technology. The
Technology Agreement continued for an initial term of ten years and was
renewable for subsequent ten year periods. By oral agreement in 1980, the
Technology Agreement was extended and amended to reduce the percentage of
royalties to be paid by the Far East Joint Venture. Notwithstanding the
requirements of the Technology Agreement, although the Far East Joint Venture
had transferred technology to the Company, the Company and the Far East Joint
Venture agreed that no royalties would be paid by the Company. By oral agreement
in 1990, the Technology Agreement was extended for a new ten-year period. By
oral agreement in 1991, the Technology Agreement was amended to eliminate the
payment of royalties by either party. On July 24, 1995, the foregoing oral
agreements were confirmed in writing. Unless extended, the Technology Agreement
will expire in November 2000.
 
     Since the inception of the Far East Joint Venture, the Company and the Far
East Joint Venture have worked cooperatively on various research and development
projects and each entity has communicated significant technology to the other.
It is not anticipated that either the Company or the Far East Joint Venture will
pay royalties to the other in connection with the transfer of technology in the
foreseeable future, including with respect to the Company's CMP technology.
 
     Management.  SpeedFam Co., Ltd. currently has nine directors serving on its
Board of Directors, including Messrs. Farley and Kouzuma, the Chairman and
President of the Company, respectively, as well as Hiroshi Obara, Suminori
Suzuki, Ryosuke Tojo, Shinya Iida, Hatsuyuki Arai, Isao Nagahashi and Akitoshi
Yoshida. Mr. Kouzuma is the Executive Vice President and General Manager of
SpeedFam Co., Ltd. and is responsible for day to day operations and acts as the
primary liaison between the Company and Obara. Mr. Obara is the President of the
Far East Joint Venture. Mr. Suzuki, an employee of Obara, is the senior finance
officer of the Far East Joint Venture. Mr. Tojo is Managing Director of the Far
East Joint Venture and assists in the overall management of operations. Dr. Iida
is the chief technical officer and is responsible for all research, development
and engineering operations. Mr. Yoshida is Chief of the Makuhari Techno Garden
Laboratory and reports to Mr. Iida. Messrs. Arai and Nagahashi are the directors
of CMP and thin film memory disk technology, respectively, and report to Mr.
Tojo. Mr. Kunihiko Watanabe is director of sales for the silicon wafer market
and reports to Mr. Kouzuma.
 
     The Joint Venture Agreement provides limited direction with respect to the
relationship between the joint venture partners and the operation and management
of the Far East Joint Venture. To date, decisions with respect to the strategic
direction of the Far East Joint Venture have been made by the Company and Obara
from time to time on the basis of informal discussions and the relationships
forged over time by the individuals. Business transactions between the Company
and the Far East Joint Venture, including those relating to the absence of
payment of royalties on transfers of certain technology, may not be consistent
with business decisions and results that would exist between two independent
entities dealing at arms-length.
 
                                       10
<PAGE>   12
 
     Financial Information.  During the Company's 1995, 1996 and 1997 fiscal
years, the Company's share of the net earnings of the Far East Joint Venture was
$1.1 million, $4.8 million and $5.5 million, respectively, representing 66.9%,
40.3% and 27.3%, respectively, of the Company's net earnings. The Far East Joint
Venture has not paid significant dividends in the past and is expected to retain
substantially all of its earnings in the foreseeable future to support the
growth of its business. As a result, the Company's share of the net earnings of
the Far East Joint Venture has not in the past resulted and is not expected in
the future to result in a like effect on the cash flows of the Company. In
addition, in recent years the equity in net earnings of affiliates has increased
substantially, primarily as a result of an increase in net earnings of the Far
East Joint Venture. This increase has been primarily attributable to a strong
demand for equipment, systems and other products supplied by the Far East Joint
Venture to the thin film memory disk and semiconductor wafer industries.
However, the Company does not expect that this historical rate of earnings
growth will continue. As a result, the Company does not expect earnings for the
Far East Joint Venture to grow in the next fiscal year. During fiscal 1995, 1996
and 1997, 4.6%, 5.2% and 7.2% respectively, of the Company's total revenue was
attributable to commissions earned on products produced by the Far East Joint
Venture and which were sold by the Company. At May 31, 1997, the Company's
equity interest in the Far East Joint Venture was $20.4 million, representing
9.9% of the Company's total assets and 13.0% of shareholders' equity. Set forth
below is certain selected financial information with respect to the Far East
Joint Venture which has been derived from consolidated financial statements
which have been audited by KPMG Peat Marwick LLP. Such information should be
read in conjunction with the consolidated financial statements and notes thereto
of the Far East Joint Venture appearing elsewhere herein.
 
<TABLE>
<CAPTION>
                                                                    YEAR ENDED APRIL 30,
                                                             -----------------------------------
                                                               1995         1996         1997
                                                             ---------    ---------    ---------
                                                                       (IN THOUSANDS)
<S>                                                          <C>          <C>          <C>
Consolidated Statement of Earnings Data:
Net sales..................................................  $ 108,664    $ 161,169    $ 220,281
Gross profit...............................................     31,576       54,257       66,773
Operating profit...........................................      6,467       19,959       20,958
Net earnings(1)............................................      2,169        9,637       11,013
 
Consolidated Balance Sheet Data (at period end):
Working capital............................................  $  23,779    $  23,526    $  19,637
Total assets...............................................    110,813      126,551      153,700
Long-term debt, less current portion.......................     12,528        9,106       10,786
Stockholders' equity.......................................     34,215       37,091       40,726
</TABLE>
 
---------------
(1) Approximately one-half of such amount is recognized by the Company on the
    equity method as "equity in net earnings of affiliates."
 
     Products and Customers.  Generally, the Far East Joint Venture designs,
produces and markets in the Far East equipment similar to that produced by the
Company in the U.S. The Far East Joint Venture's product mix is significantly
different than the Company's primarily because the Far East Joint Venture sells
substantially fewer CMP planarization systems to semiconductor device
manufacturers and because of differences in the composition of the U.S. and Far
East markets. The Far East Joint Venture also designs, produces and markets edge
and flat polishing machines for the semiconductor wafer market and pre-
deposition cleaning machines for the thin film memory disk market and, more
recently, the flat panel display market. The Company distributes certain of
these machines in the U.S. and Europe. The Far East Joint Venture also markets
parts, expendables and slurries (primarily to thin film memory disk and silicon
wafer manufacturers).
 
     The Far East Joint Venture has developed and is currently manufacturing and
marketing a two head CMP system. This system is marketed primarily as a tool for
low volume production or research and development. The Company's Auriga five
head system and other CMP products are marketed and sold
 
                                       11
<PAGE>   13
 
through the Far East Joint Venture. The Far East Joint Venture receives a
commission from the Company for such sales in the Far East.
 
     The Far East Joint Venture's products are sold to semiconductor wafer
(primarily silicon), thin film memory disk and general industrial (primarily
quartz, ceramic and LCD glass) manufacturers. Major end user customers of the
Far East Joint Venture have included: Nigata Toshiba Ceramics Co., Ltd. (silicon
wafer manufacturer), LG Siltron, Inc. (silicon wafer manufacturer), Toyo Kohan
Co., Ltd. (thin film memory disk manufacturer), Wacker Siltron (silicon wafer
manufacturer) and Kaifa Magnetics (H.K.), Ltd. (thin film memory disk
manufacturer). During the Far East Joint Venture's fiscal years 1995, 1996 and
1997, sales to certain customers through Fujimi Incorporated, acting as a
distributor, accounted for approximately 11%, 12% and 15% of net sales,
respectively.
 
     Competition.  The Far East Joint Venture competes in several distinct
markets including the semiconductor substrate equipment market, the thin film
memory disk equipment market, the general industrial equipment applications
market (primarily quartz, ceramic and LCD glass) and the slurries market. The
Far East Joint Venture competes on the basis of technology, overall cost of
ownership, product quality, price, availability, size of installed base, breadth
of product line and customer service and support. The Far East Joint Venture
faces intense competition from established competitors, some of which have
substantially greater financial, engineering, manufacturing and marketing
resources. In the equipment markets served, the Far East Joint Venture generally
competes with a relatively small number of competitors which, together with the
Far East Joint Venture, provide a substantial majority of the products sold into
those markets. In the slurries market, Fujimi Incorporated is the provider of
substantially all of the slurries sold by the Far East Joint Venture. Fujimi
Incorporated also sells directly to end users and is a dominant supplier and
distributor of slurries in the Far East region.
 
     Sales, Marketing and Service.  The Far East Joint Venture markets and sells
its products through a combination of Japanese trading companies and direct
sales personnel. As is customary in Japan, the Far East Joint Venture sells a
substantial portion of the products sold in Japan through trading companies,
although the Far East Joint Venture sales personnel have primary responsibility
for most aspects of the sale. The Far East Joint Venture maintains a field
service organization consisting of 75 persons based in the major locations where
the Far East Joint Venture maintains a presence, such as Japan, India, Korea,
Singapore, Taiwan and Thailand.
 
     Research, Development and Manufacturing.  The Far East Joint Venture
maintains a research and development staff of 67 persons. Research and
development efforts of the Far East Joint Venture are focused on enhancing
existing products as well as developing new products and generally cover a
broader range of products and technologies than the Company's research and
development efforts. The Company and the Far East Joint Venture have in the past
collaborated on various projects and are expected to do so in the future.
 
     The Far East Joint Venture or manufacturing subcontractors retained by the
Far East Joint Venture typically manufacture equipment and systems from
components and fabricated parts manufactured and supplied by others. Certain of
the items manufactured by others are made to the Company's specifications. A
portion of the products sold by the Far East Joint Venture are manufactured by
the Far East Joint Venture's majority owned subsidiary, Saku Seiki Co., Ltd.,
and a substantial portion are manufactured by unaffiliated third party
subcontractors for the Far East Joint Venture.
 
     Employees.  At April 30, 1997, the Far East Joint Venture had 492 full-time
employees, including 388 in Japan, 4 in Thailand, 22 in Korea, 40 in Taiwan, 17
in India, 14 in Singapore, 2 in Shanghai, 3 in Hong Kong and 2 in Malaysia. Of
these employees, 87 are engaged in manufacturing, 67 in marketing and sales, 75
in field service, 85 in engineering, 67 in research and development, 52 in
management and 59 in clerical and general administration.
 
     Certain Relationships.  The Company acts as distributor in North America
and Europe of certain machines produced by the Far East Joint Venture. During
fiscal 1995, 1996 and 1997, commissions paid to the Company relating to such
distribution amounted to approximately $2.8 million, $6.3 million and $12.4
million, respectively. Further, the Company purchases certain components used in
its machines from the Far East
 
                                       12
<PAGE>   14
 
Joint Venture. During fiscal 1995, 1996 and 1997, purchases of components from
the Far East Joint Venture totaled approximately $3.0 million, $5.6 million and
$4.9 million, respectively.
 
     Mr. Kouzuma receives certain amounts from the Far East Joint Venture
consisting of directors' fees, bonuses and salary. In addition, both Messrs.
Farley and Kouzuma receive dividends on their individual holdings of stock in
certain of SpeedFam Co., Ltd.'s subsidiaries. Both Messrs. Farley and Kouzuma
serve as directors of SpeedFam Co., Ltd. In addition, both serve as directors of
SpeedFam Clean Systems Co. Ltd., a majority owned subsidiary of SpeedFam Co.,
Ltd. Mr. Kouzuma also serves as President of SpeedFam Clean Systems Co. Ltd. In
addition, each of Messrs. Farley and Kouzuma own 5% of the outstanding capital
stock of SpeedFam Clean Systems Co., Ltd. Messrs. Farley and Kouzuma also serve
as directors of Met-Coil Ltd., SpeedFam Co., Ltd.'s 50%-owned joint venture. Mr.
Kouzuma owns 10.62% of the outstanding capital stock of Saku Seiki Co., Ltd., a
majority owned subsidiary of SpeedFam Co., Ltd., and serves as a director of
Saku Seiki Co., Ltd. Messrs. Farley and Kouzuma also serve as directors of
several wholly owned subsidiaries of SpeedFam Co., Ltd., namely SpeedFam Korea
Ltd., SpeedFam Incorporated in Taiwan, SpeedFam India (Pvt.) Ltd. and SpeedFam
Malaysia SDN., BHD.
 
FUJIMI JOINT VENTURE
 
     Pursuant to a joint venture agreement dated September 7, 1984, the Company
and Fujimi Incorporated formed Fujimi Corporation, an Illinois corporation (the
"Fujimi Joint Venture"). Each of Fuijimi Incorporated and the Company owns 50%
of the Fujimi Joint Venture's common stock. Fujimi Incorporated, a publicly
traded company in Japan, is a manufacturer of slurry, abrasives and compounds in
Japan. The initial term of the joint venture agreement was for a period of five
years, but the agreement continues in effect until such time as either party
terminates upon written notice delivered to the other party upon one-year
notice. The agreement may also be terminated upon 60-days notification by either
party in the event of a breach by the other party if such breach is not cured
within 60 days.
 
     The Fujimi Joint Venture was organized to sell Fujimi Incorporated products
in North and South America. The Fujimi Joint Venture distributes abrasives,
polishing pads, diamond wheels, diamond slurries and other products to the
semiconductor wafer, thin film memory disk and general industrial markets.
Notwithstanding the written terms of the joint venture agreement, the Company,
through SpeedFam U.S., has distributed a variety of products, primarily slurry,
to manufacturers of thin film memory disks. The Company has the exclusive right
to distribute Fujimi Incorporated memory disk polishing slurry in North America
until October 1, 1999. Revenue from sales of products by the Fujimi Joint
Venture were $15.8 million in fiscal 1995, $19.7 million in fiscal 1996 and
$36.6 million in fiscal 1997. For a description of other business relationships
between the Company and Fujimi Incorporated, see "Business -- Manufacturing and
Suppliers." The Fujimi Joint Venture imports a portion of the products it sells
and purchases such products in non-U.S. dollar denominated transactions. This
business is subject to foreign exchange rate fluctuations which can
significantly impact operating profit margins.
 
     The Fujimi Joint Venture currently has six directors serving on its Board
of Directors, including Mr. Farley, Chairman of the Company, Mr. Kouzuma,
President of the Company, and Mr. Augur, President of SpeedFam U.S. The other
three directors, Messrs. Isamu Koshiyama, Hidetaka Niinomi and Stuart Sawai, are
representatives of Fujimi Incorporated. Day to day management of the Fujimi
Joint Venture is under the control of its president, Mr. Donald R. Hixson. The
Fujimi Joint Venture employs four full-time sales personnel.
 
ITEM 2.  PROPERTIES.
 
     The Company currently owns or leases buildings containing a total of
approximately 258,000 square feet of space in the U.S. and Europe, including
approximately 133,000 square feet of factory/assembly area and approximately
125,000 square feet of corporate office space.
 
     The Company's U.S. Operations (the SpeedFam International, Inc.
headquarters, and the SpeedFam U.S. subsidiary) account for approximately
247,000 square feet of the total of which approximately 176,000
 
                                       13
<PAGE>   15
 
square feet is owned (including the recently completed 135,000 square foot
corporate headquarters and manufacturing facility in Chandler, Arizona). The
balance of approximately 71,000 square feet is leased.
 
     The Company maintains locations in the United States in Chandler, Arizona,
Des Plaines, Illinois, Elk Grove Village, Illinois, Austin, Texas, Portland,
Oregon, and Fremont, California.
 
     SpeedFam U.K. is located Hinckley, England and maintains approximately
9,000 square feet of owned space. SpeedFam Germany has approximately 2,000
square feet of leased office space in Ingelfingen, Germany.
 
ITEM 3.  LEGAL PROCEEDINGS.
 
     The Company is not presently involved in any material legal proceedings.
 
     The Company's wholly owned subsidiary, FamTec AG, incorporated under the
laws of Switzerland, engaged in the manufacture, sale and service of
through-feed grinding systems for the general industrial market. As a result of
declining sales, the Company decided to terminate Swiss operations and to seek
protection under the bankruptcy laws of Switzerland. A voluntary petition for
bankruptcy was filed with Swiss authorities in November, 1993. Subsequently,
creditors' claims were adjudicated and all Swiss assets liquidated. On July 27,
1995, the Bankruptcy Administrator paid out the liquidation proceeds to
creditors, and the bankruptcy matter was closed. Under the laws of Switzerland,
members of the Board of Directors of an entity have potential personal liability
for the debts of the bankrupt entity. Mr. Farley, Chairman and Chief Executive
Officer of the Company, was a director of FamTec AG. Because no creditor filed
within the ten-day period to reserve rights against the directors of FamTec AG,
no personal liability is expected to result.
 
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
 
     None.
 
                                    PART II
 
ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
 
<TABLE>
<CAPTION>
                                                                            NUMBER OF
                                                                         STOCKHOLDERS OF
                                                                          RECORD AS OF
                                TITLE OF CLASS                            MAY 31, 1997
        ---------------------------------------------------------------  ---------------
        <S>                                                              <C>
        Common Stock, no par value.....................................        109
</TABLE>
 
     The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "SFAM." Public trading of the Common Stock commenced on October 10,
1995. Prior to that time, there was no public market for the Company's Common
Stock. The following table sets forth the high and low closing sale prices for
the Common Stock as reported by Nasdaq for the periods indicated:
 
<TABLE>
<CAPTION>
                                                                           HIGH       LOW
                                                                           ----       ---
    <S>                                                                    <C>        <C>
    Fiscal 1996
         Second Quarter (from October 10, 1995)..........................  $18 1/4    $111/8
         Third Quarter...................................................   16 1/2      91/2
         Fourth Quarter..................................................   22         12
    Fiscal 1997
         First Quarter...................................................  $20 1/8    $111/8
         Second Quarter..................................................   25 5/16    107/8
         Third Quarter...................................................   39 3/4     207/8
         Fourth Quarter..................................................   39 1/2     241/4
    Fiscal 1998
         First Quarter (through August 22, 1997).........................   53 1/2     311/2
</TABLE>
 
                                       14
<PAGE>   16
 
     The Company has never declared or paid cash dividends on its Common Stock.
The Company currently intends to retain any future earnings to finance the
growth and development of its business and does not intend to pay any cash
dividends on its Common Stock in the foreseeable future. Payment of dividends in
the future, if any, will be made at the discretion of the Board of Directors of
the Company. Such decisions will depend on a number of factors, including the
future earnings, capital requirements, financial condition and future prospects
of the Company and such other factors as the Board of Directors may deem
relevant.
 
ITEM 6.  SELECTED FINANCIAL DATA.
 
                      SELECTED CONSOLIDATED FINANCIAL DATA
 
     The consolidated statement of earnings data for the years ended May 31,
1995, 1996 and 1997 and the consolidated balance sheet data as of May 31, 1996
and 1997 are derived from the Company's consolidated financial statements and
notes thereto which have been audited by KPMG Peat Marwick LLP, independent
public accountants and are included elsewhere herein. The consolidated statement
of earnings data for the years ended May 31, 1993 and 1994 and the consolidated
balance sheet data as of May 31, 1993, 1994 and 1995 are derived from the
Company's consolidated financial statements which have been audited by KPMG Peat
Marwick LLP but are not included herein. The selected consolidated financial
data presented below should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and with the
Company's consolidated financial statements, appearing elsewhere herein.
 
<TABLE>
<CAPTION>
                                                              YEAR ENDED MAY 31,
                                             -----------------------------------------------------
                                              1993        1994        1995       1996       1997
                                             -------     -------     -------   --------   --------
                                                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                          <C>         <C>         <C>       <C>        <C>
REVENUE:
Net sales..................................  $42,542     $49,247     $57,021   $113,880   $160,994
Commissions from affiliate.................      772       2,134       2,757      6,290     12,430
                                             -------     -------     -------   --------   --------
Total revenue..............................   43,314      51,381      59,778    120,170    173,424
Cost of sales..............................   32,472      38,945      45,494     78,661    103,501
                                             -------     -------     -------   --------   --------
Gross margin...............................   10,842      12,436      14,284     41,509     69,923
OPERATING EXPENSES:
Research, development and engineering......    1,778       2,267       2,740     11,496     19,766
Selling, general and administrative
  expenses.................................    8,545       8,988       9,948     18,922     28,671
                                             -------     -------     -------   --------   --------
Operating profit...........................      519       1,181       1,596     11,091     21,486
Other income (expense).....................     (391)(2)     277        (953)      (208)      (298)
                                             -------     -------     -------   --------   --------
Earnings from consolidated companies before
  income taxes.............................      128       1,458         643     10,883     21,188
Income tax expense (benefit)...............      573        (160)(3)     186      4,266      8,037
                                             -------     -------     -------   --------   --------
Earnings (loss) from consolidated companies
  before cumulative effect of change in
  accounting principle.....................     (445)      1,618         457      6,617     13,151
Equity in net earnings (loss) of
  affiliates(1)............................      (45)        655       1,187      5,204      7,068
Cumulative effect of change in accounting
  principle for income taxes...............       --          78          --         --         --
                                             -------     -------     -------   --------   --------
Net earnings (loss)........................  $  (490)    $ 2,351     $ 1,644   $ 11,821   $ 20,219
                                             =======     =======     =======   ========   ========
Net earnings (loss) per share..............  $ (0.06)    $  0.31     $  0.20   $   1.16   $   1.67
                                             =======     =======     =======   ========   ========
Weighted average common and common
  equivalent shares........................    7,615       7,619       8,146     10,159     12,127
                                             =======     =======     =======   ========   ========
</TABLE>
 
                                       15
<PAGE>   17
 
<TABLE>
<CAPTION>
                                                              YEAR ENDED MAY 31,
                                             -----------------------------------------------------
                                              1993        1994        1995       1996       1997
                                             -------     -------     -------   --------   --------
                                                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                          <C>         <C>         <C>       <C>        <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital............................  $ 5,944     $ 9,980     $11,072   $ 31,193   $106,822
Total assets...............................   35,715      45,709      60,029    107,984    206,500
Long-term obligations, less current
  maturities...............................    8,133       9,716      10,362      2,593        272
Shareholders' equity.......................   15,669      18,576      23,037     60,039    156,533
</TABLE>
 
---------------
(1) Includes ($285), $450, $1,100, $4,759 and $5,513 for the 1993 through 1997
    fiscal years, respectively, attributable to the Company's share of net
    earnings (loss) from the Far East Joint Venture, accounted for on the equity
    method. See "Business -- Joint Venture Arrangements," the consolidated
    financial statements of the Far East Joint Venture included elsewhere
    herein. The remainder represents the Company's share of net earnings from
    the Fujimi Joint Venture.
 
(2) Reflects charges of $300 related to the bankruptcy of a subsidiary operating
    in Switzerland.
 
(3) Reflects income tax benefits of $740 related to the bankruptcy of a
    subsidiary operating in Switzerland.
 
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
 
OVERVIEW
 
     The Company designs, develops, manufactures, markets and services chemical
mechanical planarization, or "CMP," systems used in the fabrication of
semiconductor devices and other high-throughput precision surface processing
systems used in the fabrication of thin film memory disk media, semiconductor
wafers and general industrial components. In addition, the Company markets and
distributes parts and expendables and slurries. The Company's total revenue
consists of net sales in two business segments: (i) equipment, parts and
expendables, and (ii) slurries, as well as commissions earned on the
distribution in the U.S. and Europe of products manufactured by the Far East
Joint Venture. Sales of the Company's products are recorded upon shipment or
when the product is accepted by the customer, provided that no significant
obligations remain outstanding and collection of the related receivable is
deemed probable. The Company accrues estimated warranty and installation
expenses for each equipment and system order at the time the order is shipped.
 
     Equipment, parts and expendables consist of capital equipment manufactured
by the Company, spare parts for that equipment and expendable products, such as
bearings, grinding stones, lapping plates, workpiece carriers, seals, retaining
rings, workholders and polishing pads. During fiscal years 1995, 1996, and 1997,
52.3%, 77.3%, and 83.6% respectively, of the Company's net sales was
attributable to the sale of capital equipment, parts and expendables.
Historically, the gross margin for products in this segment has been
significantly higher than that for slurries. The Company began development of
its original CMP product, the CMP-V, in 1990. The Company initiated volume
shipments of the CMP-V in 1994. Shipments of the Auriga began in the second
quarter of fiscal 1997. Through May 31, 1997, the Company had shipped 26 Auriga
systems. The Company's CMP systems accounted for 7.9%, 34.7%, and 50.2% of net
sales for fiscal 1995, 1996, and 1997 respectively. The Company's CMP systems
generally have gross margins higher than those of the Company's other capital
equipment products.
 
     Slurries consist of polishing slurry and slurry components (including
vehicles and abrasives) used in surface processing. During fiscal years 1995,
1996, and 1997, 47.7%, 22.7%, and 16.4%, respectively, of the Company's net
sales was attributable to the sale of slurries. Substantially all of the
slurries sold by the Company are manufactured by Fujimi Incorporated.
Historically, the gross margin for slurries has been significantly lower than
that for equipment, parts and expendables. In recent years, the Company has
experienced severe competitive pressure in the sale of slurries and has been
required to reduce prices. In addition, the Company has experienced increased
slurry costs.
 
     Commissions from affiliate ("commissions") consist primarily of revenue
derived from the distribution by the Company in the U.S. and Europe of products
manufactured by the Far East Joint Venture for which
 
                                       16
<PAGE>   18
 
the Company acts as sales agent. Certain capital equipment marketed and
distributed by the Company is produced solely by the Far East Joint Venture. The
Company distributes such products throughout the U.S. and Europe and receives
commissions thereon. Such amount reflects the difference between the imported
equipment's cost to the Company and sales price to the customer. For fiscal
1995, 1996, and 1997, commissions accounted for 4.6%, 5.2%, 7.2%, respectively,
of total revenue. Commissions are subject to foreign exchange rate fluctuations
which can significantly impact operating profit margins.
 
     In fiscal 1995, 1996, and 1997, 17.3%, 21.7%, and 31.2%, respectively, of
the Company's total revenue was attributable to sales outside of the United
States. In particular, in fiscal 1997, 14.2% of the Company's total revenue was
attributable to sales made to European markets and 17.0% was attributable to
sales to markets in the Far East.
 
     The Company generally enters into foreign exchange contracts to hedge
certain firm commitments denominated in foreign currencies, principally in
Japanese yen. The terms of the contracts are rarely more than one year. Currency
exchange rate variations have had an immaterial effect on the Company's results
of operations for the periods presented. The results of operations of the
Company's subsidiaries and its equity in the net earnings of the Far East Joint
Venture are translated for financial statement purposes based upon average
exchange rates during the period covered. As a result, fluctuations in exchange
rates may have an adverse effect of the Company's results of operations. Net
assets of the Company's foreign subsidiaries and 50% of the net assets of the
Far East Joint Venture were approximately $24.6 million at April 30, 1997 (the
end of fiscal 1997 of such entities).
 
     The Company owns a 50% interest in both the Far East Joint Venture and the
Fujimi Joint Venture. The Company's equity interest in each joint venture is
accounted for on the equity method. As a result, the Company's share of the net
earnings of the Far East Joint Venture and the Fujimi Joint Venture appear in
the "Equity in net earnings of affiliates" caption on the Company's consolidated
statements of earnings. The Far East Joint Venture and the Fujimi Joint Venture
have paid dividends in the past and may continue to do so in the foreseeable
future, but are expected to reinvest substantially all their earnings back into
their respective businesses. The Company's share of the net earnings of the Far
East Joint Venture has not in the past resulted and is not expected in the
future to result in a like effect on the cash flows of the Company. At May 31,
1997, the Company's equity interest in the Far East Joint Venture was $20.4
million, representing 9.9% of the Company's total assets and 13.0% of
shareholders' equity. The net earnings of the Company in the past have been
substantially influenced by the results of operations of the Far East Joint
Venture and can be expected to continue to be so influenced in the future. See
"Business -- Joint Venture Arrangements" and the consolidated financial
statements of SpeedFam Co., Ltd. included elsewhere herein.
 
     Historically, a disproportionate share of the Company's revenue and
operating profit has been attributable to the last two quarters of the Company's
fiscal year, primarily the fourth quarter. In particular, the Company typically
experiences a decline in revenues and operating profit from the fourth fiscal
quarter to the first fiscal quarter of the succeeding year. The Company believes
that this decline is primarily due to the seasonal buying patterns of its
customers. Sales of slurries tend to be more consistent than equipment sales on
a quarterly basis.
 
                                       17
<PAGE>   19
 
RESULTS OF OPERATIONS
 
     The following table sets forth certain consolidated statements of earnings
data for the periods indicated as a percentage of total revenue:
 
<TABLE>
<CAPTION>
                                                                     YEARS ENDED MAY 31,
                                                                  -------------------------
                                                                  1995      1996      1997
                                                                  -----     -----     -----
    <S>                                                           <C>       <C>       <C>
    REVENUE:
    Net sales...................................................   95.4%     94.8%     92.8%
    Commissions from affiliate..................................    4.6       5.2       7.2
                                                                  -----     -----     -----
    Total revenue...............................................  100.0     100.0     100.0
    Cost of sales...............................................   76.1      65.5      59.7
                                                                  -----     -----     -----
    Gross margin................................................   23.9      34.5      40.3
    OPERATING EXPENSES:
    Research, development and engineering.......................    4.6       9.6      11.4
    Selling, general and administrative expenses................   16.6      15.7      16.5
                                                                  -----     -----     -----
    Operating profit............................................    2.7       9.2      12.4
    Other income (expense)......................................   (1.6)     (0.2)     (0.2)
                                                                  -----     -----     -----
    Earnings from consolidated companies before income taxes....    1.1       9.0      12.2
    Income tax expense..........................................    0.3       3.5       4.6
                                                                  -----     -----     -----
    Earnings from consolidated companies........................    0.8       5.5       7.6
    Equity in net earnings of affiliates........................    2.0       4.3       4.1
                                                                  -----     -----     -----
    Net earnings................................................    2.8%      9.8%     11.7%
                                                                  =====     =====     =====
</TABLE>
 
FISCAL 1997 COMPARED WITH FISCAL 1996
 
     Net Sales.  Net sales for the fiscal year ended May 31, 1997 were $161.0
million, up 41.4% over net sales of $113.9 million in fiscal 1996. Equipment,
parts and expendables accounted for 83.6% of net sales in fiscal 1997 compared
to 77.3% in fiscal 1996. The growth in this segment was attributable to higher
sales of the Company's CMP planarization systems to the semiconductor industry.
Sales of CMP systems totaled $80.8 million, or 50.2% of net sales, more than
double the $39.5 million of CMP system sales in fiscal 1996. In addition to the
significant increase in CMP equipment sales to semiconductor manufacturers, net
sales for the fiscal year increased due to a higher level of sales of equipment,
parts and expendables to the thin film memory disk media market. Sales of
slurries increased to $26.3 million in fiscal 1997 from $25.8 million in fiscal
1996. However, as a percent of net sales, sales of slurries decreased to 16.4%
in fiscal 1997 from 22.7% in fiscal 1996. European sales decreased to $9.9
million in fiscal 1997 from $10.9 million in fiscal 1996.
 
     Commissions from Affiliate.  Commissions from affiliate increased to $12.4
million in the year ended May 31, 1997, compared to $6.3 million in the year
ended May 31, 1996. The increase in fiscal 1997, as compared to fiscal 1996, was
due primarily to increased demand in the silicon wafer industry for polishing
systems developed and manufactured by the Far East Joint Venture. In addition,
sales of cleaning and polishing systems, also produced by the Far East Joint
Venture, to customers in the thin film memory disk media market increased
significantly in fiscal 1997 over fiscal 1996. Commissions from affiliate also
improved over the prior year due to improved margins on import machines.
 
     Gross Margin.  In fiscal 1997, gross margin was $69.9 million, or 40.3% of
total revenue, compared to $41.5 million, or 34.5% of total revenue, in fiscal
1996. In addition to higher sales levels, gross margin has increased due to a
continuing increase in sales of higher margin equipment, particularly systems
for the planarization of semiconductor devices. In addition, higher commission
revenue contributed to the increased gross margins in fiscal 1997.
 
     Research, Development and Engineering.  In the year ended May 31, 1997,
research, development and engineering expense increased to $19.8 million, or
11.4% of total revenue, compared to $11.5 million, or 9.6% of total revenue, in
fiscal 1996. The increase in both the dollar amount and as a percent of total
revenue is a
 
                                       18
<PAGE>   20
 
result of the continued investment in the development of the CMP process and
products for key markets, particularly for the semiconductor sector, and the
increase in the Company's field support organization throughout the world. Such
expenditures have resulted in the development and sale of the Auriga machine,
the next generation of the CMP-V system, and the development of the Capella
Post-CMP Cleaning System.
 
     Selling, General and Administrative.  In fiscal 1997, selling, general and
administrative expense increased to $28.7 million from $18.9 million in fiscal
1996. In fiscal 1997, selling, general and administrative expense increased as a
percent of total revenue to 16.5% from 15.7% in fiscal 1996. Higher levels of
spending were required to support the sales growth in fiscal 1997. This increase
in selling, general and administrative expense as a percentage of revenue
reflects continued investments in the sales and administrative infrastructure,
as well as increased commissions paid to the Far East Joint Venture as a result
of increased sales of CMP systems produced by the Company in the U.S. and
exported to Pacific Rim customers though its joint venture affiliate.
 
     Other Income (Expense).  Other expense increased to $298,000 in fiscal 1997
from $208,000 in fiscal 1996. Other income (expense) includes charges associated
with the Company's public common stock offering in the first quarter of fiscal
1997 which was subsequently canceled, interest expense, miscellaneous expenses
and interest income.
 
     Provision for Income Taxes.  The Company's effective tax rate in fiscal
1997 was 38%, compared to 39% in fiscal 1996. The Company's effective income tax
rate in fiscal 1997 differs from the Federal statutory rate primarily as a
result of state taxes, net of the U.S. federal benefit offset by the tax benefit
from a foreign sales corporation and research and development tax credits.
 
     Equity in Net Earnings of Affiliates.  For the year ended May 31, 1997,
equity in net earnings of affiliates increased to $7.1 million compared to $5.2
million in the year ended May 31, 1996. Demand continued to be strong for
products sold to the thin film memory and semiconductor wafer industries by the
Far East Joint Venture. However, the Company does not expect that this
historical rate of earnings growth will continue. As a result, the Company does
not expect earnings for the Far East Joint Venture to grow in the next fiscal
year. In addition, the Company's share of the net earnings of the Fujimi Joint
Venture was significantly higher than in fiscal 1996 due to increased sales and
improved margins realized during fiscal 1997 on slurry products sold by the
Fujimi Joint Venture to the U.S. silicon wafer market.
 
FISCAL 1996 COMPARED WITH FISCAL 1995
 
     Net Sales.  Net sales for the fiscal year ended May 31, 1996 were $113.9
million, almost double the net sales of $57.0 million reported in fiscal 1995.
Equipment, parts and expendables accounted for 77.3% of net sales in fiscal 1996
compared to 52.3% in fiscal 1995. CMP-V sales were $39.5 million and accounted
for 34.7% of net sales in fiscal 1996, up from 7.9% in fiscal 1995. In addition
to the significant increase in CMP-V sales to semiconductor manufacturers, net
sales increased due to industry growth in the thin film memory disk media and
semiconductor wafer markets. As a result, sales of related equipment, parts and
expendables also increased in fiscal 1996 over fiscal 1995. Sales of slurries as
a percent of net sales decreased to 22.7% in fiscal 1996 from 47.7% in fiscal
1995.
 
     Commissions from Affiliate.  Commissions from affiliate more than doubled
to $6.3 million in the year ended May 31, 1996, compared to $2.8 million in the
year ended May 31, 1995. The increase in fiscal 1996, as compared to fiscal
1995, was due primarily to the increasing demand from the silicon wafer industry
to meet that industry's growing capacity requirements, and increased demand for
certain technologies developed and manufactured by the Far East Joint Venture.
 
     Gross Margin.  In fiscal 1996, gross margin was $41.5 million, or 34.5% of
total revenue, compared to $14.3 million, or 23.9% of total revenue, in fiscal
1995. In addition to higher sales levels, gross margin increased due to a
considerable shift towards higher margin products in the equipment, parts and
expendables segment, particularly the CMP-V planarization system.
 
                                       19
<PAGE>   21
 
     Research, Development and Engineering.  In the year ended May 31, 1996,
research, development and engineering expense increased to $11.5 million, or
9.6% of total revenue, compared to $2.7 million, or 4.6% of total revenue, in
fiscal 1995. The Company has committed significant resources to the continued
development of the CMP process and other related technologies. The Company
believes that increased spending in research, development and engineering,
including providing required technical support services for needs of customers,
are all major factors to continued CMP sales growth.
 
     Selling, General and Administrative.  In fiscal 1996, selling, general and
administrative expense increased to $18.9 million from $9.9 million in fiscal
1995. In fiscal 1996, selling, general and administrative expense decreased as a
percent of total revenue compared to fiscal 1995 due to the significantly higher
level of sales between the same periods. However, higher levels of spending were
required to support this sales growth including additional administrative and
sales personnel, new service and sales locations, and distributor commissions to
the Far East Joint Venture on export sales from the U.S. to the Far East region.
 
     Other Income (Expense).  Other expense decreased to $208,000 in fiscal 1996
from $953,000 in fiscal 1995. In fiscal 1995, the Company incurred a $350,000
foreign exchange loss on several import equipment orders. In addition, interest
expense decreased from fiscal 1995 to fiscal 1996 due to the retirement of the
outstanding balance of a revolving line of credit and the retirement of
long-term debt payable to a former director. The remaining decrease in other
expense is due primarily to additional interest income earned on the investment
of proceeds received upon completion of the Company's initial public offering of
common stock in October 1995.
 
     Provision for Income Taxes.  The Company's effective tax rate in fiscal
1996 was 39%, compared to 29% in fiscal 1995. The Company's effective income tax
rate in fiscal 1996 differs from the Federal statutory rate primarily as a
result of state taxes, net of the U.S. federal benefit. The fiscal 1995
effective tax rate differs from the statutory rate primarily as a result of the
tax benefit from a foreign sales corporation.
 
     Equity in Net Earnings of Affiliates.  For the year ended May 31, 1996,
equity in net earnings of affiliates increased to $5.2 million compared to $1.2
million in the year ended May 31, 1995. The increase is primarily attributable
to a continued strong demand for products sold to the thin film memory and
semiconductor wafer industries by the Far East Joint Venture. In addition,
profits of the Far East Joint Venture have increased due to improvements in
manufacturing, cost reduction programs and a lower effective tax rate.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     For the year ended, May 31, 1997, $6.9 million in cash was provided by
operating activities primarily from net earnings. Cash from operating activities
was also provided by an increase in accounts payable and accrued expense
liabilities since the beginning of the fiscal year. Cash was used in operating
activities primarily to reduce the due to affiliates liability, income taxes
payable and to support growth in accounts receivable and inventories.
 
     The Company recently completed construction of its new corporate
headquarters and manufacturing facility in Chandler, Arizona. Total costs
incurred for the project were approximately $18.9 million.
 
     On February 20, 1997, the Company completed a public offering of common
stock. In connection therewith, the Company issued 2,500,000 shares of common
stock and received proceeds of $77.7 million, net of underwriters' discounts and
commissions and offerings expenses. In addition, for the year ended May 31,
1997, $1.5 million was provided by the sale of stock to employees through the
Company's Employee Stock Purchase Plan and through the exercise of stock
options.
 
     Using proceeds from the February 1997 stock offering, the Company paid off
$2.8 million of the entire outstanding balance on a $22.5 million unsecured
revolving line of credit maturing April 14, 1999. As of May 31, 1997, no amounts
were outstanding on this line of credit.
 
     As of September 13, 1996, the Company had successfully negotiated an
amendment to its then existing $22.5 million unsecured credit facility, in which
its U.S. bank group provided the Company an additional $14.0 million in an
unsecured term loan to fund the remaining costs to construct the new corporate
 
                                       20
<PAGE>   22
 
headquarters in Chandler, Arizona. At May 31, 1997, no amounts were outstanding
on the term loan. Unless drawn upon, the term loan agreement will expire
September 29, 1997.
 
     On October 31, 1996, SpeedFam Limited, the Company's wholly-owned
subsidiary in the United Kingdom, entered into a L950,000 ($1.5 million)
Multi-Currency Revolving Line of Credit. The credit facility was provided to
support the operating and working capital needs of the Company's British
subsidiary. At April 30, 1997, no amounts were outstanding on this loan.
 
     The Company believes that current bank lines of credit, the term loan and
the funds provided by the recent sale of common stock will be sufficient to meet
the Company's capital requirements during the next 12 months.
 
     Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share" is effective for financial statements issued for periods ending after
December 15, 1997. SFAS No. 128 replaces Accounting Principles Board Opinion
("APB") No. 15 and simplifies the computation of earnings per share ("EPS") by
replacing the presentation of primary EPS with a presentation of basic EPS.
Basic EPS includes no dilution and is computed by dividing income available to
common stockholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution from securities that
could share in the earnings of the Company, similar to fully diluted EPS under
APB No. 15. The Statement requires dual presentation of basic and diluted EPS by
entities with complex capital structures. The Company will adopt SFAS No. 128
for the financial statements for the year ended May 31, 1998.
 
     SFAS No. 130, "Reporting Comprehensive Income" is effective for fiscal
years beginning after December 15, 1997. SFAS No. 130 establishes standards for
the reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general-purpose financial
statements. The Statement requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. The Company is evaluating the Statement's provisions
to conclude how it will present comprehensive income in its financial
statements, and has not yet determined the amounts to be disclosed. The Company
will adopt SFAS No. 130 effective June 1, 1998.
 
     SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" is effective for financial statements for periods beginning after
December 15, 1997. SFAS No. 131 establishes standards for the way that public
business enterprises report financial and descriptive information about
reportable operating segments in annual financial statements and interim
financial reports issued to stockholders. SFAS No. 131 supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise," but retains the
requirement to report information about major customers. The Company is
evaluating the new Statement's provisions to determine the additional
disclosures required in its financial statements, if any. The Company will adopt
SFAS No. 131 effective June 1, 1998.
 
                CERTAIN FACTORS AFFECTING THE COMPANY'S BUSINESS
 
     Discussed below are certain factors which may affect the Company's
business. This discussion is not exclusive of other factors that may also affect
the Company's business and should be read in conjunction with the other
information contained in this Form 10-K including, without limitation,
information provided in "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
 
DEPENDENCE ON CMP SYSTEMS
 
     The Company believes that its future growth, if any, depends in large part
upon its ability to grow revenues attributable to its CMP systems and its
technology. Revenue growth attributable to the Company's CMP system depends upon
numerous factors, including cost of ownership, throughput, process flexibility,
performance and reliability and availability of customer support. The Company
intends to periodically develop and introduce enhanced versions of its CMP
system. Failure to continually enhance the Company's CMP system may impact its
ability to grow revenues attributable to its CMP systems. There can be no
assurance that the Company will be successful in growing revenue attributable to
its current CMP systems, or any future
 
                                       21
<PAGE>   23
 
enhanced version of the system. The failure of the Company to accomplish these
objectives would have a material adverse effect on the Company. See
"-- Dependence on New Product Development; Rapid Technological Change."
 
DEPENDENCE ON NEW PRODUCT DEVELOPMENT; RAPID TECHNOLOGICAL CHANGE
 
     The Company believes that its future success will depend, in part, on its
ability to enhance existing products and processes and develop and manufacture
new products and processes. The markets in which the Company and its customers
compete are characterized by evolving industry standards and frequent
improvements in products and services. To compete effectively in such markets,
the Company must continually improve its products and its process technologies
and develop new technologies and products that compete effectively on the basis
of price and performance. The Company expects to continue to make significant
investments in research, development and engineering. There can be no assurance
that the Company will be able to improve its existing products and its process
technologies or develop new products and technologies. The Company intends to
continually develop and/or introduce enhanced versions of its CMP system and
post-CMP cleaning system. There can be no assurance that the Company's
development of new or enhanced products, such as enhanced versions of the CMP
system, will be cost-effective or introduced in a timely manner or accepted in
the marketplace. Failure by the Company to develop or introduce new products and
product enhancements in a timely manner would have a material adverse effect on
the Company's business, financial condition and results of operations.
 
     Due to the complexity of the Company's products, significant delays can
occur between a system's introduction and the commencement of commercial
shipments. The Company has from time to time experienced delays in the
introduction of, and certain technical and manufacturing difficulties with,
certain of its systems and enhancements, and may experience such delays and
technical and manufacturing difficulties in future introductions or volume
production of new systems or enhancements. In addition, the Company may incur
substantial unanticipated costs to ensure the functionality and reliability of
its future product introductions early in the product's life cycle. If new
products experience reliability or quality problems, the Company could encounter
a number of problems, including reduced orders, higher manufacturing costs,
delays in collection of accounts receivable and additional service and warranty
expenses, all of which events could materially adversely affect the Company's
business and results of operations. In addition, in the event the Company does
not manage product transitions successfully, announcements or introductions, or
the perception that such events are likely to occur, by either the Company or
its competitors could adversely affect sales of existing Company products. See
"-- Market Share Growth Company's CMP System" and "Business -- Research,
Development and Engineering."
 
CYCLICAL NATURE OF THE COMPANY'S BUSINESS
 
     The Company's business depends substantially on the capital expenditures of
thin film memory disk media and semiconductor manufacturers, which, in turn,
depend upon the current and anticipated market demand for memory disks and
semiconductor devices. Sales of capital equipment to these manufacturers are
expected to continue to represent a significant portion of the Company's total
revenue. These industries are highly cyclical and have historically experienced
periodic downturns characterized by oversupply and weak demand, which often have
a material adverse effect on the acquisition of capital equipment and other
products used in the manufacturing process, including products offered by the
Company. These downturns generally have materially adversely affected the
business and operating results of capital equipment suppliers, including the
Company. The semiconductor and thin film memory disk industries have recently or
are currently experiencing downturns which have led many semiconductor and
memory disk manufacturers to delay or cancel capital expenditures. The Company's
business and results of operations will be materially adversely affected by
future downturns in the semiconductor market and the thin film memory disk
market.
 
     Sales of the Company's capital equipment depend, in large part, upon the
decision of a prospective customer to increase manufacturing capacity or respond
to advances in technology by upgrading or expanding existing manufacturing
facilities or constructing new manufacturing facilities, all of which typically
involve a significant capital commitment. Certain of the Company's capital
equipment have lengthy sales cycles while
 
                                       22
<PAGE>   24
 
the customer evaluates and receives approvals for the purchase of the Company's
systems and completes the upgrading or expansion of existing facilities or the
construction of new facilities. The Company may expend substantial funds and
management effort during the sales cycle. The cyclicality and rapid
technological change present in certain of the industries served by the Company
may also cause prospective customers to postpone decisions regarding major
capital expenditures, including purchases of the Company's equipment. In
addition, the need for continued investment in research and development,
marketing and customer support limits the Company's ability to reduce expenses
in response to downturns in the industries it serves.
 
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
 
     The Company's quarterly operating results have historically and may in the
future vary significantly due to a number of factors. Historically, a
disproportionate share of the Company's revenue and operating profit has been
attributable to the last two quarters of the Company's fiscal year, primarily
the fourth quarter. In particular, the Company typically experiences a decline
in revenues and operating profit from the fourth fiscal quarter to the first
fiscal quarter of the succeeding year. The Company believes that this decline is
primarily due to the seasonal buying patterns of its customers.
 
     Factors that may influence the Company's operating results in a given
quarter include: (i) customer demand, such as economic conditions in the memory
disk and semiconductor industries, market acceptance of products of both the
Company and its customers, changes in product mix, and the timing, cancellation
or delay of customer orders and shipments; (ii) competition, such as competitive
pressures on prices of the Company's products and the introduction or
announcement of new products by competitors; (iii) manufacturing and operations,
such as fluctuations in availability and cost of raw materials and production
capacity; (iv) fluctuations in foreign currency exchange rates; (v) new product
development, such as increased research, development and engineering, as well as
marketing, expenses associated with new product introductions, including the
effect of transitioning to new or enhanced products, and the Company's ability
to introduce new products and technologies on a timely basis; (vi) sales and
marketing, such as concentrations of customers, and discounts that may be
granted to certain customers; and (vii) the quarterly operating results of the
Company's joint ventures, which the Company accounts for on the equity method;
as well as other factors, such as levels of expenses relative to revenue levels,
personnel changes and generally prevailing economic conditions.
 
     During a given quarter, a significant portion of the Company's revenue may
be derived from the sale of a relatively small number of machines and systems.
Accordingly, a small change in the number of machines and systems actually
shipped may cause significant changes in operating results. Moreover, customers
may cancel or reschedule shipments, and production difficulties could delay
shipments. In addition, because of the significantly different gross margins
attributable to the Company's two segments, changes in product mix may cause
fluctuations in operating results. Further, the lengthy sales cycle for certain
of the Company's capital equipment may result in the Company incurring
significant expenses prior to the receipt of customer orders. In addition, the
introduction of new products has in the past contributed, and may continue to
contribute, to fluctuations in quarterly operating results. These same factors
also could materially and adversely affect annual results of operations. In
addition, the need for continued investment in research and development,
marketing and customer support limits the Company's ability to reduce expenses
in response to downturns in the industries it serves.
 
SOLE OR LIMITED SOURCES OF SUPPLY
 
     The Company relies to a substantial extent on outside suppliers to
manufacture many of the components and subassemblies used in the Company's
capital equipment, some of which are obtained from a single supplier or a
limited group of suppliers. The Company's reliance on outside suppliers
generally, and a sole or a limited group of suppliers in particular, involves
several risks, including a potential inability to obtain an adequate supply of
required components and reduced control over quality, pricing and timing of
delivery of components. In the past, the Company has experienced delays in
receiving materials from suppliers, sometimes resulting in delays in the
delivery of products by the Company. Such delays, or other significant supplier
or supply quality issues, may occur in the future, which could result in a
material adverse effect on the
 
                                       23
<PAGE>   25
 
Company. Because the manufacture of certain of these components and
subassemblies is specialized and requires long lead times, there can be no
assurance that delays or shortages caused by suppliers will not reoccur. Any
inability to obtain adequate deliveries, or any other circumstance that would
require the Company to seek alternative sources of supply or to manufacture such
components internally, could delay shipment of the Company's products, increase
its cost of goods sold and have a material adverse effect on the Company's
business and results of operations. See "Business -- Manufacturing and
Suppliers."
 
INTERNATIONAL BUSINESS
 
     In fiscal 1995, 1996 and 1997, 17.3%, 21.7% and 31.2%, respectively, of the
Company's total revenue was attributable to sales outside the United States. In
addition, under certain circumstances, products sold to U.S. customers are
shipped to those customers' overseas facilities. The Company expects that
international sales will continue to represent a significant portion of its
total revenue. Sales to customers outside the United States are subject to
numerous risks, including exposure to currency fluctuations, the imposition of
government controls, the need to comply with a wide variety of foreign and U.S.
export laws, political and economic instability, trade restrictions, changes in
tariffs and taxes typically associated with foreign sales, the greater
difficulty of administering business overseas and general economic conditions.
In addition, the laws of certain foreign countries may not protect the Company's
intellectual property to the same extent as do the laws of the United States.
Moreover, slurries marketed and distributed by both the Company and the Fujimi
Joint Venture are purchased from Fujimi Incorporated, a Japanese company. The
Company also purchases in Japanese yen certain equipment from the Far East Joint
Venture that the Company then sells in the U.S. and Europe. Fluctuations in
exchange rates have in the past resulted, and may in the future result, in
increases in the cost to the Company of such products. Also, because the value
of the net assets of the Company's foreign subsidiaries and its equity interest
in the Far East Joint Venture fluctuate based upon exchange rates and because
the Company does not hedge the value of such net assets, fluctuations in
exchange rates may have an adverse effect on the Company's shareholders' equity.
 
     Certain statements in "Business," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Certain Factors Affecting
the Company's Business" constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such forward-
looking statements involve known and unknown risks, uncertainties and other
factors which may cause the actual results, performance or achievements of the
Company to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements.
 
                                       24
<PAGE>   26
 
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
 
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
<TABLE>
<CAPTION>
                                                                                        PAGE
                                                                                        ----
<S>                                                                                     <C>
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
Independent Auditors' Report..........................................................    25
Consolidated Balance Sheets -- at the end of fiscal years 1996 and 1997...............    26
Consolidated Statements of Earnings -- for the fiscal years 1995, 1996 and 1997.......    27
Consolidated Statements of Stockholders' Equity -- for the fiscal years 1995, 1996 and
  1997................................................................................    28
Consolidated Statements of Cash Flows -- for the fiscal years 1995, 1996 and 1997.....    29
Notes to Consolidated Financial Statements............................................    30
SPEEDFAM CO., LTD. AND CONSOLIDATED SUBSIDIARIES
Independent Auditors' Report..........................................................    45
Consolidated Balance Sheets -- at the end of fiscal years 1996 and 1997...............    46
Consolidated Statements of Earnings -- for the fiscal years 1995, 1996 and 1997.......    47
Consolidated Statements of Shareholders' Equity -- for the fiscal years 1995, 1996 and
  1997................................................................................    48
Consolidated Statements of Cash Flows -- for the fiscal years 1995, 1996 and 1997.....    49
Notes to Consolidated Financial Statements............................................    50
</TABLE>
 
The above consolidated financial statements of SpeedFam Co., Ltd. and
consolidated subsidiaries are included herein pursuant to Rule 3-09 of
Regulation S-X.
 
                                       25
<PAGE>   27
 
           SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
 
                          INDEPENDENT AUDITORS' REPORT
 
Board of Directors
SpeedFam International, Inc.:
 
     We have audited the accompanying consolidated balance sheets of SpeedFam
International, Inc. and consolidated subsidiaries as of May 31, 1996 and 1997,
and the related consolidated statements of earnings, stockholders' equity, and
cash flows for each of the years in the three-year period ended May 31, 1997.
These consolidated financial statements are the responsibility of the management
of SpeedFam International, Inc. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
 
     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of SpeedFam
International, Inc. and consolidated subsidiaries as of May 31, 1996 and 1997,
and the results of their operations and their cash flows for each of the years
in the three-year period ended May 31, 1997 in conformity with generally
accepted accounting principles.
 
                                          KPMG Peat Marwick LLP
June 27, 1997
Chicago, Illinois
 
                                       26
<PAGE>   28
 
           SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
 
                          CONSOLIDATED BALANCE SHEETS
                             MAY 31, 1996 AND 1997
                             (DOLLARS IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                           1996         1997
                                                                         --------     --------
<S>                                                                      <C>          <C>
                                            ASSETS
Current assets:
  Cash and cash equivalents............................................  $ 10,871     $ 76,895
  Trade accounts receivable, less allowance for doubtful accounts of
     $495 in 1996 and $1,144 in 1997...................................    34,693       38,021
  Inventories..........................................................    27,931       35,849
  Deferred income taxes................................................     1,229        2,912
  Prepaid expenses and other current assets............................     1,241        2,038
                                                                         --------     --------
Total current assets...................................................    75,965      155,715
Investments in affiliates..............................................    20,450       23,956
Property, plant, and equipment, net....................................     9,969       24,582
Other assets...........................................................     1,600        2,247
                                                                         --------     --------
Total assets...........................................................  $107,984     $206,500
                                                                         ========     ========
 
                             LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Current portion of long-term debt....................................  $    727     $    250
  Accounts payable.....................................................    14,704       20,923
  Customer deposits....................................................     4,814        4,165
  Due to affiliates....................................................    11,756        4,824
  Accrued expenses.....................................................     8,005       14,870
  Income taxes payable.................................................     4,766        3,861
                                                                         --------     --------
Total current liabilities..............................................    44,772       48,893
                                                                         --------     --------
Long-term liabilities:
  Long-term debt.......................................................     2,593          272
  Deferred income taxes................................................       580          802
                                                                         --------     --------
Total long-term liabilities............................................     3,173        1,074
                                                                         --------     --------
Stockholders' equity:
  Common stock, no par value, 20,000,000 shares authorized, 10,514,868
     and 13,323,547 shares issued and outstanding at May 31, 1996 and
     1997, respectively................................................         1            1
  Additional paid-in capital...........................................    26,174      105,522
  Retained earnings....................................................    29,247       49,466
  Foreign currency translation adjustment..............................     4,617        1,544
                                                                         --------     --------
Total stockholders' equity.............................................    60,039      156,533
                                                                         --------     --------
Total liabilities and stockholders' equity.............................  $107,984     $206,500
                                                                         ========     ========
</TABLE>
 
          See accompanying notes to consolidated financial statements.
 
                                       27
<PAGE>   29
 
           SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
 
                      CONSOLIDATED STATEMENTS OF EARNINGS
                    YEARS ENDED MAY 31, 1995, 1996, AND 1997
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 
<TABLE>
<CAPTION>
                                                               1995         1996         1997
                                                              -------     --------     --------
<S>                                                           <C>         <C>          <C>
Revenue:
  Net sales.................................................  $57,021     $113,880     $160,994
  Commissions from affiliate................................    2,757        6,290       12,430
                                                              -------     --------     --------
Total revenue...............................................   59,778      120,170      173,424
Cost of sales...............................................   45,494       78,661      103,501
                                                              -------     --------     --------
Gross margin................................................   14,284       41,509       69,923
                                                              -------     --------     --------
Operating expenses:
  Research, development, and engineering....................    2,740       11,496       19,766
  Selling, general, and administrative expenses.............    9,948       18,922       28,671
                                                              -------     --------     --------
Total operating expenses....................................   12,688       30,418       48,437
                                                              -------     --------     --------
Operating profit............................................    1,596       11,091       21,486
                                                              -------     --------     --------
Other income (expense)......................................     (953)        (208)        (298)
                                                              -------     --------     --------
Earnings from consolidated companies before income taxes....      643       10,883       21,188
Income tax expense..........................................      186        4,266        8,037
                                                              -------     --------     --------
Earnings from consolidated companies........................      457        6,617       13,151
Equity in net earnings of affiliates........................    1,187        5,204        7,068
                                                              -------     --------     --------
Net earnings................................................  $ 1,644     $ 11,821     $ 20,219
                                                              =======     ========     ========
Net earnings per share......................................  $  0.20     $   1.16     $   1.67
                                                              =======     ========     ========
Weighted average common and common equivalent shares........    8,146       10,159       12,127
                                                              =======     ========     ========
</TABLE>
 
          See accompanying notes to consolidated financial statements.
 
                                       28
<PAGE>   30
 
           SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
 
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                    YEARS ENDED MAY 31, 1995, 1996, AND 1997
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                          FOREIGN
                                                 ADDITIONAL               CURRENCY
                                        COMMON    PAID-IN     RETAINED   TRANSLATION  TREASURY
                                        STOCK     CAPITAL     EARNINGS   ADJUSTMENT    STOCK      TOTAL
                                        ------   ----------   --------   ----------   --------   --------
<S>                                     <C>      <C>          <C>        <C>          <C>        <C>
Balance at May 31, 1994...............    $1      $     828   $ 15,782    $  5,139    $ (3,174)  $ 18,576
Net earnings..........................    --             --      1,644          --          --      1,644
Foreign currency translation
  adjustment..........................    --             --         --       2,852          --      2,852
Purchase of treasury stock............    --             --         --          --         (35)       (35)
                                         ---       --------    -------     -------     -------   --------
Balance at May 31, 1995...............     1            828     17,426       7,991      (3,209)    23,037
Net earnings..........................    --             --     11,821          --          --     11,821
Foreign currency translation
  adjustment..........................    --             --         --      (3,374)         --     (3,374)
Sale of treasury stock................    --             16         --          --           1         17
Retirement of treasury stock..........    --         (3,208)        --          --       3,208         --
Issuance of common stock..............    --         28,284         --          --          --     28,284
Exercise of stock options.............    --            254         --          --          --        254
                                         ---       --------    -------     -------     -------   --------
Balance at May 31, 1996...............     1         26,174     29,247       4,617          --     60,039
Net earnings..........................                   --     20,219          --          --     20,219
Foreign currency translation
  adjustment..........................    --             --         --      (3,073)         --     (3,073)
Income tax benefit from exercise of
  stock options.......................    --            194         --          --          --        194
Issuance of common stock..............    --         77,673         --          --          --     77,673
Employee stock purchases..............    --            887         --          --          --        887
Exercise of stock options.............    --            594         --          --          --        594
                                         ---       --------    -------     -------     -------   --------
Balance at May 31, 1997...............    $1      $ 105,522   $ 49,466    $  1,544    $     --   $156,533
                                         ===       ========    =======     =======     =======   ========
</TABLE>
 
          See accompanying notes to consolidated financial statements.
 
                                       29
<PAGE>   31
 
           SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                    YEARS ENDED MAY 31, 1995, 1996 AND 1997
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                               1995         1996         1997
                                                              -------     --------     --------
<S>                                                           <C>         <C>          <C>
Cash flows from operating activities:
  Net earnings..............................................  $ 1,644     $ 11,821     $ 20,219
  Adjustments to reconcile net earnings to net cash provided
     by (used in) operating activities:
     Equity in net earnings of affiliates...................   (1,187)      (5,204)      (7,068)
     Depreciation and amortization..........................      635        1,326        2,846
     Provision for losses on accounts receivable............        3          316          817
     Provision for deferred income taxes....................     (120)        (922)      (1,557)
     Gains on sales of assets...............................     (246)         (10)         (32)
     Increase in cash surrender value of life insurance.....     (138)        (142)        (144)
     (Increase) decrease in assets:
       Trade accounts receivable............................   (2,271)     (18,226)      (4,050)
       Inventories..........................................   (7,067)     (10,078)      (7,898)
       Prepaid expenses and other current assets............     (452)          23         (749)
     Increase (decrease) in liabilities:
       Accounts payable and due to affiliates...............    4,149       10,621         (709)
       Accrued expenses and customer deposits...............    4,474        4,102        6,183
       Income taxes payable.................................      566        4,290         (942)
                                                              -------     --------     --------
Net cash provided by (used in) operating activities.........      (10)      (2,083)       6,916
                                                              -------     --------     --------
Cash flows from investing activities:
  Capital expenditures......................................     (744)      (8,121)     (17,431)
  Proceeds from sales of assets.............................      431           24           75
  Dividends from affiliates.................................       90          163          554
  Other investing activities................................      (83)        (542)        (456)
                                                              -------     --------     --------
Net cash used in investing activities.......................     (306)      (8,476)     (17,258)
                                                              -------     --------     --------
Cash flows from financing activities:
  Treasury stock transactions...............................      (35)          17           --
  Net proceeds from issuance of common stock................       --       28,284       77,673
  Proceeds from exercise of stock options and employee stock
     purchases..............................................       --          254        1,481
  Proceeds from long-term debt..............................    1,500        3,999          414
  Principal payments on long-term debt......................     (899)     (12,025)      (3,221)
                                                              -------     --------     --------
Net cash provided by financing activities...................      566       20,529       76,347
                                                              -------     --------     --------
Effect of foreign currency rate changes on cash.............       36         (194)          19
                                                              -------     --------     --------
Net increase in cash and cash equivalents...................      286        9,776       66,024
Cash and cash equivalents at beginning of year..............      809        1,095       10,871
                                                              -------     --------     --------
Cash and cash equivalents at end of year....................  $ 1,095     $ 10,871     $ 76,895
                                                              =======     ========     ========
Supplemental cash flow information -- cash paid during the
  year for:
     Interest...............................................  $   866     $    810     $    226
     Income taxes...........................................      125          860       10,463
                                                              =======     ========     ========
</TABLE>
 
          See accompanying notes to consolidated financial statements.
 
                                       30
<PAGE>   32
 
           SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
     SpeedFam International, Inc. (the Company), an Illinois corporation,
designs, develops, manufactures, markets, and services chemical mechanical
planarization, or "CMP," systems used in the fabrication of semiconductor
devices and other high throughput, precision surface processing systems used in
the fabrication of thin film memory disk media, semiconductor wafers, and
general industrial components. In addition, the Company markets and distributes
slurries, parts, and expendables used in its customers' manufacturing processes.
The Company's customers are primarily located in the United States, Europe, and
the Far East.
 
  (a) Principles of Consolidation
 
     The consolidated financial statements include the accounts of the Company
and the following wholly owned subsidiaries:
 
<TABLE>
<CAPTION>
                               SUBSIDIARIES                    INCORPORATED
                -------------------------------------------  ----------------
                <S>                                          <C>
                SpeedFam Corporation                         United States
                SpeedFam Limited                             United Kingdom
                SpeedFam GmbH                                Germany
</TABLE>
 
     All significant intercompany balances and transactions have been
eliminated. Non-U.S. subsidiaries are included in the consolidated financial
statements based upon fiscal years ended April 30. The Company's fiscal year
ends on May 31.
 
     The Company's investments in the common stock of affiliates SpeedFam Co.,
Ltd. (a Japanese corporation, 50% owned) and Fujimi Corporation (an Illinois
corporation, 50% owned) are accounted for by the equity method using fiscal
years that end April 30 and May 31, respectively.
 
  (b) Cash and Cash Equivalents
 
     Cash and cash equivalents include deposits in banks and highly liquid
short-term investments with original maturities of three months or less.
Short-term investments are carried at cost which approximates market.
 
  (c) Property, Plant, and Equipment
 
     Property, plant, and equipment are stated at cost. Depreciation is provided
on the straight-line method over the estimated useful lives of the assets.
Depreciation expense was $538, $1,172, and $2,795 in fiscal years 1995, 1996,
and 1997, respectively. The estimated useful lives of the assets are as follows:
 
<TABLE>
        <S>                                                             <C>
        Buildings and improvements....................................    7 to 40 years
        Machinery and equipment.......................................          5 years
        Furniture and fixtures........................................     3 to 5 years
        Leasehold improvements........................................    2 to 10 years
</TABLE>
 
  (d) Inventories
 
     Inventories are stated at the lower of cost (first-in, first-out) or
market.
 
  (e) Income Taxes
 
     Income taxes are accounted for under the asset and liability method. Under
the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their
 
                                       31
<PAGE>   33
 
           SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
 
  (f) Revenue Recognition
 
     Sales of the Company's products are recorded upon shipment or when the
product is accepted by the customer. Commission revenue from affiliates is
recorded upon shipment of product.
 
  (g) Installation and Warranty Costs
 
     Costs to be incurred by the Company related to product installation and
warranty fulfillment are accrued at the date of shipment, and are estimated by
the Company based on past experience. The accrual for product installation and
warranty fulfillment, included in accrued expenses in the consolidated balance
sheets, was $2,485 and $5,510 at the end of fiscal years 1996 and 1997,
respectively.
 
  (h) Foreign Currency Translation
 
     Assets and liabilities of the Company's non-U.S. operations have been
translated using the exchange rates in effect at the balance sheet dates.
Results of operations are translated using the average exchange rates prevailing
throughout the period. Local currencies are considered the functional currencies
of the Company's foreign entities. Foreign currency exchange rates used to
translate the financial statements are summarized below:
 
<TABLE>
<CAPTION>
                                                                 FOREIGN CURRENCY PER U.S.
                                                                           DOLLAR
                                                                 1995      1996       1997
                                                                ------    -------    -------
    <S>                                                         <C>       <C>        <C>
    Rates at balance sheet date:
      Pound sterling (L)......................................     .62        .66        .62
      Deutsche mark (DM)......................................    1.39       1.53       1.73
      Japanese yen (Y)........................................   84.20     105.07     127.09
</TABLE>
 
  (i) Treasury Stock
 
     The Company accounts for treasury stock using the cost method. All of the
Company's treasury stock was retired upon completion of the Company's initial
public offering of common stock on October 26, 1995 (see note 14).
 
  (j) Net Earnings Per Share
 
     Net earnings per share data has been computed using the weighted average
number of shares of common stock and common equivalent shares from stock
options. Stock options issued during the 12-month period prior to the Company's
initial public offering have been included in the calculation as if they were
outstanding for all periods presented.
 
                                       32
<PAGE>   34
 
           SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 
  (k) Significant Customers and Concentration of Credit Risk
 
     Presented below is a summary of net sales to and commissions earned from
significant customers as a percentage of total revenue. Net sales to and
commissions earned from these customers are from both of the Company's segments.
 
<TABLE>
<CAPTION>
                                CUSTOMER                              1995     1996     1997
    ----------------------------------------------------------------  ----     ----     ----
    <S>                                                               <C>      <C>      <C>
    A...............................................................   21%      18%      10%
    B...............................................................    *        *       13
    C...............................................................   11        *        *
</TABLE>
 
---------------
* Less than 10%.
 
     Amounts due from these significant customers represented 6.7% of total
trade accounts receivable at May 31, 1997.
 
  (l) Patents and Trademarks
 
     Patents and trademarks included in other assets, in the net amount of $463
and $769 at the end of fiscal years 1996 and 1997, respectively, are amortized
on a straight-line basis over 17 years for patents and five years for
trademarks.
 
  (m) Research, Development, and Engineering
 
     Expenditures for research, development, and engineering of products and
processes are expensed as incurred.
 
  (n) Use of Estimates
 
     The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company's management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
 
  (o) Employee Stock Plans
 
     Effective June 1, 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation."
In accordance with the provisions of SFAS No. 123, the Company applies
Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued
to Employees," and related interpretations in accounting for its employee stock
option and stock purchase plans and, accordingly, does not recognize
compensation cost. As prescribed by SFAS No. 123, note 10 contains a summary of
the pro forma effects on reported net earnings and earnings per share for 1996
and 1997 as if the Company had elected to recognize compensation cost based on
the fair value of the options granted at grant date.
 
                                       33
<PAGE>   35
 
           SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 
(2) INVENTORIES
 
     Inventories at the end of fiscal years 1996 and 1997 are summarized as
follows:
 
<TABLE>
<CAPTION>
                                                                        1996        1997
                                                                       -------     -------
    <S>                                                                <C>         <C>
    Raw materials....................................................  $14,626     $16,323
    Work-in-process..................................................   10,777      16,030
    Finished goods...................................................    2,528       3,496
                                                                       -------     -------
              Total inventories......................................  $27,931     $35,849
                                                                       =======     =======
</TABLE>
 
(3) PROPERTY, PLANT, AND EQUIPMENT
 
     Property, plant, and equipment at the end of fiscal years 1996 and 1997 are
summarized as follows:
 
<TABLE>
<CAPTION>
                                                                        1996        1997
                                                                       -------     -------
    <S>                                                                <C>         <C>
    Land.............................................................  $ 2,275     $ 2,280
    Buildings........................................................    2,054       2,156
    Machinery and equipment..........................................    7,667      11,321
    Furniture and fixtures...........................................    1,039       1,446
    Leasehold improvements...........................................      767         643
    Construction in progress.........................................      495      13,832
                                                                       -------     -------
                                                                        14,297      31,678
    Less accumulated depreciation....................................   (4,328)     (7,096)
                                                                       -------     -------
    Net property, plant, and equipment...............................  $ 9,969     $24,582
                                                                       =======     =======
</TABLE>
 
(4) INVESTMENTS IN AFFILIATES
 
     The Company owns a 50% interest in SpeedFam Co., Ltd. The Company's equity
investment in SpeedFam Co., Ltd. was $18,545 and $20,363 in 1996 and 1997,
respectively. SpeedFam Co., Ltd.'s consolidated financial statements include the
accounts of the following subsidiaries:
 
<TABLE>
<CAPTION>
                                    COMPANY                                    LOCATION
    -----------------------------------------------------------------------  ------------
    <S>                                                                      <C>
    SpeedFam Clean System Co., Ltd.........................................  Japan
    Saku Seiki Co., Ltd....................................................  Japan
    SpeedFam Incorporated..................................................  Taiwan
    SpeedFam Korea Ltd.....................................................  South Korea
    SpeedFam India (Pvt.) Ltd..............................................  India
</TABLE>
 
     Significant intercompany balances and transactions have been eliminated.
SpeedFam Co., Ltd.'s investments in three affiliated Japanese companies,
Met-Coil Ltd.; CRT K.K.; and Xevios Corporation are accounted for by the equity
method.
 
                                       34
<PAGE>   36
 
           SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 
     Condensed consolidated financial statements of SpeedFam Co. Ltd., are as
follows:
 
                                 BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                                               APRIL 30
                                                                         ---------------------
                                                                           1996         1997
                                                                         --------     --------
<S>                                                                      <C>          <C>
                                            ASSETS
Current assets:
  Cash and short-term investments......................................  $ 14,323     $  9,794
  Trade accounts receivable, net and due from affiliates...............    61,344       77,380
  Inventories..........................................................    19,961       25,063
  Prepaid expenses and other current assets............................     2,864        3,434
                                                                         --------     --------
Total current assets...................................................    98,492      115,671
Property, plant and equipment, net.....................................    20,161       30,327
Other assets...........................................................     7,898        7,702
                                                                         --------     --------
Total assets...........................................................  $126,551     $153,700
                                                                         ========     ========
 
                             LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Short-term borrowings and current portion of long-term debt..........  $ 10,340     $ 15,841
  Accounts payable.....................................................    48,326       64,523
  Accrued expenses.....................................................     7,122        9,969
  Income taxes payable.................................................     9,178        5,701
                                                                         --------     --------
Total current liabilities..............................................    74,966       96,034
                                                                         --------     --------
Long-term debt.........................................................     9,106       10,786
Other long-term liabilities............................................     5,388        6,154
                                                                         --------     --------
Total long-term liabilities............................................    14,494       16,940
                                                                         --------     --------
Stockholders' equity...................................................    37,091       40,726
                                                                         --------     --------
Total liabilities and stockholders' equity.............................  $126,551     $153,700
                                                                         ========     ========
</TABLE>
 
                                       35
<PAGE>   37
 
           SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 
                  STATEMENTS OF EARNINGS AND RETAINED EARNINGS
 
<TABLE>
<CAPTION>
                                                                  YEARS ENDED APRIL 30,
                                                          -------------------------------------
                                                            1995          1996          1997
                                                          ---------     ---------     ---------
<S>                                                       <C>           <C>           <C>
Net sales...............................................  $ 108,664     $ 161,169     $ 220,281
Costs and operating expenses............................   (103,574)     (141,752)     (198,449)
                                                          ---------     ---------     ---------
Earnings before income taxes............................      5,090        19,417        21,832
Income taxes............................................     (2,755)       (9,479)      (10,250)
                                                          ---------     ---------     ---------
Net earnings before minority interest...................      2,335         9,938        11,582
Minority interest.......................................       (166)         (301)         (569)
                                                          ---------     ---------     ---------
Net earnings............................................      2,169         9,637        11,013
Retained earnings at beginning of year..................     15,987        18,036        26,943
Common stock dividend...................................         --          (454)           --
Dividends...............................................       (120)         (276)         (907)
                                                          ---------     ---------     ---------
Retained earnings at end of year........................  $  18,036     $  26,943     $  37,049
                                                          =========     =========     =========
</TABLE>
 
     The following is a summary of SpeedFam International, Inc. and consolidated
subsidiaries' transactions with SpeedFam Co., Ltd. and its subsidiaries.
 
<TABLE>
<CAPTION>
                                                            1995          1996          1997
                                                          ---------     ---------     ---------
<S>                                                       <C>           <C>           <C>
Sales to SpeedFam Co., Ltd. ............................  $     259     $   1,737     $   1,520
                                                          =========     =========     =========
Purchases from SpeedFam Co., Ltd. ......................  $   3,046     $   7,612     $   6,146
                                                          =========     =========     =========
Commission revenue......................................  $   2,757     $   6,290     $  12,430
                                                          =========     =========     =========
Commission expense......................................  $     196     $     582     $   2,707
                                                          =========     =========     =========
</TABLE>
 
     Net amounts due to SpeedFam Co., Ltd. included in the consolidated balance
sheets at the end of fiscal years 1996 and 1997 are $11,591 and $4,360,
respectively.
 
     The Company owns a 50% interest in Fujimi Corporation. The Company's equity
investment in Fujimi Corporation was $1,905 and $3,593 in 1996 and 1997,
respectively. Summary financial information relating to Fujimi Corporation is as
follows:
 
                                 BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                                               1996
                                                                        ------------------
                                                                         1996       1997
                                                                        ------     -------
    <S>                                                                 <C>        <C>
    ASSETS
    Current assets..................................................    $7,965     $13,346
    Other assets....................................................        32          16
                                                                        ------     -------
    Total assets....................................................    $7,997     $13,362
                                                                        ======     =======
 
    LIABILITIES AND STOCKHOLDERS' EQUITY
    Liabilities.....................................................    $4,188     $ 6,177
    Stockholders' equity............................................     3,809       7,185
                                                                        ------     -------
    Total liabilities and stockholders' equity......................    $7,997     $13,362
                                                                        ======     =======
</TABLE>
 
                                       36
<PAGE>   38
 
           SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 
                             STATEMENTS OF EARNINGS
 
<TABLE>
<CAPTION>
                                                                  YEARS ENDED MAY 31,
                                                            -------------------------------
                                                             1995        1996        1997
                                                            -------     -------     -------
    <S>                                                     <C>         <C>         <C>
    Net sales.............................................  $15,783     $19,734     $36,556
    Costs and operating expenses..........................  (15,536)    (18,235)    (30,775)
                                                            -------     -------     -------
    Earnings before income taxes..........................      247       1,499       5,781
    Income taxes..........................................      (72)       (589)     (2,205)
                                                            -------     -------     -------
    Net earnings..........................................  $   175     $   910     $ 3,576
                                                            =======     =======     =======
</TABLE>
 
     The Company received dividends from Fujimi Corporation of $30, $25, and
$100 in 1995, 1996, and 1997, respectively. Purchases from Fujimi Corporation
approximated $1,301, $952, and $1,725 in 1995, 1996, and 1997, respectively.
Amounts due to Fujimi Corporation included in the consolidated balance sheets at
the end of fiscal years 1996 and 1997 are $165 and $464, respectively.
 
(5) INCOME TAXES
 
     The Company files consolidated U.S. Federal income tax returns with its
domestic subsidiary. Operations in the United Kingdom and Germany file local
income tax returns. Earnings from consolidated companies before income taxes are
as follows:
 
<TABLE>
<CAPTION>
                                                               1995      1996        1997
                                                               ----     -------     -------
    <S>                                                        <C>      <C>         <C>
    U.S. ....................................................  $183     $ 9,380     $18,608
    Non-U.S. ................................................   460       1,503       2,580
                                                               ----     -------     -------
    Total....................................................  $643     $10,883     $21,188
                                                               ====     =======     =======
</TABLE>
 
     The provision (benefit) for income taxes is as follows:
 
<TABLE>
<CAPTION>
                                                               1995       1996       1997
                                                               -----     ------     -------
    <S>                                                        <C>       <C>        <C>
    Current:
      U.S. Federal...........................................  $ 112     $3,693     $ 6,673
      State..................................................     12        965       1,800
      Non-U.S................................................    182        537       1,025
                                                               -----     ------     -------
                                                                 306      5,195       9,498
                                                               -----     ------     -------
    Deferred:
      U.S. Federal and state.................................    (92)      (915)     (1,311)
      Non-U.S................................................    (28)       (14)       (150)
                                                               -----     ------     -------
                                                                (120)      (929)     (1,461)
                                                               -----     ------     -------
    Income tax expense.......................................  $ 186     $4,266     $ 8,037
                                                               =====     ======     =======
</TABLE>
 
                                       37
<PAGE>   39
 
           SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 
     The tax effects of temporary differences that give rise to the deferred tax
assets (liabilities) at the end of fiscal years 1996 and 1997 are attributable
to:
 
<TABLE>
<CAPTION>
                                                                         1996       1997
                                                                         -----     ------
    <S>                                                                  <C>       <C>
    Property, plant, and equipment.....................................  $(616)    $ (789)
    Inventory..........................................................    166        352
    Allowance for doubtful accounts....................................    164        469
    Trademark amortization.............................................     80         98
    Warranty reserve...................................................    984      2,201
    Alternative minimum tax credit carryforward........................     47         --
    Other..............................................................   (176)      (221)
                                                                         -----     ------
    Net deferred tax asset.............................................  $ 649     $2,110
                                                                         =====     ======
</TABLE>
 
     The net deferred tax asset has been recorded on the balance sheet as
follows:
 
<TABLE>
<CAPTION>
                                                                          1996       1997
                                                                         ------     ------
    <S>                                                                  <C>        <C>
    Current deferred tax asset.........................................  $1,229     $2,912
    Long-term deferred tax liability...................................    (580)      (802)
                                                                         ------     ------
                                                                         $  649     $2,110
                                                                         ======     ======
</TABLE>
 
     There is no valuation allowance for deferred tax assets at the end of
fiscal years 1996 or 1997. Deferred tax assets are considered realizable due to
the expectation of future taxable income.
 
     A reconciliation between the Company's effective tax rate and the expected
tax rate of 34% for 1995 and 1996 and 35% for 1997 on earnings before income
taxes is as follows:
 
<TABLE>
<CAPTION>
                                                                      1995     1996     1997
                                                                      ----     ----     ----
    <S>                                                               <C>      <C>      <C>
    Expected income tax rate........................................   34%      34%      35%
    Officers' life insurance........................................    4       --       --
    Dividend income from non-U.S. affiliates........................    3       --        1
    State taxes, net of U.S. Federal benefit........................   --        4        6
    Foreign sales corporation.......................................  (13)      --       (1)
    Research and development tax credits............................   --       --       (1)
    Other...........................................................    1        1       (2)
                                                                                --       --
                                                                      ---
    Effective income tax rate.......................................   29%      39%      38%
                                                                      ===       ==       ==
</TABLE>
 
     No provision is made for income taxes on undistributed earnings of wholly
owned non-U.S. subsidiaries and SpeedFam Co., Ltd., because it is the Company's
present intention to reinvest substantially all the earnings of these
operations. At the end of fiscal year 1997, there was approximately $22,700 of
accumulated undistributed earnings of those operations. It is not practical for
the Company to compute the amount of unrecognized deferred tax liability on the
undistributed earnings.
 
                                       38
<PAGE>   40
 
           SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 
(6) LONG-TERM DEBT
 
     Long-term debt consists of the following:
 
<TABLE>
<CAPTION>
                                                                           1996      1997
                                                                          ------     ----
    <S>                                                                   <C>        <C>
    Loans under revolving line of credit due April 14, 1999; interest
      rate at bank's prime rate (8.25% at May 31, 1996) or LIBOR plus
      1.25% (6.75% at May 31, 1996).....................................  $2,400     $ --
    Term loan payable in monthly installments of $26 (including
      interest) beginning April 1, 1994 for five years; interest rate
      fixed at 9.25%....................................................     772      522
    Term loan, payable in monthly installments of L4.7 ($8) for 15 years
      beginning in November 1987, interest rate of 2.25% over the bank's
      base rate (8.25% at April 30, 1996)...............................     148       --
                                                                          ------     ----
    Total long-term debt................................................   3,320      522
    Less current portion of long-term debt..............................     727      250
                                                                          ------     ----
    Net long-term debt..................................................  $2,593     $272
                                                                          ======     ====
</TABLE>
 
     In fiscal year 1996 the Company entered into an unsecured credit agreement
with two U.S. banks. The credit agreement is for a $22,500 revolving line of
credit maturing April 14, 1999. The Company must meet certain financial
objectives each year as defined in the credit agreement. During fiscal 1997, the
Company paid off the outstanding balance on the unsecured revolving line of
credit.
 
     On September 13, 1996, the Company negotiated an amendment to the $22,500
credit facility, providing for an additional $14,000 in a five-year unsecured
term loan to fund the construction of a new corporate headquarters and
manufacturing facility in Chandler, Arizona. As of May 31, 1997, no amounts were
outstanding on the term loan. Should the loan be utilized, terms of the loan
provide that principal will be repaid in fifteen (15) quarterly installments of
$350 each beginning in October 1997. The remaining outstanding balance will be
repaid at the end of the loan's term. Interest on the term loan will accrue and
be paid monthly on the outstanding balance based on a 90-day LIBOR rate plus 140
basis points. Unless drawn upon, the term loan will expire September 29, 1997.
 
     The term loan payable in monthly installments of $26 is secured by certain
machinery of SpeedFam Corporation.
 
     On October 31, 1996, SpeedFam Limited in the United Kingdom, a wholly owned
subsidiary of SpeedFam International, Inc., entered into a 950 ($1,543)
Multi-Currency Revolving Line of Credit with the London branch of a U.S. bank.
The revolving line of credit is secured by property and equipment of the
subsidiary and is payable on demand. Interest accrues on the outstanding balance
at 2.0% above the bank's base rate (6.0% at April 30, 1997) and is payable
monthly. As of April 30, 1997, no amounts were outstanding on this credit
facility.
 
     Annual maturities of long-term debt are as follows:
 
<TABLE>
<CAPTION>
                                    FISCAL YEAR                           AMOUNT
            ------------------------------------------------------------  ------
            <S>                                                           <C>
            1998........................................................   $250
            1999........................................................    272
                                                                           ----
                                                                           $522
                                                                           ====
</TABLE>
 
                                       39
<PAGE>   41
 
           SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
 
(7) COMMITMENTS AND CONTINGENCIES
 
     During fiscal year 1996, the Company entered into a technology license
agreement related to the development of a new product introduced during fiscal
year 1997. The agreement required the payment of $400 upon signing and a final
payment of $300 was made in September 1996. The agreement also obligates the
Company to make annual royalty payments of 5.5% of the Company's net sales of
products using the licensed technology for ten years. The annual royalty
payments are subject to a minimum payment of $150 beginning in fiscal year 1998
and $200 for fiscal years 1999 to 2006.
 
     The Company and its subsidiaries occupy certain manufacturing and office
facilities and use certain equipment under noncancelable operating leases
expiring at various dates through fiscal year 2001. Rental expense aggregated
approximately $611, $917, and $1,235 in 1995, 1996, and 1997, respectively.
 
     Future minimum lease payments for all noncancelable operating leases having
a remaining term in excess of one year at the end of fiscal year 1997 are as
follows:
 
<TABLE>
<CAPTION>
                                        YEAR                              AMOUNT
            ------------------------------------------------------------  ------
            <S>                                                           <C>
            1998........................................................  $  951
            1999........................................................     774
            2000........................................................     405
            2001........................................................      12
            2002 and thereafter.........................................      --
                                                                          ------
            Total.......................................................  $2,142
                                                                          ======
</TABLE>
 
(8) FORWARD EXCHANGE CONTRACTS
 
     The notional amounts of foreign exchange contracts as of May 31, 1996 and
May 31, 1997 were as follows:
 
<TABLE>
<CAPTION>
                                                                        1996        1997
                                                                       -------     -------
    <S>                                                                <C>         <C>
    Forward exchange contracts to buy foreign currency...............  $17,980     $16,670
                                                                       =======     =======
    Forward exchange contracts to sell foreign currency..............  $ 1,224     $ 3,379
                                                                       =======     =======
</TABLE>
 
     All currency forward contracts outstanding at May 31, 1997 have maturities
of less than one year and are primarily to buy or sell Japanese yen in exchange
for U.S. dollars. Management believes that these contracts should not subject
the Company to undue risk from foreign exchange movements, because gains and
losses on these contracts generally offset gains and losses on the assets,
liabilities, and transactions being hedged. The fair value of these contracts
and the related deferred gains are insignificant.
 
(9) SAVINGS AND PROFIT-SHARING PLANS
 
     The Company maintains savings and profit-sharing plans for its employees.
The plans cover certain employees who meet length of service requirements.
Expense under the plans, determined by the Company's Board of Directors,
aggregated $60, $1,443, and $2,414 in 1995, 1996, and 1997, respectively.
 
(10) STOCK OPTION PLANS
 
     The Company grants options to employees under the 1991 Employee Incentive
Stock Option Plan and the 1995 Stock Plan for Employees and Directors of the
Company. Under the plans, options to purchase up to 2,500,000 shares of the
Company's authorized but unissued common stock may be granted. Prior to fiscal
year 1995, stock options were granted at 100% to 110% of the value of the
Company's common stock as determined
 
                                       40
<PAGE>   42
 
           SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
 
by an established formula. In fiscal year 1995, stock options were granted at
100% to 110% of the fair value of the Company's common stock as determined by an
independent appraiser. Subsequent to fiscal year 1995 stock options are granted
at a price not less than the fair market value on the date of grant. The stock
options vest over five years (i.e., 20% each year) with the exception of 163,800
stock options issued in 1992, which vested immediately. The stock options expire
10 years after the grant date, except for 71,100 stock options which expire five
years after the grant date.
 
     The following table summarizes option activity and related information:
 
<TABLE>
<CAPTION>
                                                                                            WEIGHTED
                                                                                            AVERAGE
                                                  OPTIONS        PRICE PER SHARE         EXERCISE PRICE
                                                 ---------     -------------------       --------------
    <S>                                          <C>           <C>     <C>    <C>        <C>
    Balance at May 31, 1994....................    822,000      $ 2.04    -   $ 2.26         $ 2.04
      Granted..................................    281,660        2.41    -     6.41           5.38
      Exercised................................                     --    -       --             --
      Canceled or expired......................         --          --    -       --             --
                                                 ---------     -------   --   ------         ------

    Balance at May 31, 1995....................  1,103,660        2.04    -     6.41           2.87
      Granted..................................    330,976       10.75    -    20.50          20.07
      Exercised................................    127,668        2.04    -     5.83           2.12
      Canceled or expired......................     33,900        2.04    -     5.83           2.25
                                                 ---------     -------   --   ------         ------

    Balance at May 31, 1996....................  1,273,068        2.04    -    20.50           7.43
      Granted..................................    496,200       15.75    -    37.75          36.16
      Exercised................................    234,976        2.04    -    18.25           2.53
      Canceled or expired......................     12,360        5.83    -    20.50          14.72
                                                 ---------     -------   --   ------         ------

    Balance at May 31, 1997....................  1,521,932      $ 2.04    -   $37.75         $17.17
                                                 =========     ========  ==   ======         ======
</TABLE>
 
     The following table summarizes information about stock options outstanding
at May 31, 1997:
 
<TABLE>
<CAPTION>
                                       WEIGHTED AVERAGE
                       OPTIONS            REMAINING            WEIGHTED           OPTIONS            WEIGHTED
    RANGE OF        OUTSTANDING AT     CONTRACTUAL LIFE        AVERAGE         EXERCISABLE AT        AVERAGE
EXERCISE PRICES      MAY 31, 1997          (YEARS)          EXERCISE PRICE      MAY 31, 1997      EXERCISE PRICE
----------------    --------------     ----------------     --------------     --------------     --------------
<S>                 <C>                <C>                  <C>                <C>                <C>
$ 2.04 - $ 2.41          508,532              6.5               $ 2.08             215,480            $ 2.07
$ 5.83 - $ 6.41          194,912              7.4                 5.89              63,236              5.91
$10.75 - $15.78           38,800              9.0                14.11               2,600             10.90
$18.25 - $26.63          318,488              9.0                20.59              58,778             20.50
$36.44 - $37.75          461,200             10.0                36.45                  --                --
----------------       ---------              ---               ------             -------            ------
$ 2.04 - $37.75        1,521,932              8.3               $17.17             340,094            $ 6.04
================       =========              ===               ======             =======            ======
</TABLE>
 
     As permitted under SFAS No. 123, the Company has elected to follow APB No.
25 in accounting for stock-based awards to employees. Accordingly, no
compensation cost has been recognized for the stock option and stock purchase
plans. Had compensation cost for the Company's stock option and stock purchase
plans been determined based on the fair value at the grant date for awards in
1996 and 1997 consistent with the
 
                                       41
<PAGE>   43
 
           SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
 
provisions of SFAS No. 123, the Company's net earnings and earnings per share
would have been reduced to the pro forma amounts indicated below:
 
<TABLE>
<CAPTION>
                                                                         1996        1997
                                                                       --------    --------
    <S>                                                                <C>         <C>
    Net earnings as reported.........................................   $11,821     $20,219
    Pro forma net earnings...........................................   $11,763     $19,537
    Earnings per share as reported...................................     $1.16       $1.67
    Pro forma earnings per share.....................................     $1.16       $1.61
</TABLE>
 
     In accordance with the provisions of SFAS No. 123, pro forma net earnings
reflects only options granted in 1996 and 1997. Therefore, the full impact of
calculating compensation cost of options under SFAS No. 123 is not reflected in
the pro forma net income amounts presented above because compensation cost is
reflected over the options vesting period of five years, and compensation cost
for options granted prior to June 1, 1995 is not considered.
 
     In calculating pro forma compensation, the fair value of each option is
estimated on the date of grant using the Black-Scholes option-pricing model,
with the following weighted average assumptions for grants made in 1996 and
1997.
 
<TABLE>
<CAPTION>
                                                                         1996        1997
                                                                        -------     -------
    <S>                                                                 <C>         <C>
    Dividend yield....................................................     None        None
    Expected volatility...............................................      56%         56%
    Risk-free interest rate...........................................    6.35%       6.38%
    Expected lives....................................................  3 years     3 years
</TABLE>
 
     The weighted average fair value of options granted during the year was
$8.68 per share and $15.21 per share for 1996 and 1997, respectively.
 
     The pro forma net earnings and earnings per share listed above includes
expense related to the Company's 1995 Employee Stock Purchase Plan. The fair
value of grants under the employee stock purchase plan is estimated on the grant
date using the Black-Scholes model with the following weighted average
assumptions for grants made in 1996 and 1997:
 
<TABLE>
<CAPTION>
                                                                         1996        1997
                                                                        -------     -------
    <S>                                                                 <C>         <C>
    Dividend yield....................................................     None        None
    Expected volatility...............................................      56%         56%
    Risk-free interest rate...........................................    5.33%       5.41%
    Expected lives....................................................      1/2         1/2
                                                                           year        year
</TABLE>
 
     The weighted average fair value of purchase rights granted during the year
was $3.30 per share and $6.48 per share for 1996 and 1997, respectively.
 
(11) EMPLOYEE STOCK PURCHASE PLAN
 
     The Company's 1995 Employee Stock Purchase Plan qualifies under Section 423
of the Internal Revenue Code and reserves 500,000 shares of common stock for
issuance under the plan. The plan provides that eligible employees may purchase
stock at 85% of its fair value on specified dates. Under the plan, the Company
sold 70,803 shares in fiscal 1997.
 
                                       42
<PAGE>   44
 
           SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 
(12) BUSINESS SEGMENT INFORMATION
 
     The Company classifies its products into two core business segments: (i)
equipment, parts, and expendables, which represents the Company's operations in
designing, developing, manufacturing, marketing, and servicing high throughput,
precision surface processing systems; and (ii) slurries, which represents the
distribution and sale of materials used in the customers' manufacturing
processes. Information concerning the Company's business segments in fiscal
years 1995, 1996, and 1997 is as follows:
 
<TABLE>
<CAPTION>
                                                               1995         1996         1997
                                                              -------     --------     --------
<S>                                                           <C>         <C>          <C>
Revenue:
     Sales to unaffiliated customers:
     Equipment, parts, and expendables......................  $29,846     $ 88,050     $134,658
     Slurries...............................................   27,175       25,830       26,336
                                                              -------     --------     --------
Total sales to unaffiliated customers.......................   57,021      113,880      160,994
Commissions from affiliate -- equipment, parts, and
  expendables...............................................    2,757        6,290       12,430
                                                              -------     --------     --------
Total revenue...............................................  $59,778     $120,170     $173,424
                                                              =======     ========     ========
Segment operating profit:
     Equipment, parts, and expendables......................  $ 2,475     $ 14,585     $ 24,328
     Slurries...............................................    1,759          572        2,363
                                                              -------     --------     --------
Total segment operating profit..............................    4,234       15,157       26,691
General corporate expense...................................   (2,632)      (3,583)      (5,300)
Interest expense............................................     (959)        (691)        (203)
                                                              -------     --------     --------
Earnings from consolidated companies before income taxes....  $   643     $ 10,883     $ 21,188
                                                              =======     ========     ========
Identifiable assets:
     Equipment, parts, and expendables......................  $30,538     $ 62,177     $ 87,357
     Slurries...............................................    7,828        8,836        8,460
     Investments in affiliates..............................   18,582       20,450       23,956
     Corporate assets.......................................    3,081       16,521       86,727
                                                              -------     --------     --------
Total identifiable assets...................................  $60,029     $107,984     $206,500
                                                              =======     ========     ========
Capital expenditures:
     Equipment, parts, and expendables......................  $   470     $  5,197     $ 15,162
     Slurries...............................................       12           35           94
     Corporate..............................................      262        2,889        2,175
                                                              -------     --------     --------
Total capital expenditures..................................  $   744     $  8,121     $ 17,431
                                                              =======     ========     ========
Depreciation expense:
     Equipment, parts, and expendables......................  $   437     $  1,044     $  2,467
     Slurries...............................................       28           29           31
     Corporate..............................................       73           99          297
                                                              -------     --------     --------
Total depreciation expense..................................  $   538     $  1,172     $  2,795
                                                              =======     ========     ========
</TABLE>
 
     Intersegment sales are not material. Segment operating profit represents
total revenue less cost of sales and operating expenses, and excludes equity in
net earnings of affiliates, general corporate expenses, interest
 
                                       43
<PAGE>   45
 
           SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 
expense, and income taxes. Segment identifiable assets are those assets employed
in each segment's operation, including an allocated value. Corporate assets
consist primarily of cash and assets not employed in production.
 
     Information regarding the Company's operations in the United States and
internationally is presented below:
 
<TABLE>
<CAPTION>
                                                               1995         1996         1997
                                                              -------     --------     --------
<S>                                                           <C>         <C>          <C>
Net sales:
     United States..........................................  $47,587     $103,698     $152,216
     Europe.................................................   10,355       10,855        9,856
     Intercompany sales.....................................     (921)        (673)      (1,078)
                                                              -------     --------     --------
Consolidated net sales......................................  $57,021     $113,880     $160,994
                                                              =======     ========     ========
Operating profit:
     United States..........................................  $ 1,478     $ 10,184     $ 20,736
     Europe.................................................      165          917          780
     Eliminations...........................................      (47)         (10)         (30)
                                                              -------     --------     --------
Operating profit............................................  $ 1,596     $ 11,091     $ 21,486
                                                              =======     ========     ========
Identifiable assets:
     United States..........................................  $33,408     $ 66,059     $ 88,762
     Europe.................................................    4,958        4,954        7,055
     Corporate..............................................   21,663       36,971      110,683
                                                              -------     --------     --------
Consolidated identifiable assets............................  $60,029     $107,984     $206,500
                                                              =======     ========     ========
</TABLE>
 
(13) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
 
     Following is a summary of unaudited quarterly information:
 
<TABLE>
<CAPTION>
                                                       FIRST      SECOND       THIRD      FOURTH
                                                      QUARTER     QUARTER     QUARTER     QUARTER
                                                      -------     -------     -------     -------
<S>                                                   <C>         <C>         <C>         <C>
Year ended May 31, 1996:
     Total revenue..................................  $17,816     $25,438     $33,140     $43,776
                                                      =======     =======     =======     =======
     Gross margin...................................  $ 5,050     $ 7,018     $12,845     $16,596
                                                      =======     =======     =======     =======
     Net earnings...................................  $   704     $ 1,625     $ 4,359     $ 5,133
                                                      =======     =======     =======     =======
     Earnings per share.............................  $   .09     $   .16     $   .39     $   .46
                                                      =======     =======     =======     =======
Year ended May 31, 1997:
     Total revenue..................................  $39,728     $39,119     $45,280     $49,297
                                                      =======     =======     =======     =======
     Gross margin...................................  $13,946     $15,027     $19,689     $21,261
                                                      =======     =======     =======     =======
     Net earnings...................................  $ 4,038     $ 4,783     $ 4,909     $ 6,489
                                                      =======     =======     =======     =======
     Earnings per share.............................  $   .36     $   .42     $   .42     $   .46
                                                      =======     =======     =======     =======
</TABLE>
 
                                       44
<PAGE>   46
 
           SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
 
(14) OFFERINGS OF COMMON STOCK
 
     On October 26, 1995, the Company completed its initial public offering of
common stock. The Company issued 2,927,500 shares of common stock and received
proceeds of $28,284, net of underwriters' discounts and commissions and offering
expenses.
 
     On February 20, 1997, the Company completed an additional public offering
of common stock. The Company issued 2,500,000 shares of common stock and
received proceeds of $77,673, net of underwriters' discounts and commissions and
offering expenses.
 
(15) FAIR VALUE OF FINANCIAL INSTRUMENTS
 
     The Company's financial instruments at May 31, 1996 and 1997 include cash
equivalents, trade receivables, trade payables, noncurrent receivables, foreign
exchange contracts, and long-term debt. The carrying value of cash equivalents,
trade receivables, and trade payables approximates fair value because of the
short maturity of these instruments. The fair value of the Company's noncurrent
receivables and long-term debt is not materially different from their financial
statement carrying values.
 
(16) OTHER INCOME (EXPENSE)
 
     Other income (expense) consisted of for fiscal years 1995, 1996 and 1997:
 
<TABLE>
<CAPTION>
                                                                1995      1996       1997
                                                                -----     -----     ------
    <S>                                                         <C>       <C>       <C>
    Net gain (loss) on sales of assets........................  $ 246     $   9     $  (43)
    Expenses of canceled public offering......................     --        --       (493)
    Royalty income............................................    264        --         --
    Interest income...........................................     52       454      1,079
    Interest expense..........................................   (959)     (691)      (203)
    Miscellaneous, net........................................   (556)       20       (638)
                                                                -----     -----      -----
                                                                $(953)    $(208)    $ (298)
                                                                =====     =====      =====
</TABLE>
 
                                       45
<PAGE>   47
 
                      SPEEDFAM CO., LTD. AND SUBSIDIARIES
 
                          INDEPENDENT AUDITORS' REPORT
 
Board of Directors
SpeedFam Co., Ltd.:
 
     We have audited the accompanying consolidated balance sheets of SpeedFam
Co., Ltd. and consolidated subsidiaries as of April 30, 1996 and 1997, and the
related consolidated statements of earnings, stockholders' equity, and cash
flows for each of the years in the three-year period ended April 30, 1997. These
consolidated financial statements are the responsibility of the management of
SpeedFam Co., Ltd. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
 
     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of SpeedFam Co.
Ltd. and consolidated subsidiaries as of April 30, 1996 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended April 30, 1997, in conformity with generally accepted
accounting principles.
 
                                          KPMG Peat Marwick LLP
 
June 27, 1997
Chicago, Illinois
 
                                       46
<PAGE>   48
 
                      SPEEDFAM CO., LTD. AND SUBSIDIARIES
 
                          CONSOLIDATED BALANCE SHEETS
                            APRIL 30, 1996 AND 1997
                             (DOLLARS IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                           1996         1997
                                                                         --------     --------
<S>                                                                      <C>          <C>
                                            ASSETS
Current assets:
  Cash and cash equivalents............................................  $ 10,993     $  7,097
  Short-term investments...............................................     3,330        2,697
  Trade accounts and notes receivable, less allowance for doubtful
     accounts of $676 and $854 in 1996 and 1997, respectively..........    50,420       71,383
  Inventories..........................................................    19,961       25,063
  Due from affiliated companies........................................    10,924        5,997
  Income taxes receivable..............................................        42           25
  Deferred income taxes................................................     1,089        1,141
  Prepaid expenses and other current assets............................     1,733        2,268
                                                                         --------      -------
Total current assets...................................................    98,492      115,671
Investments in affiliates..............................................       891          780
Property, plant, and equipment, net....................................    20,161       30,327
Deferred income taxes..................................................       640          961
Other assets...........................................................     6,367        5,961
                                                                         --------      -------
                                                                         $126,551     $153,700
                                                                         ========      =======
                             LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Short-term borrowings................................................     8,088       12,002
  Current portion of long-term debt....................................     2,252        3,677
  Current portion of obligations under capital leases..................        --          162
  Accounts payable.....................................................    48,326       64,523
  Accrued expenses.....................................................     7,122        9,969
  Income taxes payable.................................................     9,178        5,701
                                                                         --------      -------
Total current liabilities..............................................    74,966       96,034
                                                                         --------      -------
Long-term liabilities:
  Long-term debt.......................................................     9,106       10,128
  Obligations under capital leases.....................................        --          658
  Liability for employee benefits......................................     3,421        4,049
  Minority interest....................................................     1,967        2,105
                                                                         --------      -------
Total long-term liabilities............................................    14,494       16,940
                                                                         --------      -------
Stockholders' equity:
  Common stock, $6 par value, 240,000 shares authorized, 198,000 shares
     issued and outstanding at April 30, 1996 and 1997.................       664          664
  Retained earnings....................................................    26,943       37,049
  Foreign currency translation adjustment..............................     9,346        2,817
  Unrealized gains on marketable securities............................       138          196
                                                                         --------      -------
Total stockholders' equity.............................................    37,091       40,726
                                                                         --------      -------
Total liabilities and stockholders equity..............................  $126,551     $153,700
                                                                         ========      =======
</TABLE>
 
          See accompanying notes to consolidated financial statements.
 
                                       47
<PAGE>   49
 
                      SPEEDFAM CO., LTD. AND SUBSIDIARIES
 
                      CONSOLIDATED STATEMENTS OF EARNINGS
                   YEARS ENDED APRIL 30, 1995, 1996, AND 1997
                             (DOLLARS IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                               1995         1996         1997
                                                             --------     --------     --------
<S>                                                          <C>          <C>          <C>
Net sales..................................................  $108,664     $161,169     $220,281
Cost of sales..............................................    77,088      106,912      153,508
                                                             --------     --------     --------
Gross margin...............................................    31,576       54,257       66,773
Selling, general, and administrative expenses..............    25,109       34,298       45,815
                                                             --------     --------     --------
Operating profit...........................................     6,467       19,959       20,958
                                                             --------     --------     --------
Other income (expense):
  Losses on sales of assets................................      (293)        (710)        (222)
  Equity in net earnings (loss) of affiliates..............        89         (203)          48
  Interest income..........................................       317          407          401
  Interest expense.........................................    (1,056)        (851)        (751)
  Miscellaneous, net.......................................      (434)         815        1,398
                                                             --------     --------     --------
                                                               (1,377)        (542)         874
                                                             --------     --------     --------
Earnings before income taxes and minority interest.........     5,090       19,417       21,832
Income tax expense.........................................     2,755        9,479       10,250
                                                             --------     --------     --------
Earnings before minority interest..........................     2,335        9,938       11,582
Minority interest..........................................      (166)        (301)        (569)
                                                             --------     --------     --------
Net earnings...............................................  $  2,169     $  9,637     $ 11,013
                                                             ========     ========     ========
</TABLE>
 
          See accompanying notes to consolidated financial statements.
 
                                       48
<PAGE>   50
 
                      SPEEDFAM CO., LTD. AND SUBSIDIARIES
 
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                   YEARS ENDED APRIL 30, 1995, 1996, AND 1997
                             (DOLLARS IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                       FOREIGN
                                                                       CURRENCY    UNREALIZED
                                                  COMMON   RETAINED   TRANSLATION   GAINS ON
                                                  STOCK    EARNINGS   ADJUSTMENT   SECURITIES    TOTAL
                                                  ------   --------   ----------   ----------   -------
<S>                                               <C>      <C>        <C>          <C>          <C>
Balance at April 30, 1994.......................   $210    $ 15,987    $ 10,444       $ --      $26,641
Net earnings....................................     --       2,169          --         --        2,169
Foreign currency translation adjustment.........     --          --       5,510         --        5,510
Cash dividends..................................     --        (120)         --         --         (120)
Unrealized gains on securities..................     --          --          --         15           15
                                                   ----     -------     -------       ----      -------
Balance at April 30, 1995.......................    210      18,036      15,954         15       34,215
Net earnings....................................     --       9,637          --         --        9,637
Common stock dividend...........................    454        (454)         --         --           --
Foreign currency translation adjustment.........     --          --      (6,608)        --       (6,608)
Cash dividends..................................     --        (276)         --         --         (276)
Unrealized gains on securities..................     --          --          --        123          123
                                                   ----     -------     -------       ----      -------
Balance at April 30, 1996.......................    664      26,943       9,346        138       37,091
Net earnings....................................     --      11,013          --         --       11,013
Foreign currency translation adjustment.........     --          --      (6,529)        --       (6,529)
Cash dividends..................................     --        (907)         --         --         (907)
Unrealized gains on securities..................     --          --          --         58           58
                                                   ----     -------     -------       ----      -------
Balance at April 30, 1997.......................   $664    $ 37,049    $  2,817       $196      $40,726
                                                   ====     =======     =======       ====      =======
</TABLE>
 
          See accompanying notes to consolidated financial statements.
 
                                       49
<PAGE>   51
 
                      SPEEDFAM CO., LTD. AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                   YEARS ENDED APRIL 30, 1995, 1996, AND 1997
                             (DOLLARS IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                   1995       1996       1997
                                                                  -------   --------   --------
<S>                                                               <C>       <C>        <C>
Cash flows from operating activities:
  Net earnings..................................................  $ 2,169   $  9,637   $ 11,013
  Adjustments to reconcile net earnings to net cash provided by
     operating activities:
     Equity in net earnings (loss) of affiliates................      (89)       203        (48)
     Depreciation and amortization..............................    2,531      2,267      3,699
     Provision (benefit) for deferred income taxes..............       76     (1,368)      (810)
     Losses on sales of assets..................................      293        710        222
     Other, net.................................................      375        364        291
     Changes in net assets and liabilities:
       Trade accounts and notes receivable and due from
          affiliates............................................   (1,729)   (18,608)   (29,579)
       Inventories..............................................      608    (11,661)    (9,288)
       Prepaid expenses and other assets........................     (316)    (2,462)    (1,679)
       Accounts payable.........................................    4,028     22,102     27,212
       Accrued expenses and other liabilities...................      717      5,482      6,441
       Income taxes, net........................................      862      7,509     (2,053)
                                                                  -------   --------   --------
Net cash provided by operating activities.......................    9,525     14,175      5,421
                                                                  -------   --------   --------
Cash flows from investing activities:
  Capital expenditures..........................................   (1,214)    (7,129)   (18,135)
  Proceeds from sales of assets.................................      354        283        454
  Other investing activities....................................   (5,676)     3,435        303
                                                                  -------   --------   --------
Net cash used in investing activities...........................   (6,536)    (3,411)   (17,378)
                                                                  -------   --------   --------
Cash flows from financing activities:
  Dividends paid................................................     (120)      (276)      (860)
  Short-term borrowings, net....................................     (155)    (4,824)     5,876
  Principal payments under capital lease obligations............       --         --       (128)
  Proceeds from long-term debt..................................      247      2,528      8,226
  Principal payments on long-term borrowings....................   (2,165)    (3,176)    (3,350)
                                                                  -------   --------   --------
Net cash provided by (used in) financing activities.............   (2,193)    (5,748)     9,764
                                                                  -------   --------   --------
Effect of foreign currency rate changes on cash.................      915     (1,257)    (1,703)
                                                                  -------   --------   --------
Net increase (decrease) in cash and cash equivalents............    1,711      3,759     (3,896)
Cash and cash equivalents at beginning of year..................    5,523      7,234     10,993
                                                                  -------   --------   --------
Cash and cash equivalents at end of year........................  $ 7,234   $ 10,993   $  7,097
                                                                  =======   ========   ========
Supplemental cash flow information:
  Cash paid during the year for:
     Interest...................................................  $ 1,487   $    720   $    813
                                                                  =======   ========   ========
     Income taxes...............................................  $ 1,783   $  3,389   $ 12,794
                                                                  =======   ========   ========
  Capital lease obligation increase during the period...........  $    --   $     --   $  1,034
                                                                  =======   ========   ========
</TABLE>
 
          See accompanying notes to consolidated financial statements.
 
                                       50
<PAGE>   52
 
                      SPEEDFAM CO., LTD. AND SUBSIDIARIES
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (DOLLARS IN THOUSANDS)
 
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
     SpeedFam Co., Ltd. (the Company) was incorporated in 1971 as a joint
venture owned equally by two corporate shareholders, Obara Corporation, a
Japanese company; and SpeedFam International, Inc., a U.S. company.
 
     The Company and its domestic subsidiaries and affiliated companies conduct
operations primarily in Japan, but have subsidiaries and branches in Taiwan,
South Korea, India, Singapore, Hong Kong, Malaysia, and China.
 
     The Company and its subsidiaries and affiliates are engaged in the design,
engineering, manufacture, and distribution mainly of lapping and polishing
equipment and consumables, through-feed grinders, cleaning machines, and
measuring equipment used in high technology industries.
 
  (a) Basis of Presentation
 
     The Company and its consolidated Japanese subsidiaries maintain their books
of account in conformity with the financial accounting standards of Japan. The
Company's non-Japanese subsidiaries maintain their books of account in
conformity with the financial accounting standards of the countries in which
they are located. The consolidated financial statements presented herein in U.S.
dollars have been adjusted to conform to U.S. generally accepted accounting
principles.
 
  (b) Principles of Consolidation
 
     The consolidated financial statements include the accounts of the Company
and the following subsidiaries:
 
<TABLE>
<CAPTION>
                                                   PERCENTAGE OF                      FISCAL
    SUBSIDIARIES                                     OWNERSHIP        LOCATION       YEAR END
    ---------------------------------------------  -------------     -----------     --------
    <S>                                            <C>               <C>             <C>
    SpeedFam Clean System Co., Ltd...............       61.25%       Japan           March 31
    Saku Seiki Co., Ltd..........................       53.54        Japan           March 31
    SpeedFam Incorporated........................      100.00        Taiwan          March 31
    SpeedFam Korea Ltd...........................      100.00        South Korea     March 31
    SpeedFam India (Pvt.) Ltd....................       82.00        India           March 31
</TABLE>
 
     All significant intercompany balances and transactions have been
eliminated. The Company's fiscal year ends on April 30.
 
     The Company's investments in the common stock of affiliates, Met Coil Ltd.
(50% owned); CRT K.K. (23.08% owned); and Xevios Corporation (50% owned,
acquired in fiscal year 1996) are accounted for by the equity method.
 
     The investment in Clean Technology K.K., a 27.5% owned affiliate of
SpeedFam Clean System Co., Ltd., and 22.5% owned by the Company, is accounted
for by the equity method.
 
  (c) Cash and Cash Equivalents
 
     Cash and cash equivalents include deposits in banks and highly liquid
short-term investments with original maturities of three months or less.
Short-term investments are carried at cost which approximates market.
 
                                       51
<PAGE>   53
 
                      SPEEDFAM CO., LTD. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                             (DOLLARS IN THOUSANDS)
 
  (d) Short-term Investments
 
     The Company classifies its debt and equity securities into one of three
categories: trading, available-for-sale, or held-to-maturity. Trading securities
are bought and held principally for the purpose of selling them in the near
term. Held-to-maturity securities are those securities in which the Company has
the ability and intent to hold the security until maturity. All other securities
not included in trading or held-to-maturity are classified as
available-for-sale.
 
     Trading and available-for-sale securities are recorded at fair value.
Held-to-maturity securities are recorded at amortized cost, adjusted for the
amortization or accretion of premiums or discounts. Unrealized holding gains and
losses, net of the related tax effect, on available-for-sale securities are
excluded from earnings and are reported as a separate component of stockholders'
equity until realized. Realized gains and losses from the sale of
available-for-sale securities are determined on a specific identification basis.
 
     A decline in the market value of any available-for-sale or held-to-maturity
security below cost that is deemed to be other than temporary results in a
reduction in carrying amount to fair value. The impairment is charged to
earnings and a new cost basis for the security is established. Premiums and
discounts are amortized or accreted over the life of the related
held-to-maturity security as an adjustment to yield using the effective interest
method. Dividend and interest income are recognized when earned.
 
  (e) Property, Plant, and Equipment
 
     Property, plant, and equipment are stated at cost. Depreciation is provided
on the declining balance method over the estimated useful lives of the assets.
Depreciation expense was $2,312, $2,148, and $3,542 in fiscal years 1995, 1996,
and 1997, respectively. The estimated useful lives of the assets are as follows:
 
<TABLE>
    <S>                                                                      <C>
    Buildings and improvements.............................................   3 to 65 years
    Machinery and equipment................................................   3 to 12 years
    Furniture and fixtures.................................................   2 to 20 years
    Leasehold improvements.................................................         2 years
</TABLE>
 
  (f) Inventories
 
     Inventories are stated at the lower of cost, determined principally by the
first-in, first-out (FIFO) method, or market.
 
  (g) Income Taxes
 
     Income taxes are accounted for under the asset and liability method. Under
the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
 
  (h) Revenue Recognition
 
     Sales of the Company's products are recorded upon shipment.
 
                                       52
<PAGE>   54
 
                      SPEEDFAM CO., LTD. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                             (DOLLARS IN THOUSANDS)
 
  (i) Warranty Costs
 
     Generally, the Company provides a one-year warranty against manufacturer's
defects on all machines sold. Provision for warranty expense is provided based
upon an estimate derived from experience factors.
 
  (j) Foreign Currency Translation
 
     Assets and liabilities of the Company's non-Japanese operations have been
translated using the exchange rates in effect at the balance sheet dates or
balance sheet date of the subsidiary, if different. Results of operations are
translated using the average exchange rates prevailing throughout the period.
Local currencies are considered the functional currencies of the Company's
non-Japanese entities. Foreign currency exchange rates used to translate the
financial statements are summarized below:
 
<TABLE>
<CAPTION>
                                                        FOREIGN CURRENCY PER JAPANESE YEN
                                                      -------------------------------------
                                                        1995          1996          1997
                                                      ---------     ---------     ---------
    <S>                                               <C>           <C>           <C>
    Rates at balance sheet date:
         South Korean Won (March)...................  11.67/100     13.78/100     13.91/100
         Taiwan Dollar (NT$) (March)................       3.41          3.91          4.49
         India Rupee (RPS) (March)..................       2.80          3.06          3.39
         Singapore Dollar (S$)......................      60.21         74.09         87.36
         Thailand Baht..............................       3.41          4.15          4.56
         Japanese Yen (Y) per U.S. $................      84.20        105.07        127.09
</TABLE>
 
  (k) Significant Customer
 
     The Company had sales to a Japanese company that amounted to approximately
10.5%, 11.2%, and 12.5% of net sales in fiscal years 1995, 1996, and 1997,
respectively.
 
  (l) Research and Development
 
     Research and development expense amounted to approximately $1,748, $6,651,
and $11,488 in fiscal years 1995, 1996, and 1997, respectively. Such
expenditures are expensed as incurred.
 
  (m) Use of Estimates
 
     The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company's management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
 
  (n) Reclassifications
 
     Certain amounts in the prior year financial statements have been
reclassified to conform with the 1997 financial statement presentation.
 
                                       53
<PAGE>   55
 
                      SPEEDFAM CO., LTD. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                             (DOLLARS IN THOUSANDS)
 
(2) INVENTORIES
 
     Inventories at the end of fiscal years 1996 and 1997 are summarized as
follows:
 
<TABLE>
<CAPTION>
                                                                        1996        1997
                                                                       -------     -------
    <S>                                                                <C>         <C>
    Raw materials....................................................  $   723     $   732
    Work-in-process..................................................   16,340      20,760
    Finished goods...................................................    2,898       3,571
                                                                       -------     -------
    Total inventories................................................  $19,961     $25,063
                                                                       =======     =======
</TABLE>
 
(3) INVESTMENTS
 
     Investments at the end of fiscal years 1996 and 1997 are summarized as
follows:
 
<TABLE>
<CAPTION>
                                                                          1996       1997
                                                                         ------     ------
    <S>                                                                  <C>        <C>
    Held-to-maturity debt securities, at amortized cost................  $  133     $  115
    Time deposits......................................................   3,197      2,582
                                                                         ------     ------
    Total short-term investments.......................................   3,330      2,697
    Available-for-sale equity securities, at fair value, included in
      other assets.....................................................     779        762
                                                                         ------     ------
    Total investments..................................................  $4,109     $3,459
                                                                         ======     ======
</TABLE>
 
     The amortized cost, gross unrealized holding gains, gross unrealized
holding losses, and fair value of available-for-sale and held-to-maturity
securities at the end of fiscal years 1996 and 1997 are as follows:
 
<TABLE>
<CAPTION>
                                                                   GROSS          GROSS
                                                                 UNREALIZED     UNREALIZED
                                                   AMORTIZED      HOLDING        HOLDING       FAIR
                                                     COST          GAINS          LOSSES       VALUE
                                                   ---------     ----------     ----------     -----
    <S>                                            <C>           <C>            <C>            <C>
    1996:
    Available-for-sale equity securities.........    $ 515          $265           $ (1)       $ 779
    Held-to-maturity debt securities.............    $ 133          $ --           $ --        $ 133
    1997:
    Available-for-sale equity securities.........    $ 436          $351           $(25)       $ 762
    Held-to-maturity debt securities.............    $ 115          $ --           $ --        $ 115
</TABLE>
 
     No investments classified as available-for-sale were sold during fiscal
years 1996 and 1997. The Company does not hold securities for trading purposes.
 
(4) PROPERTY, PLANT, AND EQUIPMENT
 
     Property, plant, and equipment at the end of fiscal years 1996 and 1997 are
summarized as follows:
 
<TABLE>
<CAPTION>
                                                                        1996        1997
                                                                       -------     -------
    <S>                                                                <C>         <C>
    Land.............................................................  $ 4,560     $ 6,548
    Buildings and improvements.......................................   11,361      14,864
    Machinery and equipment..........................................   13,615      18,870
    Furniture and fixtures...........................................    2,486       3,592
    Leasehold improvements...........................................       13          --
    Construction in progress.........................................    3,468       1,344
                                                                       -------     -------
                                                                        35,503      45,218
    Less accumulated depreciation....................................   15,342      14,892
                                                                       -------     -------
    Net property, plant, and equipment...............................  $20,161     $30,327
                                                                       =======     =======
</TABLE>
 
                                       54
<PAGE>   56
 
                      SPEEDFAM CO., LTD. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                             (DOLLARS IN THOUSANDS)
 
(5) INCOME TAXES
 
     Earnings before income taxes and minority interest are as follows:
 
<TABLE>
<CAPTION>
                                                              1995       1996        1997
                                                             ------     -------     -------
    <S>                                                      <C>        <C>         <C>
    Japan..................................................  $3,216     $15,135     $16,592
    Non-Japan..............................................   1,874       4,282       5,240
                                                             ------     -------     -------
    Total..................................................  $5,090     $19,417     $21,832
                                                             ======     =======     =======
</TABLE>
 
     The provision (benefit) for income taxes is as follows:
 
<TABLE>
<CAPTION>
                                                              1995       1996        1997
                                                             ------     -------     -------
    <S>                                                      <C>        <C>         <C>
    Current:
         Japan.............................................  $2,159     $ 9,546     $ 9,699
         Non-Japan.........................................     520       1,301       1,361
                                                             ------     -------     -------
                                                              2,679      10,847      11,060
    Deferred:
         Japan.............................................      76      (1,360)       (810)
         Non-Japan.........................................      --          (8)         --
                                                             ------     -------     -------
    Total..................................................  $2,755     $ 9,479     $10,250
                                                             ======     =======     =======
</TABLE>
 
     The tax effects of temporary differences that give rise to the deferred tax
assets at the end of fiscal years 1996 and 1997 are attributable to:
 
<TABLE>
<CAPTION>
                                                                          1996       1997
                                                                         ------     ------
    <S>                                                                  <C>        <C>
    Property, plant, and equipment.....................................  $ (333)    $ (397)
    Inventory..........................................................      74        104
    Allowance for doubtful accounts....................................     (60)       (50)
    Accrued employee benefits..........................................   1,093      1,515
    Accrued vacation...................................................     166        167
    Business tax.......................................................     890        599
    Other..............................................................    (101)       164
                                                                         ------     ------
                                                                         $1,729     $2,102
                                                                         ======     ======
</TABLE>
 
     There is no valuation allowance for deferred tax assets at the end of
fiscal years 1996 and 1997. Deferred tax assets are considered realizable due to
the expectation of future taxable income. Deferred income tax benefits as a
component of stockholders' equity related to unrealized gains and losses on
marketable securities aggregated $15 and $184 at the end of fiscal years 1996
and 1997, respectively.
 
                                       55
<PAGE>   57
 
                      SPEEDFAM CO., LTD. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                             (DOLLARS IN THOUSANDS)
 
     A reconciliation between the Company's effective tax rate and the
"expected" tax rate of 51% in Japan on earnings before income taxes and minority
interest is as follows:
 
<TABLE>
<CAPTION>
                                                                      1995     1996     1997
                                                                      ----     ----     ----
    <S>                                                               <C>      <C>      <C>
    "Expected" income tax rate......................................   51%      51%     51%
    Expenses not deductible for tax purposes........................   14        4        4
    Equity in earnings of affiliates................................   (1)       1       --
    Differences of non-Japan and "expected" tax rates...............   (5)      (5)      (6)
    Utilization of tax loss carryforward............................   (3)      --       --
    Tax credit for research and development.........................   (2)      (3)      (3)
    Other, net......................................................   --        1        1
                                                                       --       --       --
    Effective income tax rate.......................................   54%      49%     47%
                                                                       ==       ==       ==
</TABLE>
 
     No provision is made for income taxes on undistributed earnings of
non-Japan subsidiaries. The Company believes that the amount of income taxes
that would be incurred if these earnings were remitted would not be significant
because of available tax credits.
 
     The Company's corporate tax returns through April 30, 1994 have been
examined by the Japanese tax authorities.
 
(6) SHORT-TERM BORROWINGS
 
     Short-term borrowings are summarized as follows:
 
<TABLE>
<CAPTION>
                                                                         1996       1997
                                                                        ------     -------
    <S>                                                                 <C>        <C>
    Bank borrowings, including overdraft..............................  $  926     $ 7,312
    Trade notes discounted at banks with recourse.....................   7,162       4,690
                                                                        ------     -------
                                                                        $8,088     $12,002
                                                                        ======     =======
</TABLE>
 
     Short-term borrowings are secured by trade notes receivable with a net book
value of $4,690 at the end of fiscal year 1997. The short-term borrowings had
weighted average interest rates of 3.28%, 2.34%, and 1.89% in fiscal years 1995,
1996, and 1997, respectively.
 
(7) LONG-TERM DEBT
 
     Long-term debt consists of the following:
 
<TABLE>
<CAPTION>
                                                                         1996       1997
                                                                        ------     -------
    <S>                                                                 <C>        <C>
    Mortgage debentures:
      1st Series, due November 1997, fixed interest rate of 7.7%......  $  952     $    --
      2nd Series, due September 1999, fixed interest rate of 5.7%.....   2,855       2,360
      3rd Series, due December 2000, fixed interest rate of 1.7%......      --         787
    Loans from banks and other financial institutions, maturing 1995
      to 2004, with weighted average interest rates of 3.46% and 2.23%
      in 1996 and 1997, respectively..................................   7,551      10,658
                                                                        ------     -------
    Total long-term debt..............................................  11,358      13,805
    Less current portion of long-term debt............................   2,252       3,677
                                                                        ------     -------
    Net long-term debt................................................  $9,106     $10,128
                                                                        ======     =======
</TABLE>
 
                                       56
<PAGE>   58
 
                      SPEEDFAM CO., LTD. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                             (DOLLARS IN THOUSANDS)
 
     The mortgage debentures are secured by land and buildings with a net book
value of $7,292 at the end of fiscal year 1997.
 
     At the end of fiscal year 1997, the Company has provided guarantees for up
to $52 of bank borrowings by SpeedFam India (Pvt.) Ltd., a subsidiary of the
Company. The Company does not anticipate any loss from these arrangements.
 
     Annual maturities of long-term debt are as follows:
 
<TABLE>
<CAPTION>
                                    FISCAL YEAR                              AMOUNT
        -------------------------------------------------------------------  -------
        <S>                                                                  <C>
        1998...............................................................  $ 3,677
        1999...............................................................    3,402
        2000...............................................................    3,855
        2001...............................................................    1,713
        2002 and thereafter................................................    1,158
                                                                             -------
                                                                             $13,805
                                                                             =======
</TABLE>
 
(8) CAPITAL LEASE
 
     The Company is obligated under various capital leases for certain equipment
which expire at various dates during the next five years. At April 30, 1997, the
gross amount of equipment and related accumulated amortization recorded under
capital leases was as follows:
 
<TABLE>
        <S>                                                                    <C>
        Equipment............................................................  $ 936
          Less accumulated amortization......................................   (108)
                                                                               -----
                                                                               $ 828
                                                                               =====
</TABLE>
 
     Amortization of assets held under capital leases is included within
depreciation expense. Future minimum capital lease payments as of April 30, 1997
are as follows:
 
<TABLE>
<CAPTION>
                                    FISCAL YEAR                                   AMOUNT
    ----------------------------------------------------------------------------  ------
    <S>                                                                           <C>
    1998........................................................................  $ 188
    1999........................................................................    205
    2000........................................................................    205
    2001........................................................................    205
    2002........................................................................     87
                                                                                  -----
    Total minimum lease payments................................................    890
    Less amount representing interest (at rate of 2.04%)........................    (70) 
                                                                                  -----
    Present value of net minimum capital lease payments.........................    820
    Less current installments of obligations under capital leases...............   (162) 
                                                                                  -----
    Obligation under capital leases, excluding current installments.............  $ 658
                                                                                  =====
</TABLE>
 
(9) COMMITMENTS AND CONTINGENCIES
 
     The Company and its subsidiaries occupy certain manufacturing and office
facilities and use certain equipment under noncancelable operating leases
expiring at various dates through fiscal year 2002. Rental expense aggregated
approximately $1,500, $1,635, and $1,728 in fiscal years 1995, 1996, and 1997,
respectively.
 
                                       57
<PAGE>   59
 
                      SPEEDFAM CO., LTD. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                             (DOLLARS IN THOUSANDS)
 
     Future minimum lease payments for all noncancelable operating leases having
a remaining term in excess of one year at the end of 1997 are as follows:
 
<TABLE>
<CAPTION>
                                    FISCAL YEAR                               AMOUNT
        --------------------------------------------------------------------  ------
        <S>                                                                   <C>
        1998................................................................  $  696
        1999................................................................     538
        2000................................................................     356
        2001................................................................     133
        2002 and thereafter.................................................      29
                                                                              ------
        Total...............................................................  $1,752
                                                                              ======
</TABLE>
 
     At the end of fiscal year 1997, outstanding commitments for the purchase of
property, plant, and equipment were approximately $468.
 
     At April 30, 1997, the Singapore branch of the Company has an outstanding
claim amounting to $285 against the branch for losses and damages suffered by a
plaintiff as a result of the branch's alleged failure to meet certain
specifications for a machine sold to the plaintiff. The branch is contesting the
claim and has filed a defense in respect thereof. Based on legal advice
obtained, Company management is of the opinion that no ultimate liability will
arise. Accordingly, no provision has been made in the financial statements with
respect to this claim.
 
(10) PENSION AND SEVERANCE BENEFITS
 
     The Company maintains pension and severance benefit plans for its
employees. Employees who leave the Company upon retirement because of age or
sever their connection with the Company for reasons other than dismissal for
cause are entitled to lump-sum payments based on their current rate of pay and
length of service.
 
     Effective June 1, 1984 the Company adopted an insured pension plan which
also covers employees of SpeedFam Clean Systems Co., Ltd., the terms of which
provide for the ultimate funding of retirement benefits when due. Premiums paid
under the insured plan constitute the funding of the current costs of the
liability under the plan and the funding of the related past service costs over
a 15-year period.
 
     The funded status of the insured pension plan at the end of fiscal years
1996 and 1997 is as follows:
 
<TABLE>
<CAPTION>
                                                                        1996        1997
                                                                       -------     -------
    <S>                                                                <C>         <C>
    Actuarial present value of benefit obligations:
      Vested benefits................................................  $(1,205)    $(1,197)
      Nonvested benefits.............................................      (26)        (53)
                                                                       -------     -------
    Accumulated benefit obligation...................................  $(1,231)    $(1,250)
                                                                       =======     =======
    Projected benefit obligation.....................................  $(1,775)    $(1,662)
    Plan assets at fair value........................................    1,656       1,579
                                                                       -------     -------
    Projected benefit obligation in excess of plan assets............     (119)        (83)
    Unrecognized net loss............................................       19          25
    Unrecognized net obligation at transition........................      185         140
                                                                       -------     -------
    Prepaid pension cost.............................................  $    85     $    82
                                                                       =======     =======
</TABLE>
 
                                       58
<PAGE>   60
 
                      SPEEDFAM CO., LTD. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                             (DOLLARS IN THOUSANDS)
 
     The components of net periodic pension cost for the insured pension plan
are shown below:
 
<TABLE>
<CAPTION>
                                                                    1995     1996     1997
                                                                    ----     ----     ----
    <S>                                                             <C>      <C>      <C>
    Service cost for benefits earned during the year..............  $204     $176     $150
    Interest cost on projected benefit obligation.................    89       87       79
    Actual return on plan assets..................................   (46)     (39)     (14)
    Net amortization and deferral.................................    19       10      (16)
                                                                    ----     ----     ----
                                                                    $266     $234     $199
                                                                    ====     ====     ====
    Significant actuarial assumptions:
      Discount rate...............................................  5.5%     5.5%     5.5%
    Rate of salary increase.......................................  3.0%     3.0%     3.0%
    Expected long-term return on plan assets......................  3.0%     3.0%     3.0%
</TABLE>
 
     Plan assets represent the Company's share of funds invested by a trustee in
pooled accounts comprised of cash in banks, securities, and real estate.
 
     A separate retirement benefits program for directors and statutory auditors
is not covered by the pension plan described above. The program provides that
directors and statutory auditors who retire or sever their connection with the
Company are entitled to lump-sum payments based on current rates of pay,
determined according to their title and the length of service. Directors and
statutory auditors may also be granted, at the discretion of the Company,
additional lump-sum payments for meritorious service. It is not the policy of
the Company to fund these retirement and severance benefits, but provision has
been made in the financial statements for the estimated accrued liabilities
under the plan. The liability related to these retirement benefits included in
the accompanying consolidated balance sheets at the end of fiscal years 1996 and
1997 amounted to $3,150 and $3,820, respectively. The plan was amended during
fiscal year 1996 and the resulting past service costs of $1,008 are being
amortized over a period of five years. Unamortized past service cost at the end
of fiscal years 1996 and 1997 amounting to $883 and $548 is classified as other
assets in the accompanying consolidated balance sheets. The retirement benefit
expenses amounted to $181, $520, and $1,545 in fiscal years 1995, 1996, and
1997, respectively.
 
     Two subsidiaries of the Company have separate employee retirement and
severance plan arrangements. Payments with respect to voluntary severance are
less in amount than payments for involuntary severance and retirement. The
subsidiaries have recorded estimated liabilities in the accompanying
consolidated balance sheets at the end of fiscal years 1996 and 1997 of $272 and
$228, respectively, based upon the amount, net of the benefits to be paid by a
government-sponsored small enterprise mutual aid retirement fund, which would be
payable if all employees had to retire voluntarily. Plan assets plus the accrued
liability approximate vested benefits. The expense related to these employee
retirement and severance plans amounted to $20, $222, and $67 in fiscal years
1995, 1996, and 1997, respectively. The Company believes that the effect of not
adopting SFAS No. 87, "Employers' Accounting for Pensions," for these plans is
not material to the consolidated financial statements.
 
(11) LEGAL RESERVE AND CASH DIVIDENDS
 
     The Japanese Commercial Code provides that earnings in an amount equal to
at least 10% of retained earnings be appropriated as a legal reserve, until such
reserve equals 25% of stated common stock. This legal reserve is not available
for dividends but may be used to reduce a deficit or may be transferred to
stated common stock. Certain non-Japanese subsidiaries are also required to
appropriate their earnings to legal reserves under the laws of the respective
countries. The legal reserve included as a component of retained earnings at the
end of fiscal years 1996 and 1997 amounted to $513 and $523, respectively.
 
                                       59
<PAGE>   61
 
                      SPEEDFAM CO., LTD. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                             (DOLLARS IN THOUSANDS)
 
     The accompanying consolidated financial statements do not reflect dividends
of $1,558 ($7.87 per share) declared subsequent to fiscal year 1997 by the Board
of Directors related to fiscal year 1997.
 
(12) RELATED-PARTY TRANSACTIONS
 
     The following is a summary of SpeedFam Co., Ltd. and consolidated
subsidiaries' transactions with SpeedFam International, Inc.:
 
<TABLE>
<CAPTION>
                                                               1995       1996        1997
                                                              -------    -------    --------
    <S>                                                       <C>        <C>        <C>
    Sales to SpeedFam International, Inc. ..................  $ 2,984    $ 7,140    $ 42,531
    Purchases from SpeedFam International, Inc. ............  $   251    $ 1,696    $  2,127
    Commission income.......................................  $   125    $   355    $  3,044
    Commission expense......................................  $ 2,952    $ 6,458    $    107
</TABLE>
 
     The following is summary of SpeedFam Co., Ltd. transactions with Met-Coil
Ltd., a 50% owned affiliate, accounted for by the equity method:
 
<TABLE>
<CAPTION>
                                                                 1995      1996       1997
                                                                 -----    -------    -------
    <S>                                                          <C>      <C>        <C>
    Sales to Met-Coil Ltd. ....................................  $ 148    $   865    $   275
    Purchases from Met-Coil Ltd. ..............................  $ 836    $ 1,026    $ 2,125
    Interest income............................................  $  14    $    28    $     5
    Interest expense...........................................  $   5    $    --    $    --
</TABLE>
 
(13) FAIR VALUE OF FINANCIAL INSTRUMENTS
 
     The Company's financial instruments at April 30, 1996 and 1997 include cash
equivalents, trade receivables, short-term investments, short-term loans, trade
payables, noncurrent receivables, long-term debt, and obligations under capital
leases. The carrying amount of cash equivalents, trade receivables, short-term
loans, and trade payables approximates fair value because of the short maturity
of these instruments. The fair value of short-term investments has been
determined based on quoted market prices and approximates their financial
statement carrying values. The fair value of the Company's noncurrent
receivables and long-term debt has been determined based on discounted cash
flows using current interest rates of similar instruments, and is not materially
different from their financial statement carrying values.
 
                                       60
<PAGE>   62
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE.
 
     None.
 
                                    PART III
 
ITEM 10, 11, 12 AND 13.
 
     These items, constituting Part III of the Form 10-K, have been omitted from
this annual report pursuant to the provisions of Instruction G to Form 10-K,
because a definitive proxy statement, which is incorporated herein by reference,
except for the report of the compensation committee of the board of directors
and the performance graph, will be filed on or about September 9, 1997.
Information required for executive officers is included in Part I, Item 1.
 
                                    PART IV
 
ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
 
     (a)(1) Financial Statements:
 
             See Part II, Item 8.
 
        (2) Financial Statement Schedules:
 
<TABLE>
<CAPTION>
                                                                                 PAGE
                                                                                 ----
        <S>                                                                      <C>
        Independent Auditors' Report...........................................   S-1
        Schedule I.............................................................   S-2
        Schedule II............................................................   S-4
</TABLE>
 
        (3) Exhibits filed:
 
             See Exhibit Index.
 
     (b) Reports filed on Form 8-K:
 
         Form 8-K (Item 5) was filed May 22, 1997.
 
     (c) Exhibits filed:
 
         See Exhibit Index.
 
     (d) Financial Statements Omitted from Annual Report to Security Holders:
 
         Financial Statements of SpeedFam Co., Ltd. are filed herein. See Part
II, Item 8.
 
                                       61
<PAGE>   63
 
                                   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.
 
                                          SPEEDFAM INTERNATIONAL, INC.
 
                                                  /s/ JAMES N. FARLEY
                                          --------------------------------------
                                                     James N. Farley
                                                  Chairman of the Board
 
     PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN
THE CAPACITIES AND ON THE DATES INDICATED.
 
<TABLE>
<CAPTION>
                NAME                                   TITLE                         DATE
-------------------------------------  --------------------------------------  ----------------
<C>                                    <S>                                     <C>
 
         /s/ JAMES N. FARLEY           Chairman and Director                   August 25, 1997
-------------------------------------
           James N. Farley
 
         /s/ MAKOTO KOUZUMA            President, Chief Executive Officer and  August 25, 1997
-------------------------------------  Director
           Makoto Kouzuma
 
         /s/ ROGER K. MARACH           Treasurer, Assistant Secretary and      August 25, 1997
-------------------------------------  Chief Financial Officer
           Roger K. Marach             (Principal financial and accounting
                                       officer)
 
                                       Director                                August   , 1997
-------------------------------------
            Neil R. Bonke
 
                                       Director                                August   , 1997
-------------------------------------
          Thomas J. McCook
 
          /s/ STUART MEYER             Director                                August 25, 1997
-------------------------------------
            Stuart Meyer
 
          /s/ ROBERT MILLER            Director                                August 25, 1997
-------------------------------------
            Robert Miller
 
        /s/ CARL S. PEDERSEN           Director                                August 25, 1997
-------------------------------------
          Carl S. Pedersen
</TABLE>
 
                                       62
<PAGE>   64
 
                                 EXHIBIT INDEX
 
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                                           DESCRIPTION
------       -----------------------------------------------------------------------------------
<C>     <C>  <S>
  3.1        Articles of Incorporation of the Registrant (incorporated by reference to Exhibit
             3.1 to the Registrant's Registration Statement on Form S-1, File No. 33-95628).
  3.2        Amended Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 to the
             Registrant's Form 10-K for fiscal 1996, File No. 0-26784).
 10.1        Revolving Credit Agreement between the Registrant and The First National Bank of
             Chicago and Firstar Bank Milwaukee, N.A. dated April 15, 1996 (incorporated by
             reference to Exhibit 3.2 to the Registrant's Form 10-K for fiscal year ended May
             31, 1996, File No. 0-26784).
 10.2        Amendment No. 1 to Revolving Credit Agreement between the Registrant and The First
             National Bank of Chicago and Firstar Bank Milwaukee, N.A. dated September 13, 1996
             (incorporated by reference to Exhibit 10 to the Registrant's Form 10-Q for the
             period ended August 31, 1996, File No. 0-26784).
 10.3        Multi-Currency Revolving Line of Credit between the Registrant's Subsidiary and the
             First National Bank of Chicago, dated October 31, 1996 (incorporated by reference
             to Exhibit 10 to the Registrant's Form 10-Q for the period ended November 30, 1996,
             File No. 0-26784.
 10.4        Joint Venture Agreement between the Registrant and Obara Corporation, dated
             November 14, 1970 (incorporated by reference to Exhibit 10.3 to the Registrant's
             Registration Statement on Form S-1, File No. 33-95628).
 10.5        License and Technical Service Agreement between the Registrant and SpeedFam Co.,
             Ltd., dated November 14, 1970 (incorporated by reference to Exhibit 10.4 to the
             Registrant's Registration Statement on Form S-1, File No. 33-95628).
 10.6        Amendment to License and Technical Service Agreement between the Registrant and
             SpeedFam Co., Ltd., dated July 24, 1995 (incorporated by reference to Exhibit 10.5
             to the Registrant's Registration Statement on Form S-1, File No. 33-95628).
 10.7        Joint Venture Agreement between the Registrant and Fujimi Incorporated, dated
             September 7, 1984 (incorporated by reference to Exhibit 10.6 to the Registrant's
             Registration Statement on Form S-1, File No. 33-95628).
 10.8        Distributorship Agreement between the Registrant and Fujimi Incorporated, dated
             October 1, 1994 (incorporated by reference to Exhibit 10.7 to the Registrant's
             Registration Statement on Form S-1, File No. 33-95628).
 10.9        Amendment to Distributorship Agreement between the Registrant and Fujimi
             Incorporated, dated August 3, 1995 (incorporated by reference to Exhibit 10.8 to
             the Registrant's Registration Statement on Form S-1, File No. 33-95628).
 10.10       1991 Employee Incentive Stock Option Plan as amended and restated July 27, 1995 and
             as further amended as of May 22, 1997.
 10.11       1995 Stock Plan for Employees and Director of SpeedFam International, Inc. as
             amended as of May 22, 1997.
 10.12       Registrant's 1995 Stock Purchase Plan (incorporated by reference to Exhibit 10.11
             to the Registrant's Registration Statement on Form S-1, File No. 33-95628).
 10.13       SpeedFam Employees' Savings and Profit Sharing Plan and Trust, as amended and
             restated June 1, 1989 (incorporated by reference to Exhibit 10.12 to the
             Registrant's Registration Statement on Form S-1, File No. 33-95628).
 10.14       Employment Agreement between the Registrant and James N. Farley.
 10.15       Employment Agreement between the Registrant and Makoto Kouzuma.
 10.16       Employment Agreement between the Registrant and Roger K. Marach.
 10.17       Employment Agreement between the Registrant and Christopher E. Augur.
 10.18       Employment Agreement between the Registrant and Robert R. Smith.
 11.1        Statement Re Computation of Per Share Earnings.
 21.1        Subsidiaries of the Registrant (incorporated by reference to Exhibit 21.1 to the
             Registrant's Registration Statement on Form S-1, File No. 33-95628).
 23.1        Consent of KPMG Peat Marwick LLP.
 27.1        Financial Data Schedule.
</TABLE>
<PAGE>   65
 
                          INDEPENDENT AUDITORS' REPORT
 
The Board of Directors
SpeedFam International, Inc.:
 
     Under date of June 27, 1997, we reported on the consolidated balance sheets
of SpeedFam International, Inc. and consolidated subsidiaries as of May 31, 1996
and 1997, and the related consolidated statements of earnings, shareholders'
equity, and cash flows for each of the years in the three-year period ended May
31, 1997, which are included in the Form 10-K. In connection with our audits of
the aforementioned consolidated financial statements, we also audited the
related consolidated financial statement schedules as listed in Item 14(a)(2) of
the Form 10-K. These financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statement schedules based on our audits.
 
     In our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
 
                                          KPMG PEAT MARWICK LLP
 
June 27, 1997
Chicago, Illinois
 
                                       S-1
<PAGE>   66
 
                                                                      SCHEDULE I
 
                 SPEEDFAM INTERNATIONAL, INC. AND SUBSIDIARIES
 
                       CONDENSED FINANCIAL INFORMATION OF
                          SPEEDFAM INTERNATIONAL, INC.
 
                                 BALANCE SHEETS
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                                  MAY 31,
                                                                            -------------------
                                                                             1996        1997
                                                                            -------    --------
<S>                                                                         <C>        <C>
ASSETS
Current assets:
  Cash and cash equivalents..............................................   $ 7,228    $ 72,955
  Due from affiliated companies..........................................    16,699      16,489
  Prepaid expenses and other current assets..............................     1,762       3,780
                                                                            -------    --------
Total current assets.....................................................    25,689      93,224
Investments in subsidiaries and affiliates...............................    35,431      52,362
Property, plant and equipment, net.......................................     2,624      15,741
Other assets.............................................................       820         920
                                                                            -------    --------
                                                                            $69,564    $162,247
                                                                            =======    ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Current portion of long-term debt......................................   $   400    $     --
  Accounts payable.......................................................       149         339
  Due to affiliates......................................................         2          --
  Accrued expenses.......................................................       770       2,085
  Income taxes...........................................................     1,381       2,701
                                                                            -------    --------
Total current liabilities................................................     2,702       5,125
Long-term debt...........................................................     2,000          --
Deferred income taxes....................................................       420         801
Stockholders' equity.....................................................    59,442     156,321
                                                                            -------    --------
                                                                            $64,564    $162,247
                                                                            =======    ========
</TABLE>
 
                             STATEMENTS OF EARNINGS
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                             YEARS ENDED,
                                                                     ----------------------------
                                                                      1995      1996       1997
                                                                     ------    -------    -------
<S>                                                                  <C>       <C>        <C>
Revenue...........................................................   $   96    $    22    $   140
Cost and operating expenses.......................................      648        251        708
Other income (expense)............................................     (151)       342        646
                                                                     ------    -------    -------
Earnings (loss) before income taxes and equity in net earnings of
  subsidiaries and affiliates.....................................     (703)       113         78
Income tax expense (benefit)......................................       (3)        51       (155)
Equity in net earnings of subsidiaries and affiliates.............    2,275     11,500     20,372
                                                                     ------    -------    -------
Net earnings......................................................   $1,575    $11,562    $20,605
                                                                     ======    =======    =======
</TABLE>
 
                                       S-2
<PAGE>   67
 
                  SPEEDFAM INTERNATIONAL INC. AND SUBSIDIARIES
 
                       CONDENSED FINANCIAL INFORMATION OF
                          SPEEDFAM INTERNATIONAL, INC.
 
                            STATEMENT OF CASH FLOWS
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                        YEARS ENDED,
                                                              ---------------------------------
                                                               1995         1996         1997
                                                              -------     --------     --------
<S>                                                           <C>         <C>          <C>
Cash flows from operating activities:
     Net earnings...........................................  $ 1,575     $ 11,562     $ 20,605
     Adjustments to reconcile net earnings to net cash
       provided by operating activities:
       Equity in net earnings of subsidiaries and
          affiliates........................................   (2,275)     (11,500)     (20,372)
       Depreciation and amortization........................       92          117           56
       Provision for deferred income taxes..................      (75)      (1,121)        (941)
       Gains on sales of assets.............................      (15)          --           --
       Increase in cash surrender value.....................     (138)        (142)        (144)
       Change in assets and liabilities.....................    1,037      (19,368)       2,345
                                                              -------     --------     --------
     Cash flows (used in) provided by operating
       activities...........................................      201      (20,452)       1,549
     Cash flows from investing activities:
       Capital expenditures.................................      (42)      (2,589)     (13,136)
       Proceeds from sales of assets........................       42           --           --
       Dividends from subsidiaries and affiliates...........       90          163          554
       Other investing activities...........................      (32)         (22)           6
                                                              -------     --------     --------
Net cash provided by (used in)investing activities..........       58       (2,448)     (12,576)
                                                              -------     --------     --------
Cash flows from financing activities:
     Treasury transactions, net.............................      (35)          17           --
     Net proceeds from issuance of common stock.............       --       28,284       77,673
     Proceeds from exercise of stock options and employee
       stock purchases......................................       --          254        1,481
     Proceeds from long-term debt...........................       --        2,500          414
     Principal payments on long-term debt...................     (224)        (928)      (2,814)
                                                              -------     --------     --------
Net cash provided by (used in) financing activities.........     (259)      30,127       76,754
                                                              -------     --------     --------
Net increase in cash and cash equivalents...................       --        7,227       65,727
Cash and cash equivalents at beginning of year..............        1            1        7,228
                                                              -------     --------     --------
Cash and cash equivalents at end of year....................  $     1     $  7,228     $ 72,955
                                                              =======     ========     ========
</TABLE>
 
                                       S-3
<PAGE>   68
 
                                                                     SCHEDULE II
 
                          SPEEDFAM INTERNATIONAL, INC.
 
                       VALUATION AND QUALIFYING ACCOUNTS
       FOR EACH OF THE YEARS IN THE THREE-YEAR PERIOD ENDED MAY 31, 1997
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                  CHARGED TO
                                                    CHARGED     OTHER ACCOUNTS
                                                      TO         (TRANSLATION       DEDUCTIONS
                                     BALANCE AT      COSTS        ADJUSTMENT       (WRITE-OFFS      BALANCE
                                     BEGINNING        AND            AND               AND          AT END
            DESCRIPTION               OF YEAR       EXPENSE      RECOVERIES)       ADJUSTMENTS)     OF YEAR
-----------------------------------  ----------     -------     --------------     ------------     -------
<S>                                  <C>            <C>         <C>                <C>              <C>
Allowance for doubtful accounts:
     1995..........................     $192            3              7                 15         $   187
     1996..........................     $187          316             (2)                 6         $   495
     1997..........................     $495          817              5                173         $ 1,144
</TABLE>
 
<TABLE>
<CAPTION>
                                                    CHARGED
                                                      TO          CHARGED TO
                                     BALANCE AT      COSTS      OTHER ACCOUNTS       DEDUCTIONS       BALANCE
                                     BEGINNING        AND        (TRANSLATION      (WRITE-OFFS OF     AT END
            DESCRIPTION               OF YEAR       EXPENSE      ADJUSTMENTS)        INVENTORY)       OF YEAR
-----------------------------------  ----------     -------     --------------     --------------     -------
<S>                                  <C>            <C>         <C>                <C>                <C>
Inventory obsolescence:
     1995..........................    $  161          305              7                 121         $   352
     1996..........................    $  352        1,804             --               1,097         $ 1,059
     1997..........................    $1,059        1,652            (18)              1,545         $ 1,148
</TABLE>
 
<TABLE>
<CAPTION>
                                                    CHARGED
                                                      TO
                                     BALANCE AT      COSTS                                          BALANCE
                                     BEGINNING        AND         CHARGED TO        DEDUCTIONS      AT END
            DESCRIPTION               OF YEAR       EXPENSE     OTHER ACCOUNTS     FROM RESERVE     OF YEAR
-----------------------------------  ----------     -------     --------------     ------------     -------
<S>                                  <C>            <C>         <C>                <C>              <C>
Warranty reserve:
     1995..........................    $  480         (145)           --                 135        $   200
     1996..........................    $  200        2,285            --                  --        $ 2,485
     1997..........................    $2,485        8,503             4               5,482        $ 5,510
</TABLE>
 
                                       S-4