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

                                    FORM 10-Q
(Mark One)

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

         For the quarterly period ended August 31, 1998

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


         For the transition period from ____________ to ____________

                         Commission File Number 0-26784

                          SPEEDFAM INTERNATIONAL, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                  Illinois                                     36-2421613
        (State or other jurisdiction of                     (I.R.S. Employer
         incorporation or organization)                  Identification Number)

    305 North 54th Street, Chandler, Arizona                     85226
    (Address of principal executive offices)                   (Zip Code)

        Registrant's telephone number, including area code (602) 705-2100

         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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date (October 9, 1998).

                  Common Stock, no par value: 16,123,358 shares
<PAGE>   2
                          SPEEDFAM INTERNATIONAL, INC.

<TABLE>
<CAPTION>
                                      INDEX
                                                                                                            Page
                                                                                                            ----
<S>                                                                                                         <C>
PART I            FINANCIAL INFORMATION

         Item 1.          Financial Statements

                             Condensed Consolidated Balance Sheets
                             August 31, 1998 and May 31, 1998...............................................   2

                             Condensed Consolidated Statements of Earnings
                             Three Months Ended August 31, 1998 and 1997....................................   3

                             Condensed Consolidated Statements of Cash Flows
                             Three Months Ended August 31, 1998 and 1997....................................   4

                             Notes to Condensed Consolidated Financial Statements...........................   5

         Item 2.          Management's Discussion and Analysis of Financial Condition
                          and Results of Operations.........................................................  10

         Item 3.          Quantitative and Qualitative Disclosures about Market Risk........................  13

PART II           OTHER INFORMATION

         Item 6.          Exhibits and Reports on Form 8-K..................................................  19

SIGNATURE...................................................................................................  20

EXHIBIT INDEX


         Exhibit    27    Financial Data Schedule
</TABLE>
<PAGE>   3
PART I - FINANCIAL INFORMATION

           SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                      AUGUST 31,        MAY 31,
                                                                         1998             1998
                                                                      ---------        ---------
<S>                                                                   <C>              <C>
                                ASSETS

Current assets:
   Cash and cash equivalents                                          $ 114,822        $  90,384
   Short-term investments                                                16,151           50,835
   Trade accounts and notes receivable, net                              43,933           45,197
   Inventories                                                           50,552           55,532
   Other current assets                                                   9,698            8,195
                                                                      ---------        ---------
     Total current assets                                               235,156          250,143
Investments in affiliates                                                22,818           24,299
Property, plant and equipment, net                                       54,967           52,253
Other assets                                                              3,355            3,070
                                                                      ---------        ---------
     Total assets                                                     $ 316,296        $ 329,765
                                                                      =========        =========

               LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Short-term borrowings and current portion of long-term debt        $     176        $     248
   Accounts payable and due to affiliates                                14,197           23,901
   Customer deposits                                                      2,347            1,812
   Other current liabilities                                             10,095           13,932
                                                                      ---------        ---------
     Total current liabilities                                           26,815           39,893
                                                                      ---------        ---------
Deferred income taxes                                                     1,020            1,020
                                                                      ---------        ---------
Stockholders' equity:
   Common stock, no par value, 60,000 shares authorized, 16,118
      and 15,962 shares issued and outstanding
      at August 31, 1998 and May 31, 1998, respectively                       1                1
   Additional paid-in capital                                           227,968          226,729
   Retained earnings                                                     62,485           62,329
   Foreign currency translation adjustment                               (1,993)            (207)
                                                                      ---------        ---------
     Total stockholders' equity                                         288,461          288,852
                                                                      ---------        ---------
       Total liabilities and stockholders' equity                     $ 316,296        $ 329,765
                                                                      =========        =========
</TABLE>

     See Accompanying Notes to Condensed Consolidated Financial Statements.


                                       2
<PAGE>   4
           SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
                   THREE MONTHS ENDED AUGUST 31, 1998 AND 1997
                      (in thousands, except per share data)



<TABLE>
<CAPTION>
                                                                    THREE MONTHS ENDED
                                                                        AUGUST 31,
                                                                 -----------------------
                                                                   1998            1997
                                                                 --------        -------
<S>                                                              <C>             <C>
Revenue:
   Net sales                                                     $ 35,771        $51,915
   Commissions from affiliate                                         585          1,932
                                                                 --------        -------
     Total revenue                                                 36,356         53,847
Cost of sales                                                      23,427         30,831
                                                                 --------        -------
     Gross margin                                                  12,929         23,016
   Research, development and engineering                            9,140          6,785
   Selling, general and administrative                              7,269          9,369
                                                                 --------        -------
Operating profit (loss)                                            (3,480)         6,862
 Other income, net                                                  1,812            759
                                                                 --------        -------
Earnings (loss) from consolidated companies before income taxes    (1,668)         7,621
Income tax expense (benefit)                                       (1,096)         2,793
                                                                 --------        -------
Earnings (loss) from consolidated companies                          (572)         4,828
Equity in net earnings of affiliates                                  728            729
                                                                 --------        -------
Net earnings                                                     $    156        $ 5,557
                                                                 ========        =======
Net earnings per share:
   Basic                                                         $   0.01        $  0.41
                                                                 ========        =======
   Diluted                                                       $   0.01        $  0.39
                                                                 ========        =======
 Weighted average number of shares:
   Basic                                                           16,047         13,399
                                                                 ========        =======
   Diluted                                                         16,394         14,242
                                                                 ========        =======
</TABLE>


     See Accompanying Notes to Condensed Consolidated Financial Statements.


                                       3
<PAGE>   5
           SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                   THREE MONTHS ENDED AUGUST 31, 1998 AND 1997
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                                    THREE MONTHS ENDED
                                                                                         AUGUST 31,
                                                                                 -------------------------
                                                                                   1998             1997
                                                                                 ---------        --------
<S>                                                                              <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net earnings                                                                  $     156        $  5,557
   Adjustments to reconcile net earnings to net cash provided by (used in)
    operating activities:
       Equity in net earnings of affiliates                                           (728)           (729)
       Depreciation and amortization                                                 1,600             743
       Dividend from affiliate                                                         521             875
       Other                                                                          (223)             11
       Changes in assets and liabilities:
         (Increase) decrease in trade accounts and notes receivable                  1,320          (8,387)
         (Increase) decrease in inventories                                          5,129          (3,513)
         (Increase) decrease in other current assets                                (1,502)            659
         Increase (decrease) in accounts payable and due to affiliates              (9,575)          5,641
         Decrease in customer deposits
             and other current liabilities                                          (3,253)           (183)
                                                                                 ---------        --------
   Net cash provided by (used in) operating activities                              (6,555)            674
                                                                                 ---------        --------
CASH FLOWS FROM INVESTING ACTIVITIES
   Purchases of short-term investments                                             (11,158)        (15,364)
   Proceeds from the sale of short-term investments                                 45,886            --
   Capital expenditures                                                             (4,510)         (8,424)
   Other investing activities                                                         (301)           (153)
                                                                                 ---------        --------
   Net cash provided by (used in) investing activities                              29,917         (23,941)
                                                                                 ---------        --------
CASH FLOWS FROM FINANCING ACTIVITIES
   Proceeds from exercise of stock options                                             268             594
   Proceeds from sale of stock to employees                                            972             940
   Principal payments on long-term debt                                                (73)            (66)
                                                                                 ---------        --------
   Net cash provided by financing activities                                         1,167           1,468
                                                                                 ---------        --------
   Effects of foreign currency rate changes on cash                                    (91)             31
                                                                                 ---------        --------
   Net  increase (decrease) in cash and cash equivalents                            24,438         (21,768)
   Cash and cash equivalents at beginning of year                                   90,384          56,679
                                                                                 ---------        --------
   Cash and cash equivalents at August 31, 1998 and 1997                         $ 114,822        $ 34,911
                                                                                 =========        ========
</TABLE>


     See Accompanying Notes to Condensed Consolidated Financial Statements.


                                       4
<PAGE>   6
           SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                    (in thousands, except per share amounts)




(1)     BASIS OF PRESENTATION

        The condensed consolidated financial statements included herein have
        been prepared by management without audit. Certain information and note
        disclosures normally included in financial statements prepared in
        accordance with generally accepted accounting principles have been
        condensed or omitted, although management believes that the disclosures
        made are adequate to make the information presented not misleading.
        These condensed consolidated financial statements should be read in
        conjunction with the consolidated financial statements of the Company
        for the year ended May 31, 1998, as filed with the Securities and
        Exchange Commission on August 28, 1998 as part of its Annual Report on
        Form 10-K. In the opinion of management the information furnished herein
        reflects all adjustments (consisting of normal recurring adjustments)
        necessary for a fair statement of results for the interim periods
        presented. Results of operations for the three months ended August 31,
        1998 are not necessarily indicative of results to be expected for the
        full fiscal year.

(2)     EARNINGS PER SHARE

        In 1998, the Company adopted Statement of Financial Accounting
        Standards (SFAS) No. 128, "Earnings Per Share." SFAS No. 128 replaced
        the calculation of primary and fully diluted earnings per share with
        basic and diluted earnings per share. Unlike primary earnings per
        share, basic earnings per share excludes any dilutive effects of
        options, warrants and convertible securities. Diluted earnings per
        share includes the effect of all potential common shares that are
        dilutive and outstanding during the reporting period. Earnings per
        share amounts for all periods presented have been restated to conform
        to SFAS No. 128.


                                       5
<PAGE>   7
           SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                    (in thousands, except per share amounts)


       The following table sets forth the computation of basic and diluted
       earnings per share:

<TABLE>
<CAPTION>
                                                                  Three Months Ended
                                                                       August 31,
                                                                ---------------------
                                                                  1998          1997
                                                                -------       -------
        <S>                                                     <C>           <C>
        Numerator:
              Net earnings                                      $   156       $ 5,557
                                                                =======       =======
         Denominator:
           Denominator for basic earnings per share -
             weighted-average shares outstanding                 16,047        13,399
           Effect of dilutive securities:
             Employee stock options                                 347           843
                                                                -------       -------
           Denominator for diluted earnings per share -
             adjusted weighted-average shares outstanding        16,394        14,242
                                                                =======       =======
         Basic earnings per share                               $  0.01       $  0.41
                                                                =======       =======
         Diluted earnings per share                             $  0.01       $  0.39
                                                                =======       =======
</TABLE>


        Options to purchase 1,201 shares of common stock at an average price of
        $26.93 per share, were outstanding during the three months ended August
        31, 1998, but were not included in the computation of diluted earnings
        per share because the options' exercise price was greater than the
        average market price of the common shares.

(3)     INVENTORIES

        The components of inventory were:

<TABLE>
<CAPTION>
                                   August 31,      May 31,
                                      1998          1998
                                    --------      --------
<S>                                 <C>           <C>
               Raw materials        $ 23,229      $ 25,223
               Work-in-process        16,664        11,423
               Finished goods         10,659        18,886
                                    --------      --------
                                    $ 50,552      $ 55,532
                                    ========      ========
</TABLE>


                                       6
<PAGE>   8
           SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                    (in thousands, except per share amounts)


(4)     INVESTMENTS IN AFFILIATES

        The Company owns a 50% interest in SpeedFam Co., Ltd. The Company's
        equity interest in SpeedFam Co., Ltd. was $18,817 and $20,543 at August
        31, 1998 and at May 31, 1998, respectively, based on the balance sheet
        of SpeedFam Co., Ltd. at July 31, 1998 and April 30, 1998, respectively.
        The remaining equity interest included in investments in affiliates
        relates to the Company's 50% ownership interest in Fujimi Corporation.
        Condensed consolidated financial statements of SpeedFam Co., Ltd., which
        are consolidated on a fiscal year that ends April 30, are as follows:

                                 BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                    JULY 31,         APRIL 30,
                                                                      1998             1998
                                                                    ---------        ---------
<S>                                                                 <C>              <C>
                                     ASSETS


             Total current assets                                   $  98,159        $ 128,379
             Investment in affiliates                                     556              853
             Property, plant and equipment, net                        32,367           35,763
             Deferred income taxes and other assets                     8,991            8,287
                                                                    ---------        ---------
                      Total assets                                  $ 140,073        $ 173,282
                                                                    =========        =========


                        LIABILITIES AND STOCKHOLDERS' EQUITY


             Total current liabilities                              $  79,600        $ 106,765
             Long-term debt                                            16,230           18,095
             Other long-term liabilities                                6,608            7,336
             Stockholders' equity
                Common stock                                              664              664
                Retained earnings                                      41,028           41,162
                Foreign currency translation adjustment                (4,161)            (844)
                Unrealized gains on marketable securities                 104              104
                                                                    ---------        ---------
                   Total liabilities and stockholders' equity       $ 140,073        $ 173,282
                                                                    =========        =========
</TABLE>


                                       7
<PAGE>   9
           SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                    (in thousands, except per share amounts)


                  STATEMENTS OF EARNINGS AND RETAINED EARNINGS

<TABLE>
<CAPTION>
                                                            Three Months Ended
                                                                 July 31,
                                                         ------------------------
                                                           1998            1997
                                                         --------        --------
<S>                                                      <C>             <C>
             Net sales                                   $ 39,623        $ 60,114
             Costs and operating expenses                  37,765          59,289
                                                         --------        --------
             Earnings before income taxes                   1,858             825
             Income taxes                                   1,182             424
                                                         --------        --------
             Net earnings before minority interest            676             401
             Minority interest                               (232)           (125)
                                                         --------        --------
             Net earnings                                     908             526
             Beginning retained earnings                   41,162          37,049
             Dividends                                     (1,042)         (1,750)
                                                         --------        --------
             Ending retained earnings                    $ 41,028        $ 35,825
                                                         ========        ========
</TABLE>


         The Company pays a commission to SpeedFam Co., Ltd. on sales of
         equipment produced by the Company in the U. S. and exported to Pacific
         Rim customers through SpeedFam Co., Ltd. As of August 31, 1998 the
         Company had accrued $673 of commission expense to SpeedFam Co., Ltd.

(5)      DERIVATIVE FINANCIAL INSTRUMENTS

         The Company uses derivative financial instruments to offset exposure to
         market risks arising from changes in foreign exchange rates. Derivative
         financial instruments currently utilized by the Company include foreign
         currency forward contracts. The Company evaluates and monitors
         consolidated net exposures by currency and maturity, and external
         derivative financial instruments correlate with that net exposure in
         all material respects. Gains or losses related to hedges of firm
         commitments are deferred and included in the bases of the transaction
         when they are completed. Gains or losses on unhedged foreign currency
         transactions are included in income as part of cost of sales.


                                       8
<PAGE>   10
(6)      COMPREHENSIVE INCOME

         Effective June 1, 1998, the Company adopted Statement of Financial
         Accounting Standards No. 130, "Reporting Comprehensive Income" which
         establishes standards to report and display comprehensive income and
         its components in a full set of general purpose financial statements.
         The Company's comprehensive income was as follows:

<TABLE>
<CAPTION>
                                                                 Three Months Ended August 31,
                                                                 -----------------------------
                                                                  1998                   1997
                                                                 -------               -------
<S>                                                              <C>                   <C>
             Net income                                          $   156               $ 5,557
             Other comprehensive income:
               Foreign currency translation adjustments           (1,786)                1,098
                                                                 -------               -------
             Comprehensive income                                $(1,630)              $ 6,655
                                                                 =======               =======
</TABLE>


                                       9
<PAGE>   11
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

SEGMENTS

         The Company's total revenue consists of net sales in two 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 produced by
SpeedFam Co., Ltd. (the "Far East Joint Venture").

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>
                                                                                   Three Months Ended
                                                                                       August 31,
                                                                                  --------------------
                                                                                   1998          1997
                                                                                  ------        ------
<S>                                                                               <C>           <C>
          Revenue:
             Net sales                                                             98.4%          96.4%
             Commissions from affiliate                                             1.6            3.6
                                                                                  -----          -----
               Total revenue                                                      100.0          100.0
          Cost of sales                                                            64.4           57.3
                                                                                  -----          -----
             Gross margin                                                          35.6           42.7
             Research, development and engineering                                 25.2           12.6
             Selling, general and administrative                                   20.0           17.4
                                                                                  -----          -----
          Operating profit (loss)                                                  (9.6)          12.7
           Other income, net                                                        5.0            1.5
                                                                                  -----          -----
          Earnings (loss) from consolidated companies before income taxes          (4.6)          14.2
          Income tax expense (benefit)                                             (3.0)           5.2
                                                                                  -----          -----
          Earnings (loss) from consolidated companies                              (1.6)           9.0
          Equity in net earnings of affiliates                                      2.0            1.3
                                                                                  -----          -----
          Net earnings                                                              0.4%          10.3%
                                                                                  =====          =====
</TABLE>

         Net Sales. The Company's net sales for the three months ended August
31, 1998 were $35.8 million, down 31.1% from net sales of $51.9 million for the
corresponding period in the prior year. Sales of equipment, parts and
expendables were $30.1 million or 84.2% of net sales in the first quarter of
fiscal 1999, against $43.8 million or 84.4% of net sales reported for the same
period of fiscal 1998. The sales decline in this segment was primarily
attributable to lower sales of the Company's CMP systems to the semiconductor
industry. Sales of CMP systems generated $22.9 million, or 64.1% of net sales in
the first quarter of fiscal 1999, down from the $30.7 million, or 59.1% of net
sales, reported a year earlier. The Company's net sales in this quarter were
affected by the continued slowdown in overall demand for semiconductor
manufacturing equipment including CMP systems, which is due to the manufacturing
overcapacity situation in the semiconductor device market worldwide. As a
result, semiconductor manufacturers are expected to reduce or delay their
investment in manufacturing equipment. In addition, the


                                       10
<PAGE>   12
semiconductor device market has been affected by the conditions surrounding the
economic health of Asian countries, particularly Korea and Japan. The Company
believes that these market and economic uncertainties will likely have an
adverse effect on sales of CMP systems at least through the current fiscal year.

         Sales to the thin film memory disk market in the first quarter of
fiscal 1999 accounted for $6.7 million, or 18.8% of net sales, compared with
$15.6 million, or 30.0%, for the first quarter of fiscal 1998. The technology of
thin film memory disks has shifted to the use of more alternative substrates; a
majority of those substrates being produced by Far East manufacturers.
Consequently, thin film memory disk manufacturers in the United States have
experienced manufacturing over-capacity which in turn has reduced capital
spending for equipment the Company supplies from its U.S. operations. The
Company expects these manufacturing over-capacity problems to continue in the
U.S. through the current fiscal year.

         The decrease in net sales in the three months ended August 31, 1998 was
also attributable to a decrease in sales of slurries. Sales of slurries
decreased to $5.7 million or 15.8% of net sales in the first quarter of fiscal
1999 from $8.1 million or 15.6% in the comparable period of fiscal 1998.

         Commissions from Affiliate. Commissions from affiliate decreased to
$585,000 during the first quarter of fiscal 1999 from $1.9 million in the
corresponding period of fiscal 1998. The decline in commission revenue in the
three months ended August 31, 1998 was due not only to the continued slowdown in
demand for capital equipment from the thin film memory disk market, but also to
a slowing of manufacturing expansion in the silicon wafer market. Consequently,
there is very little demand for equipment the Company supplies from this market
segment. The Company believes that capital equipment spending will decline
further in the thin film memory and silicon wafer industries in the current
fiscal year, in turn further lowering commissions from affiliate compared to
prior year periods.

         Gross Margin. Gross margin decreased to $12.9 million or 35.6% of total
revenue for the three months ended August 31, 1998 from $23.0 million or 42.7%
of total revenue for the three months ended August 31, 1997. Gross margin, both
in dollars and as a percentage of total revenue, was down year over year due
primarily to higher material costs for the Auriga-C systems, higher overhead
costs due to excess production capacity, lower commission revenue, pricing
pressure in all markets, and shifts in the product mix.

         Research, Development and Engineering. Research, development and
engineering expense was $9.1 million or 25.2% of total revenue in the first
quarter of fiscal 1999, up from $6.8 million or 12.6% of total revenue in the
first quarter of fiscal 1998. The increase in the three month period ended
August 31, 1998 is a result of the Company's significant investment in
dry-in/dry-out, copper and 300mm planarization capabilities for its CMP systems;
improvements in CMP systems' reliability and productivity; and various process
technologies for the semiconductor device, thin film memory disk and silicon
wafer markets. In addition, the Company has committed significant technical
support resources to meet the needs of its customers. The Company will continue
to invest in research, development, and engineering to maintain technological
competitiveness and meet the process requirements of its customers.


                                       11
<PAGE>   13
         Selling, General and Administrative. In the first quarter of fiscal
1999, selling, general and administrative expense was $7.3 million, or 20.0% of
total revenue, down from $9.4 million, or 17.4%, last year. The dollar decrease
in the first three months of fiscal 1999 as compared to the prior year was due
to lower commissions paid to the Far East Joint Venture as a result of decreased
sales of CMP systems manufactured in the United States and sold into the Asian
markets. Selling, general and administrative expense also declined due to
management's efforts to control expenses to align them with lower revenue
expectations, including decreasing travel, decreasing management salaries,
freezing new hires, and reducing the Company's workforce as necessary.

         Other Income, Net. Other income increased to $1.8 million in the first
quarter of fiscal 1999 from $759,000 in the comparable period of fiscal 1998.
Other income consisted almost entirely of interest income in the first quarter
of fiscal 1999. Interest income increased substantially in the first quarter of
fiscal 1999 compared to the prior year period as a result of the cash infusions
from the Company's equity offering in October 1997.

         Income Tax Benefit. In the first quarter of fiscal 1999, the Company
provided for a tax benefit at a rate significantly above the federal benefit
rate of 35% due to the impact of research and development tax credits.

         Equity in Net Earnings of Affiliates. The Company's equity in the net
earnings of its joint ventures was $728,000 for the first quarter, compared to
$729,000 a year ago. The Company believes that the earnings of the Company's
largest joint venture, the Far East Joint Venture, may be adversely affected for
at least the current fiscal year by both the slow down in demand for equipment
sold into the thin film memory disk and silicon wafer markets, as well as the
current economic and currency crises facing the Asian economy.

LIQUIDITY AND CAPITAL RESOURCES

         As of August 31, 1998, the Company had $131.0 million in cash, cash
equivalents and short-term investments, compared to $141.2 million at May 31,
1998. The Company used $6.6 million of cash in operating activities. Cash from
operations was used primarily to reduce accounts payable and amounts due to
affiliates and other current liabilities. This use of cash from operations was
partially offset by cash provided by a decrease in inventories in the first
quarter of fiscal 1999.

         The Company made capital expenditures of $4.5 million primarily to
purchase software and fund the continued construction of a new 109,000 square
foot Technology Center next to the corporate headquarters in Chandler, Arizona.

         In addition to the Company's cash, cash equivalents and short-term
investments, the Company has available a $60.0 million credit facility with its
U.S. bank group. The Company also has a pound sterling 950,000 ($1.6 million)
revolving line of credit with the London branch of a U.S. bank. As of October 9,
1998, no amounts were outstanding on either loan facility. The Company believes
that the Company's cash, cash equivalents and short-term investments combined
with the available proceeds from the loan facilities will be sufficient to meet
the Company's capital requirements during at least the next 12 months.


                                       12
<PAGE>   14
         SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" is effective for financial years beginning after June 15, 1999. SFAS
No. 133 establishes accounting and reporting standards for derivative
instruments and hedging activities. The Company is evaluating the new
Statement's provisions and has not yet determined its impact. The Company will
adopt SFAS No. 133 effective June 1, 2000.

YEAR 2000

       The Company has addressed the issues associated with the programming code
in existing computer systems as the millennium (Year 2000) approaches. The Year
2000 problem is pervasive and complex as virtually every computer operation will
be affected in some way. The Company is aware of and has addressed the potential
computing difficulties that may be triggered by the Year 2000.

       The Company has substantially completed a Year 2000 date review and
conversion project to address all the necessary changes, testing and
implementation issues. The project encompassed three major areas of review:
internal systems (hardware and software), supplier compliance and Company
products. The Company has identified the changes required to its computer
programs and hardware. The necessary modifications to the Company's centralized
financial, manufacturing and operational information systems have been
completed. The Company's major suppliers have been sent letters requesting
information regarding their own Year 2000 plan, as well as requesting
confirmation that the components supplied by these vendors are Year 2000
compliant. The Company has evaluated the vendor responses which have been
received and concluded that the vendors which have responded either are Year
2000 compliant or are proceeding with their own Year 2000 compliance programs.
The Company will continue to follow-up with vendors with which the Company has a
material relationship and who have not responded to obtain assurances that they
expect to be Year 2000 compliant in time. Equipment and systems manufactured and
supplied by the Company have been evaluated and determined to be free of any
material problems that could be caused by the Year 2000 issue. Management
estimates that the Company's remaining Year 2000 compliance expense will be
immaterial. The Company believes that Year 2000 problems related to its own
internal systems and equipment and systems it sells have been addressed and
resolved and will not have a material effect on the Company's business,
financial condition and results of operations. However, there can be no
assurance that the systems of other companies upon which the Company's systems
and business rely will be timely converted or that any such failure to convert
by another company would not have a material adverse effect on the Company's
business, financial conditions or results of operations. To mitigate this risk,
the Company is reviewing its vendor relationships and building alternative
sources of supply should the business operations of any one vendor be
interrupted due to the Year 2000 problems.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 

Not applicable.

                                       13
<PAGE>   15
                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-Q 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 systems 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 develop the Company's CMP system may
impact its ability to grow revenue attributable to its CMP systems. In addition,
the continuing slow down in the semiconductor industry impacts the Company's
ability to recognize consistent growth in revenue attributable to 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 enhanced version of the
system. The failure of the Company to accomplish these objectives would have a
material adverse effect on the Company.

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 even during economic down-
turns in the markets the Company serves, or if such investments negatively
impact operating profits in a reporting period. 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 integrated CMP
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, each of which 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, 


                                       14
<PAGE>   16
sales of existing Company products could be adversely affected.

CYCLICAL NATURE OF THE COMPANY'S BUSINESS

    The Company's business depends substantially on the capital expenditures of
semiconductor, thin film memory disk media and silicon wafer manufacturers (its
primary markets), which, in turn, depend upon the current and anticipated market
demand for semiconductor devices, memory disks and silicon wafers. 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, thin film memory
disk and silicon wafer industries are currently experiencing downturns which
have led many semiconductor, memory disk and silicon wafer manufacturers to
delay or cancel capital expenditures. The Company's business and results of
operations will continue to be materially adversely affected by these downturns
in its primary markets.

    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 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.

INTERNATIONAL BUSINESS

    In the first quarter of fiscal 1999 and 1998, 56.0% and 32.6%, respectively,
of the Company's total revenue was attributable to sales outside the United
States. 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.


                                       15
<PAGE>   17
    The Company anticipates that the recent turmoil in Asian economies and the
recent deterioration of the underlying economic conditions in certain Asian
countries will continue to have an impact on its sales, and the sales of its
joint ventures, to customers located in or whose end-user customers are located
in those countries. In addition, revenue and profits may continue to be impacted
as a result of currency fluctuations on the relative price of the Company's
products, or the products of its joint ventures, and restrictions on government
spending. In addition, customers in those countries have faced reduced access to
working capital to fund purchases of the Company's products, or the products of
its joint ventures, due to higher interest rates, reduced bank lending or the
deterioration in the customer's or its bank's financial condition or the
inability to access other financing which has impacted sales to those customers.

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. Factors that may influence
the Company's operating results in a given quarter include: (i) customer demand,
such as economic conditions in the semiconductor, memory disk and silicon wafer
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.


                                       16
<PAGE>   18
    INTELLECTUAL PROPERTY RIGHTS

    The Company currently holds numerous United States patents and additional
foreign patents in Japan and several Asian and European countries and has
numerous United States 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. There can be
no assurance that the Company will be able to protect its technology or that
competitors will not be able to develop similar technology independently. No
assurance can be given that the claims allowed on these patents held or acquired
by the Company will be sufficiently broad to protect the Company's technologies.
In addition, no assurance can be given that any existing or future patents
issued to the Company will not be challenged, invalidated, or circumvented or
that the rights granted thereunder will provide competitive advantages to the
Company. In that event, the Company's results of operations could be adversely
affected. Moreover, the Company may choose to incur significant costs in an
attempt to defend its patent rights.

    In addition, although the Company believes that its products do not infringe
any valid existing proprietary rights of others, there can be no assurance that
third parties will not assert infringement claims in the future. In the CMP
market the Company serves, there are a number of patents relating to the CMP
process held by third parties. Accordingly, the Company, as a CMP equipment
manufacturer, may be required to attempt to obtain licenses from the holders of
one or more of such patents, which may impede the use of CMP technology by the
Company. There also may be pending patent applications or issued patents of
which the Company is not aware, and which would require the Company to license
or challenge such patents, at significant expense to the Company. There can be
no assurance that any such license would be available on acceptable terms, if at
all, or that the Company would prevail in any such challenge.

POSSIBLE VOLATILITY OF STOCK PRICE

    The stock price of the Company may be subject to wide fluctuations and
possible rapid increases or declines in a short time period. These fluctuations
may be due to factors specific to the Company such as variations in quarterly
operating results or changes in analysts' earnings estimates, or to factors
relating to the industries in which the Company operates and sells or to the
securities markets in general, which, in recent years, have experienced
significant price fluctuations, or to global economic events. These fluctuations
often have been unrelated to the operating performance of the specific companies
whose stocks are traded.

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 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.


                                       17
<PAGE>   19
         Certain statements and information in this Form 10-Q constitute
"forward-looking statements" within the meaning of the federal securities laws.
Such forward-looking statements involve risks and uncertainties 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. Factors that may affect the
Company's business and may therefore affect actual results include, among
others, the cyclical nature of the Company's business and the industries which
it serves, the Company's dependence on new product development and the effects
of rapid technological change in the semiconductor and disk media industries,
including the effects of significant competition in these industries, the normal
fluctuations in the Company's quarterly operating results, including the effects
of the Far East Joint Venture's results of operations. This is only a summary of
some of the important factors that could cause actual results to vary. For a
more complete description of these and other factors, refer to "Certain Factors
Affecting the Company's Business" elsewhere herein and in the Company's Form
10-K filed with the Securities and Exchange Commission. The Company undertakes
no obligation to update the information, including the forward-looking
statements, in the Form 10-Q.


                                       18
<PAGE>   20
                          SPEEDFAM INTERNATIONAL, INC.

PART II - OTHER INFORMATION

Item 6.   Exhibits and Reports on Form 8-K.

           (a)  Exhibits.

                 Exhibit - 27    Financial Data Schedule

           (b)  Reports on Form 8-K.

                 No reports on Form 8-K were filed during the quarter ended
                 August 31, 1998.


                                       19
<PAGE>   21
                          SPEEDFAM INTERNATIONAL, INC.

                                    SIGNATURE

         Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                    SPEEDFAM INTERNATIONAL, INC.



                                         /s/  Roger K. Marach
                                    --------------------------------------------
Date:    October 15, 1998                By Roger K. Marach
                                         Treasurer and Chief Financial Officer
                                         (As Chief Accounting Officer and Duly
                                         Authorized Officer of SpeedFam
                                         International, Inc.)


                                       20
<PAGE>   22
                                  EXHIBIT INDEX

           EXHIBIT
           NUMBER                                  DESCRIPTION

             27                Financial Data Schedule


                                       21