UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549




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Form 10-K

Annual Report Pursuant to Section 13 or 15(d) of

the Securities Exchange Act of 1934


For the fiscal year ended June 3, 2000

Commission file number 0-26784


SpeedFam-IPEC, Inc.

(Exact name of registrant as specified in its
charter)


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|Illinois
	(State or other jurisdiction of
	incorporation or organization)
	305 North 54th Street
	Chandler, Arizona
	(Address of principal executive offices) |  | 36-2421613
	(I.R.S. Employer Identification No.)
	85226
	(Zip Code)

Registrants Telephone Number: (480) 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 and non-voting
stock held by non-affiliates of the registrant: $408,323,953 as
of July 31, 2000.

Indicate the number of shares outstanding of each of the
issuers classes of common stock: 29,895,142 as of
July 31, 2000.

Documents incorporated by reference:

Part III, Proxy Statement relating to the 2000 Annual Meeting of
Shareholders (except for the report of the compensation committee
 of the board of directors and the performance graph).









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TABLE OF CONTENTS

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|Item |     |         |  |                                                                                       
|No.  |     | Caption |  | Page                                                                                  
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|     |     |         |  | Part I                                                                                 |  |              
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|     | 1.  |         |  | Business                                                                               |  | 1            
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|     | 2.  |         |  | Properties                                                                             |  | 8            
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|     | 3.  |         |  | Legal Proceedings                                                                      |  | 8            
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|     | 4.  |         |  | Submission of Matters to a Vote of Security Holders                                    |  | 8            
|     |     |         |  | Part II                                                                                |  |              
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|     | 5.  |         |  | Market for Common Equity and Related Stockholder Matters                               |  | 8            
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|     | 6.  |         |  | Selected Financial Data                                                                |  | 10           
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|     | 7.  |         |  | Managements Discussion and Analysis of Financial Condition
	and Results of Operations |  | 12           
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|     | 7   | A.      |  | Quantitative and Qualitative Disclosures about Market Risk                             |  | 25           
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|     | 8.  |         |  | Financial Statements and Supplementary Data                                            |  | 26           
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|     | 9.  |         |  | Changes in and Disagreements with Accountants on Accounting and
	Financial Disclosure  |  | 75           
|     |     |         |  | Part III                                                                               |  |              
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|     | 10. |         |  | Directors and Executive Officers of the Company                                        |  | 75           
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|     | 11. |         |  | Executive Compensation                                                                 |  | 75           
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|     | 12. |         |  | Security Ownership of Certain Beneficial Owners and Management                         |  | 75           
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|     | 13. |         |  | Certain Relationships and Related Transactions                                         |  | 75           
|     |     |         |  | Part IV                                                                                |  |              
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|     | 14. |         |  | Exhibits, Financial Statement Schedules, and Reports on
	Form 8-K                      |  | 75           
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|     |     |         |  | Signatures                                                                             |  | 76           
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|     |     |         |  | List of Exhibits                                                                       |  | EXHIBIT INDEX

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Item 1.  Business

SpeedFam-IPEC, Inc. (the Company) was incorporated in Illinois in
 1959 as SpeedLap Corporation. Effective April 6, 1999,
Integrated Process Equipment Corp. (IPEC), a supplier of chemical
 mechanical planarization (or CMP) systems, merged into a wholly
owned subsidiary of SpeedFam International, Inc. Following the
merger, SpeedFam International, Inc. changed its name to
SpeedFam-IPEC, Inc. The Company operates through three wholly
owned subsidiaries, SpeedFam-IPEC Corporation in the U.S.
(SpeedFam-IPEC U.S.), and SpeedFam-IPEC Limited (SpeedFam-IPEC
U.K.) and SpeedFam-IPEC GmbH (SpeedFam-IPEC Germany) in Europe.
The Company also owns 50% of SpeedFam-IPEC Co., Ltd. (together
with its subsidiaries and joint ventures, the Far East Joint
Venture).

The Company designs, develops, manufactures, markets and supports
 CMP systems used in the fabrication of semiconductor devices and
 also manufactures other high-throughput precision surface
processing systems. The Companys flat surface processing
systems are used in general industrial applications markets. The
Company also markets and distributes polishing liquids
(slurries), parts and consumables used in its customers
manufacturing processes.

Unless the context otherwise requires, the Company
and SpeedFam-IPEC refer to SpeedFam-IPEC, 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 (480) 705-2100.

Effective December 1, 1999, the Company changed its fiscal
year from the twelve-month period ended May 31 to a 52 or
53 week period ending on the Saturday nearest May 31.
Accordingly, the 2000 fiscal year ended on June 3 and contained
53 weeks, whereas the previous two fiscal years ended on
May 31 and contained 52 weeks. All references to years
relate to fiscal years unless otherwise noted.

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
 publicly traded Japanese company that supplies products to the
automotive industry. The Far East Joint Venture designs and
manufactures most of the equipment sold by the Company to the
thin film memory disk media and silicon wafer markets in the U.S.
 and Europe. It also distributes such products in the Far East
and provides sales and service channels in the Far East for
products manufactured by the Company, including distribution of
the Companys CMP systems to manufacturers of semiconductor
devices. In June 2000, the Company announced an agreement
which will transfer full ownership of the CMP operations in the
Far East to the Company. Per the agreement, Obara Corporation
will assume the business operations for non CMP activities. This
agreement is expected to close during the first six months of
2001.

In 1984, the Company and Fujimi Incorporated formed Fujimi
Corporation (the Fujimi Joint Venture), an Illinois corporation.
Fujimi Incorporated and the Company each owned 50% of the
common stock of the Fujimi Joint Venture. Fujimi Incorporated is
a publicly traded Japanese manufacturer of abrasives. In the
second quarter of 2000, the Company sold its 50% interest in the
Fujimi Joint Venture to its 50% partner, Fujimi Incorporated. The
 Fujimi Joint Venture sold slurries manufactured by Fujimi
Incorporated, primarily to silicon wafer, thin film memory disk
and general industrial manufacturers in North and South America.

Industry Background

The semiconductor industry has experienced significant growth
over the past decade due to increased demand for personal
computers and the internet; the expansion of the
telecommunications industry (especially wireless communications);
 the emergence of new applications such as consumer electronics
products; and the increased semiconductor content in electronics
systems. Significant performance advantages and lower prices for
integrated circuits have contributed to the growth and expansion
of the semiconductor industry over time.

The semiconductor market is cyclical by nature, however,
characterized by short-term periods of either under or over
supply for both memory and logic devices. When demand decreases,
semiconductor manufacturers typically slow their purchasing of
capital equipment; conversely, when demand increases, so does
capital

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Products

The Company offers the broadest range of CMP systems currently
available to the semiconductor industry. The Companys
product lines include both orbital and rotational technology.

CMP is a process used to change the characteristics of the
surface of a semiconductor wafer. CMP 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. CMP improves the flatness (planarity), smoothness and
optical properties of a surface. One 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.

Orbital CMP Systems.The Companys orbital CMP
systems incorporate an advanced polishing technique developed in
conjunction with a major semiconductor manufacturer.
Planarization in these systems is achieved by the downward
pressure from and rotational motion of the upper wafer carrier
against the orbital motion of the lower polishing platen, which
has a polishing pad attached to its surface. The use of orbital
polishing technology in conjunction with other enhancements
offered on the Companys orbital platforms provides
customers with improved polish flexibility in a smaller footprint
 tool. Moreover, the Companys orbital systems incorporate
an innovative polish slurry delivery method that delivers the
slurry through the polishing pad directly to the wafer surface.
This slurry delivery method is designed to increase throughput
and improve process control and planarity, and therefore yield to
 the device manufacturer, as well as reduce the consumption of
slurry compared to conventional methods, which deposit slurry on
the pad surface.



|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
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| | The AvantGaard 676 features four independent heads, allowing
	simultaneous polishing of four wafers and offers one of the
	industrys smallest footprints. This system is capable of
	polishing either oxide or metal layers. The AvantGaard 676 was
	initially designed solely to planarize metal layers and has been
	adopted for this purpose in volume production by a majority of
	the customers that have purchased the system.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| 
| | The AvantGaard 776 is based on the same four-head orbital
	polishing technology as the AvantGaard 676. The AvantGaard 776
	integrates CMP, metrology and wafer cleaning in a single unit
	that requires less clean room space than separate CMP and
	post-CMP cleaning equipment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
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| | The MomentumTM product, announced in July 2000,
	is a highly flexible, universal tool that processes copper,
	shallow-trench isolation (STI), tungsten, oxide and other
	advanced applications. MomentumTM was developed to
	address the industrys growing need for an advanced level of
	 process capability for geometry shrinks to 0.13 micron. The
	 tool features a new polishing system that combines
	SpeedFam-IPECs industry proven rotational and orbital
	technologies. The system integrates tunable, adaptable carrier
	technology and edge control (APT), a stable, highly
	flexible new polishing technique (Next), and a newly
	designed cleaner. The system also integrates Intelligent In-line
	Inspection technology (I3TM) with closed-loop control
	metrology for maximum effective throughput and reduced cost of
	ownership. The system and processes for the MomentumTM
	 product are scalable to 300mm.

Rotational CMP Systems.



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| | The Avanti® 472, introduced in 1994, is a fully automated,
	single wafer planarization system for polishing oxide or metal
	layers on silicon wafers from four to eight inches in diameter.
	In addition to the planarization

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|  | of oxide layers, the system planarizes layers of metal
	interconnects, including tungsten, aluminum and copper.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
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| | The Companys AurigaTM system is a five head, two
	 polishing table CMP system capable of processing 50-60 wafers
	per hour. The AurigaTM system, which began shipping
	commercially in November 1996, is used for oxide and metal
	(tungsten) applications. The system incorporates full
	cassette-to-cassette automation. Robotics remove the wafers from
	the cassette and places 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
	polyvinyl alcohol brush and placed wet into the output cassettes.
	 The system is self-enclosed, and has its own air filtration and
	air flow management system. The AurigaTM offers
	compatibility with all commonly used slurry chemistries.
| 
| | In 1998, the Company introduced the Auriga-CTM, which
	integrates cleaning and drying technology into the Companys
	 CMP system thereby providing a complete dry-in/dry-out system.
	The design of the Auriga-CTM is based upon the
	replacement of the automation module on the AurigaTM
	with a new automation module, which incorporates the cleaning
	technology.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| 
| | The Auriga VisionTM is the latest tool derived from
	the industry proven AurigaTM platform. Announced in
	July  2000, the Auriga VisionTM provides complete
	 dry-in/dry-out CMP processing in a high throughput tool. With an
	 advanced carrier design, in-table end-point system, HF capable
	dual-station cleaner and computer integrated manufacturing
	automation, this low cost of ownership tool is suited for fabs
	producing devices in the most cost-competitive markets. The
	Auriga VisionTM is targeted at the 0.18 and
	0.13 micron technology nodes for memory manufacturers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

Thin Film Memory Disk Media Polishing Products.The
Company sells polishing machines, pre-deposition cleaning
machines and grinding machines for producing aluminum,
nickel-plated and alternative substrates for the thin film memory
 disk media market.

Semiconductor Wafer Polishing Products.The Company
supplies chemical mechanical polishing, double-sided lapping and
edge polishing systems to the semiconductor substrates market.

The Companys 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 has been
sliced. The lapping process removes saw marks remaining after
slicing and provides a surface finish suitable for subsequent
polishing processes. The double-sided polishers for silicon wafer
 polishing are also available.

The Company also utilizes a line whereby a chemical mechanical
polishing process removes the shallow damage layer remaining from
 previous process steps to attain the specified flatness and
surface finish.

The edge polishing technology was developed and introduced for
the purpose of making the wafers edge easier to clean,
thereby increasing semiconductor device manufacturing yields.

General Industrial Products.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
and in-line grinding systems. 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.

Customers

The Company sells its products to leading manufacturers of
semiconductor devices, thin film memory disks, semiconductor
wafers and various general industrial applications. During the
last three years, the majority of the Companys total
revenue has been derived from the sale of CMP products and
services. In

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Sales to two customers in 2000 accounted for 11.1% and 11.8% of
the Companys total revenue. In 1999, sales to two customers
 accounted for 10.5% and 11.4% of the Companys total
revenue and in 1998 sales to one customer accounted for 19.4% of
the Companys total revenue. No other customer accounted for
 10% or more of the Companys total revenue during these
periods. The Companys ten largest customers accounted for
64.9%, 60.8% and 53.4% of the Companys total revenue in
2000, 1999 and 1998, 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 all the industries it serves and
in addition uses a network of 10 regional distributors for its
general industrial product lines. In its European operations, the
 Company uses direct sales personnel and a small number of
distributors. For CMP products, the Company uses a distributor
who sells in Germany, France, the Netherlands, Belgium, Italy,
Scandinavia, Spain and Switzerland. After the merger,
SpeedFam-IPECs relationship with a distributor in Japan was
 discontinued because the Company markets and sells its products
in the Far East through the sales and marketing arm of the Far
East Joint Venture. Most of the equipment sold to the thin film
memory disk media and silicon wafer markets is manufactured by
the Far East Joint Venture.

The Companys sales strategy emphasizes direct interaction
with customers, particularly in the semiconductor device, silicon
 wafer 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 industries it
serves.

The Companys sales offices are in Chandler, Arizona;
Austin, Texas; Portland, Oregon; Des Plaines, Illinois; Taiwan;
Seoul, Korea; India; Singapore; Hong Kong; and Shanghai, China.
To enhance its sales capabilities, the Company maintains process
development and demonstration laboratories throughout the U.S.
and Europe. Sales and marketing activities in the Far East are
conducted primarily by the Far East Joint Venture. The Company
also has direct sales personnel in the SpeedFam-IPEC U.K. and
SpeedFam-IPEC Germany offices.

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 participation in 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.

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 service and support program
include system installation and process certification, process
support, machine repair, providing spare parts inventories,
internal training programs, external customer training,
documentation and formation of customer user groups. 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 and in certain instances the Company has
provided a warranty period in excess of one year. Field and
technical service personnel provide

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Backlog

Backlog of orders for capital equipment, parts, consumables and
slurries was approximately $93.1 million on July 31, 2000,
compared to $45.4 million on July 31, 1999. 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, consumables and slurries
 is significantly less than for capital equipment and as a
result, the Companys backlog consists mostly 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 canceled 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 and Development

The capital equipment market, and in particular the semiconductor
 capital equipment market in which the Company competes, is
characterized by rapid technological development and product
innovation. The Companys research and development efforts
are currently focused on enhanced performance for finer
geometries in oxide and tungsten applications while developing
new process capabilities for emerging shallow-trench isolation,
copper, and 300mm applications. The Companys research and
development expenditures during 2000, 1999 and 1998 were
approximately $53.7 million, $61.8 million and $67.2 million,
respectively.

Because of the complex and highly specialized design, testing,
and manufacturing requirements of the Company, research and
development employees must be experienced in a wide range of
engineering disciplines. These primary disciplines include
process development, mechanical engineering, software
engineering, electrical engineering and test engineering.
Development programs are organized around cross-functional
project teams including leaders for engineering, manufacturing,
marketing and customer support. Teams are lead by program
managers responsible for concurrent activity across all
functional areas. The Company believes that this approach
provides flexibility and allows the Company to shorten time to
market for new products and processes.

In order to respond to developing technologies in the
semiconductor industry, the Company augments its internal
development capabilities by seeking cooperative research and
product development relationships with industry participants.
Three such relationships are currently active: alliances with
other capital equipment suppliers; joint development projects
with customers; and sponsorship of university research.

During 2000, the Company developed its advanced CMP system, which
 combines SpeedFam-IPECs industry-proven rotational and
orbital technologies. The MomentumTM product was
developed to address the industrys growing need for an
advanced level of process capability, continued geometry shrinks
down to 0.13 micron and CMP challenges for applications such as
copper and STI in advanced semiconductor device manufacturing.
MomentumTM is a highly flexible system, which can be
configured to provide world-class process results for oxide,
tungsten, copper and STI. In addition, the Company developed the
Auriga VisionTM

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TM


Manufacturing

The Company generally assembles its equipment and systems from
components and fabricated parts manufactured and supplied by
third parties, including stainless steel plates, 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 products sold to manufacturers of general
industrial components are manufactured in its Illinois facility.
Most of the equipment sold to the thin film memory disk media and
 silicon wafer markets is manufactured by the Far East Joint
Venture. The Companys CMP system development and
manufacturing are located at the Companys headquarters in
Chandler, Arizona and in June 2000, the Company completed
the expansion of this CMP manufacturing facility, which nearly
doubled the overall manufacturing space.

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 consumables
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. The Company expects its
competitors to improve the design and performance of their
products. There can be no assurance that the Companys
competitors will not develop enhancements or acquire new
technologies through business acquisitions that will offer price
or performance features superior to those offered by the Company.
 In the semiconductor device equipment market, the Company faces
significant competition from current competitors including
Applied Materials, Inc. and Ebara Corporation, and any others
that may enter this market in the future. 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 systems 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.

Competition in the general industrial products market is
fragmented with no one competitor currently holding a dominant
position. The Company faces significant competitive pressure in
the sale of slurries, particularly with regard to pricing, which
has resulted 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.

Employees

As of July 31, 2000, the Company had approximately 1,020
full time employees in the U.S. and Europe. From time to time,
the Company uses temporary employees to respond more rapidly to
fluctuations in assembly and product demand and to better control
 the labor component of its manufacturing costs. None of

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Intellectual Property

The Company currently holds 127 United States patents and 113
foreign patents in Japan and several Asian and European
countries. As of July 31, 2000, the Company has 143 United
States patent applications pending and 226 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 also owns 10 U.S. trademark registrations and
numerous foreign trademarks.

The Company licenses the right to manufacture CMP machines
employing the orbital motion used in its AvantGaard 676, 776, 876
 and MomentumTM products from a semiconductor
manufacturer.

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 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.

Executive Officers of the Company

|                     |                                                          |     |    |              |  |                        |      |  |  |                                          |                                                                                                                                                             
|-------------------- | -------------------------------------------------------- | --- | -- | ------------ |  | ---------------------- | ---- |  |  | ---------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------
|                     |                                                          |     |    | Held Present |  | Other Positions Held  
|Name and Position    |                                                          | Age |    | Office Since |  | During Past Five Years
|                     |                                                          |     |    |              |  |                       
|Makoto Kouzuma       |                                                          |     | 60 |              |  |                        | 1999 |  |  | President and Chief Executive Officer,  
|                     | Vice Chairman of the Board                               |     |    |              |  |                        |      |  |  |                                          | Chief Operating Officer, Executive Vice President                                                                                                           
|                    
|                    
|                    
|                    
|                    
|Richard J. Faubert   |                                                          |     | 52 |              |  |                        | 1999 |  |  | Vice President of the T.V. and          
|                     | President and Chief Executive Officer                    |     |    |              |  |                        |      |  |  |                                          | Telecommunications Test Business Unit of Tektronix, Inc.                                                                                                    
|                    
|                    
|                    
|                    
|                    
|J. Michael Dodson    |                                                          |     | 39 |              |  |                        | 1999 |  |  | Vice President, Corporate Controller and
|                     | Chief Financial Officer                                  |     |    |              |  |                        |      |  |  |                                          | Chief Accounting Officer of Novellus Systems, Inc.                                                                                                          
|                    
|                    
|                    
|                    
|                    
|Giovanni N. Nocerino |                                                          |     | 48 |              |  |                        | 2000 |  |  | Executive Vice President of CVC, Inc.   
|                     | Executive Vice President of Sales, Marketing and Service |     |    |              |  |                        |      |  |  |                                          | (now Veeco Instruments); Vice President and General Manager at
	Varian; Executive Vice President and member of the Board at Sony
	Materials Research Company
|                    
|                    
|                    
|                    
|                    
|Saket Chadda         |                                                          |     | 34 |              |  |                        | 2000 |  |  | Senior Section Manager at Atmel         
|                     | Chief Technical Officer                                  |     |    |              |  |                        |      |  |  |                                          | Corporation; Project Manager at OnTrak Systems, Inc; Senior
	Development Engineer Specialist at Philips Semiconductors                                      
|                    
|                    
|                    
|                    
|                    
|Robert R. Smith      |                                                          |     | 56 |              |  |                        | 1974 |  |  |                                         
|                     | Managing Director of SpeedFam-IPEC, U.K.                 |     |    |              |  |                        |      |  |  |                                          |                                                                                                                                                             

7



---



Item 2.  Properties.

The Companys operations are conducted primarily in three
buildings in Chandler, Arizona and one building in Des Plaines,
Illinois. Two of the Chandler buildings are owned by the Company
and consist of approximately 245,000 square feet. The other
building is leased and is approximately 26,000 square feet. These
 buildings house the main manufacturing operation, research and
development, various administrative and customer support offices,
 corporate headquarters and a state-of-the-art applications and
customer demonstration lab. In June 2000, the Company
completed the expansion of its CMP manufacturing facility, which
nearly doubled the overall manufacturing space. The Des Plaines,
Illinois building is owned by the Company and consists of
approximately 42,000 square feet. It houses the Industrial
Applications Group.

The Company also leases 22,000 square feet in Portland, Oregon,
which is used for research and development and also houses the
northwest field service operation. The central region field
service operation is housed in a 20,000 square foot leased
facility in Austin, Texas.

SpeedFam-IPEC U.K. is located in Hinckley, England and owns a
9,000 square foot facility used for demonstration, customer
service, sales and administration purposes. SpeedFam-IPEC GmbH
leases 2,000 square feet of office space in Ingelfingen, Germany.

The Company also leases various smaller facilities worldwide,
which are used as sales and customer service centers.

The Company is currently seeking sub-lessees for or has subleased
 certain of the properties occupied by the former IPEC
operations, which have been relocated to the facilities in
Chandler, Arizona. This includes a 150,000 square foot facility
in Phoenix, Arizona, which was the primary manufacturing,
research and administration facility for the IPEC operations.

The Company owns approximately 30 acres of vacant land in
Chandler, Arizona close to the current facilities, which is being
 held for future expansion needs.

The Company believes that its current properties will be
sufficient to meet the Companys requirements for the
foreseeable future.

Item 3.  Legal Proceedings.

The Company is not presently involved in any material legal
proceedings.

Item 4.  Submission of Matters to a Vote of
Security Holders.

None

PART II

Item 5.  Market for Common Equity and
Related Stockholder Matters.

|                           |  |                 |     | 
|-------------------------- |  | --------------- | --- | 
|                           |  | Number of      
|                           |  | Stockholders of
|                           |  | Record as of   
|Title of Class             |  | July 31, 2000  
|                           |  |                
|Common Stock, no par value |  |                 | 176 | 

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

8



---





|     |                                     |      |   |     |       |  |   |    |      
|---- | ----------------------------------- | ---- | - | --- | ----- |  | - | -- | -----
|     |                                     | High |   | Low
|     |                                     |      |   |    
|1999 |                                     |      |   |     |       |  |   |   
|    
|    
|    
|    
|     | First Quarter                       |      | $ | 20  | 3/4   |  | $ | 12 | 3/8  
|    
|    
|    
|    
|     | Second Quarter                      |      |   | 18  | 5/16  |  |   | 9  | 1/4  
|    
|    
|    
|    
|     | Third Quarter                       |      |   | 21  | 5/16  |  |   | 14 |      
|    
|    
|    
|    
|     | Fourth Quarter                      |      |   | 16  | 11/16 |  |   | 10 | 1/16 
|    
|2000 |                                     |      |   |     |       |  |   |   
|    
|    
|    
|    
|     | First Quarter                       |      | $ | 18  | 3/8   |  | $ | 8  | 11/16
|    
|    
|    
|    
|     | Second Quarter                      |      |   | 14  | 3/8   |  |   | 9  | 9/16 
|    
|    
|    
|    
|     | Third Quarter                       |      |   | 29  | 7/8   |  |   | 10 |      
|    
|    
|    
|    
|     | Fourth Quarter                      |      |   | 29  | 1/8   |  |   | 11 | 1/8  
|    
|2001 |                                     |      |   |     |       |  |   |   
|    
|    
|    
|    
|     | First Quarter through July 31, 2000 |      | $ | 22  | 1/4   |  | $ | 13 | 14/16

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.

9



---



Item 6.  Selected Financial Data.

SELECTED CONSOLIDATED FINANCIAL DATA

The consolidated statements of operations data for the years
ended June 3, 2000 and May 31, 1999 and 1998 and the
consolidated balance sheet data as of June 3, 2000 and
May 31, 1999 are derived from the Companys
consolidated financial statements and notes thereto which have
been audited by KPMG LLP, independent public accountants and are
included elsewhere herein. The consolidated statements of
operations data for the years ended May 31, 1997 and 1996
and the consolidated balance sheet data as of May 31, 1998,
1997 and 1996 are derived from the Companys consolidated
financial statements 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.

|                                                      |  |                                       |         |      |  |      |          |      |  |      |         |   |  |   |         |   |  |   |         |  
|----------------------------------------------------- |  | ------------------------------------- | ------- | ---- |  | ---- | -------- | ---- |  | ---- | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                                      |  |                                      
|                                                      |  | Fiscal Year Ended                    
|                                                      |  |                                      
|                                                      |  | 2000                                  |         | 1999 |  | 1998 |          | 1997 |  | 1996
|                                                      |  |                                       |         |      |  |      |          |      |  |     
|                                                      |  |                                      
|                                                      |  | (in thousands, except per share data)
|                                                     
|                                                     
|                                                     
|                                                     
|Consolidated Statements of Operations Data:           |  |                                       |         |      |  |      |          |      |  |      |         |   |  |   |         |   |  |   |         |  
|                                                     
|                                                     
|                                                     
|                                                     
|Net sales                                             |  | $                                     | 274,048 |      |  | $    | 216,425  |      |  | $    | 374,268 |   |  | $ | 318,112 |   |  | $ | 268,860 |  
|                                                     
|                                                     
|                                                     
|                                                     
|Cost of sales                                         |  |                                       | 184,527 |      |  |      | 194,989  |      |  |      | 231,332 |   |  |   | 186,343 |   |  |   | 163,722 |  
|                                                      |  |                                       |         |      |  |      |          |      |  |      |         |   |  |   |         |   |  |   |         |  
|Gross margin                                          |  |                                       | 89,521  |      |  |      | 21,436   |      |  |      | 142,936 |   |  |   | 131,769 |   |  |   | 105,138 |  
|                                                     
|                                                     
|                                                     
|                                                     
|Operating expenses:                                   |  |                                       |         |      |  |      |          |      |  |      |         |   |  |   |         |   |  |   |         |  
|                                                     
|                                                     
|                                                     
|                                                     
|Research, development and engineering                 |  |                                       | 53,714  |      |  |      | 61,817   |      |  |      | 67,182  |   |  |   | 43,717  |   |  |   | 27,373  |  
|                                                     
|                                                     
|                                                     
|                                                     
|Selling, general and administrative                   |  |                                       | 52,356  |      |  |      | 68,237   |      |  |      | 72,916  |   |  |   | 56,234  |   |  |   | 45,575  |  
|                                                     
|                                                     
|                                                     
|                                                     
|Purchased research and development                    |  |                                       |        |      |  |      |         |      |  |      |        |   |  |   |        |   |  |   | 36,961  |  
|                                                     
|                                                     
|                                                     
|                                                     
|Merger, integration and restructuring                 |  |                                       |        |      |  |      | 40,300   |      |  |      |        |   |  |   | 17,601  |   |  |   |        |  
|                                                      |  |                                       |         |      |  |      |          |      |  |      |         |   |  |   |         |   |  |   |         |  
|Operating profit (loss)                               |  |                                       | (16,549 | )    |  |      | (148,918 | )    |  |      | 2,838   |   |  |   | 14,217  |   |  |   | (4,771  | )
|                                                     
|                                                     
|                                                     
|                                                     
|Other income (expense)                                |  |                                       | 5,649   |      |  |      | 4,297    |      |  |      | 3,510   |   |  |   | (1,162  | ) |  |   | (108    | )
|                                                      |  |                                       |         |      |  |      |          |      |  |      |         |   |  |   |         |   |  |   |         |  
|Income (loss) before income taxes                     |  |                                       | (10,900 | )    |  |      | (144,621 | )    |  |      | 6,348   |   |  |   | 13,055  |   |  |   | (4,879  | )
|                                                     
|                                                     
|                                                     
|                                                     
|Income tax expense (benefit)                          |  |                                       |        |      |  |      | (3,930   | )    |  |      | 29,584  |   |  |   | 5,086   |   |  |   | (2,133  | )
|                                                      |  |                                       |         |      |  |      |          |      |  |      |         |   |  |   |         |   |  |   |         |  
|Income (loss)                                         |  |                                       | (10,900 | )    |  |      | (140,691 | )    |  |      | (23,236 | ) |  |   | 7,969   |   |  |   | (2,746  | )
|                                                     
|                                                     
|                                                     
|                                                     
|Equity in net earnings (loss) of affiliates(1)        |  |                                       | (3,278  | )    |  |      | 916      |      |  |      | 4,418   |   |  |   | 7,068   |   |  |   | 5,204   |  
|                                                      |  |                                       |         |      |  |      |          |      |  |      |         |   |  |   |         |   |  |   |         |  
|Net income (loss) from continuing operations          |  |                                       | (14,178 | )    |  |      | (139,775 | )    |  |      | (18,818 | ) |  |   | 15,037  |   |  |   | 2,458   |  
|                                                     
|                                                     
|                                                     
|                                                     
|Loss from discontinued operations                     |  |                                       |        |      |  |      |         |      |  |      | (10,578 | ) |  |   | (28,564 | ) |  |   | (1,294  | )
|                                                      |  |                                       |         |      |  |      |          |      |  |      |         |   |  |   |         |   |  |   |         |  
|Net income (loss)                                     |  |                                       | (14,178 | )    |  |      | (139,775 | )    |  |      | (29,396 | ) |  |   | (13,527 | ) |  |   | 1,164   |  
|                                                     
|                                                     
|                                                     
|                                                     
|Cumulative dividend on preferred stock                |  |                                       |        |      |  |      | (174     | )    |  |      | (244    | ) |  |   | (284    | ) |  |   | (579    | )
|                                                      |  |                                       |         |      |  |      |          |      |  |      |         |   |  |   |         |   |  |   |         |  
|Net income (loss) attributable to common stockholders |  | $                                     | (14,178 | )    |  | $    | (139,949 | )    |  | $    | (29,640 | ) |  | $ | (13,811 | ) |  | $ | 585     |  
|                                                      |  |                                       |         |      |  |      |          |      |  |      |         |   |  |   |         |   |  |   |         |  
|Net income (loss) per common share:                   |  |                                       |         |      |  |      |          |      |  |      |         |   |  |   |         |   |  |   |         |  
|                                                     
|                                                     
|                                                     
|                                                     
|Basic:                                                |  |                                       |         |      |  |      |          |      |  |      |         |   |  |   |         |   |  |   |         |  
|                                                     
|                                                     
|                                                     
|                                                     
|From continuing operations                            |  | $                                     | (0.48   | )    |  | $    | (4.84    | )    |  | $    | (0.69   | ) |  | $ | 0.67    |   |  | $ | 0.13    |  
|                                                      |  |                                       |         |      |  |      |          |      |  |      |         |   |  |   |         |   |  |   |         |  
|From discontinued operations                          |  | $                                     |        |      |  | $    |         |      |  | $    | (0.39   | ) |  | $ | (1.27   | ) |  | $ | (0.07   | )
|                                                      |  |                                       |         |      |  |      |          |      |  |      |         |   |  |   |         |   |  |   |         |  

10



---



|                                                        |  |                                       |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|------------------------------------------------------- |  | ------------------------------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                                        |  |                                      
|                                                        |  | Fiscal Year Ended                    
|                                                        |  |                                      
|                                                        |  | 2000                                  |         | 1999 |  | 1998 |         | 1997 |  | 1996
|                                                        |  |                                       |         |      |  |      |         |      |  |     
|                                                        |  |                                      
|                                                        |  | (in thousands, except per share data)
|                                                       
|                                                       
|                                                       
|                                                       
|Net income (loss) attributable to common stockholders   |  | $                                     | (0.48   | )    |  | $    | (4.84   | )    |  | $    | (1.08   | ) |  | $ | (0.62   | ) |  | $ | 0.03    |  
|                                                        |  |                                       |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Diluted:                                                |  |                                       |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|                                                       
|                                                       
|                                                       
|                                                       
|From continuing operations                              |  | $                                     | (0.48   | )    |  | $    | (4.84   | )    |  | $    | (0.69   | ) |  | $ | 0.62    |   |  | $ | 0.11    |  
|                                                        |  |                                       |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|From discontinued operations                            |  | $                                     |        |      |  | $    |        |      |  | $    | (0.39   | ) |  | $ | (1.19   | ) |  | $ | (0.06   | )
|                                                        |  |                                       |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Net income (loss) attributable to common stockholders   |  | $                                     | (0.48   | )    |  | $    | (4.84   | )    |  | $    | (1.08   | ) |  | $ | (0.57   | ) |  | $ | 0.03    |  
|                                                        |  |                                       |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Weighted average shares used in per share calculations: |  |                                       |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|                                                       
|                                                       
|                                                       
|                                                       
|Basic                                                   |  |                                       | 29,503  |      |  |      | 28,890  |      |  |      | 27,469  |   |  |   | 22,441  |   |  |   | 19,592  |  
|                                                        |  |                                       |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Diluted                                                 |  |                                       | 29,503  |      |  |      | 28,890  |      |  |      | 27,469  |   |  |   | 24,088  |   |  |   | 21,953  |  
|                                                        |  |                                       |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Consolidated Balance Sheet Data:                        |  |                                       |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|                                                       
|                                                       
|                                                       
|                                                       
|Working capital                                         |  | $                                     | 238,196 |      |  | $    | 243,735 |      |  | $    | 374,426 |   |  | $ | 205,918 |   |  | $ | 84,893  |  
|                                                       
|                                                       
|                                                       
|                                                       
|Total assets                                            |  |                                       | 435,080 |      |  |      | 443,778 |      |  |      | 575,653 |   |  |   | 404,565 |   |  |   | 292,685 |  
|                                                       
|                                                       
|                                                       
|                                                       
|Long-term debt, less current maturities                 |  |                                       | 115,162 |      |  |      | 116,129 |      |  |      | 117,078 |   |  |   | 19,818  |   |  |   | 25,346  |  
|                                                       
|                                                       
|                                                       
|                                                       
|Stockholders equity                                    |  |                                       | 236,970 |      |  |      | 246,750 |      |  |      | 384,136 |   |  |   | 288,317 |   |  |   | 188,376 |  




|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes $(3.8) million, $0.1 million, $2.8 million, $5.5
	million, and $4.8 million for the 2000 through 1996 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 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.

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 LLP. Such information should be read in conjunction with
the consolidated financial statements and notes thereto of the
Far East Joint Venture (SpeedFam-IPEC Co., Ltd.) appearing
elsewhere herein.

|                                                 |  |                      |         |      |  |      |         |  |  |   |         | 
|------------------------------------------------ |  | -------------------- | ------- | ---- |  | ---- | ------- |  |  | - | ------- | 
|                                                 |  |                     
|                                                 |  | Year Ended April 30,
|                                                 |  |                     
|                                                 |  | 2000                 |         | 1999 |  | 1998
|                                                 |  |                      |         |      |  |     
|                                                 |  |                     
|                                                 |  | (in thousands)      
|                                                
|                                                
|                                                
|                                                
|Consolidated Statements of Operations Data:      |  |                      |         |      |  |      |         |  |  |   |         | 
|                                                
|                                                
|                                                
|                                                
|Net sales                                        |  | $                    | 108,000 |      |  | $    | 136,232 |  |  | $ | 221,738 | 
|                                                
|                                                
|                                                
|                                                
|Gross profit                                     |  |                      | 29,631  |      |  |      | 36,956  |  |  |   | 56,586  | 
|                                                
|                                                
|                                                
|                                                
|Operating profit (loss)                          |  |                      | (9,355  | )    |  |      | 2,330   |  |  |   | 10,964  | 
|                                                
|                                                
|                                                
|                                                
|Net earnings (loss) (1)                          |  |                      | (7,526  | )    |  |      | 206     |  |  |   | 5,863   | 
|                                                
|                                                
|                                                
|                                                
|Consolidated Balance Sheet Data (at period end): |  |                      |         |      |  |      |         |  |  |   |         | 
|                                                
|                                                
|                                                
|                                                
|Working capital                                  |  | $                    | 18,782  |      |  | $    | 23,971  |  |  | $ | 21,614  | 
|                                                
|                                                
|                                                
|                                                
|Total assets                                     |  |                      | 127,533 |      |  |      | 128,522 |  |  |   | 173,282 | 
|                                                
|                                                
|                                                
|                                                
|Long-term debt, less current portion             |  |                      | 20,894  |      |  |      | 20,430  |  |  |   | 18,945  | 
|                                                
|                                                
|                                                
|                                                
|Stockholders equity                             |  |                      | 39,616  |      |  |      | 43,527  |  |  |   | 41,086  | 




|    |                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Approximately one-half of such amount is recognized by the
	Company on the equity method as equity in net earnings
	(loss) of affiliates.

11



---



Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations.

Overview

Effective April 6, 1999, Integrated Process Equipment Corp.
(IPEC) merged into a wholly owned subsidiary of SpeedFam
International, Inc. Following the merger, SpeedFam International,
 Inc. changed its name to SpeedFam-IPEC, Inc. The merger was
accounted for as a pooling of interests. Accordingly, the
financial statements of the separate entities were combined and
the discussion herein reflects such combination.

The Company designs, develops, manufactures, markets and supports
 chemical mechanical planarization (or CMP) systems used in the
fabrication of semiconductor devices and other high-throughput
precision surface processing systems. The Companys flat
surface processing systems are used in the general industrial
components market. In addition, the Company markets and
distributes parts, consumables and slurries. The Companys
total revenue consists of net sales of the products described
above and service revenues, as well as commissions from
affiliates (Commissions) which consist primarily of revenue
derived from the distribution by the Company in the U.S. and
Europe of products manufactured by SpeedFam-IPEC, Co., Ltd. (the
Far East Joint Venture). The Company distributes such products
throughout the U.S. and Europe acting as sales agent and receives
 Commissions thereon. Such amount reflects the difference between
 the imported equipments cost to the Company and sales
price to the customer.

The Company sells its products and services to three market
segments: (1) semiconductor device manufacturers (CMP
Group), (2) thin film memory disk media and silicon wafer
manufacturers (Surface Technology Group or STG), and
(3) manufacturers of general industrial components
(Industrial Applications Group or IAG). Over the last three
years, the majority of the Companys total revenue has been
derived from the sales of products and services by the CMP Group.
 In 2000, 1999 and 1998, sales to semiconductor device
manufacturers were 84.0%, 74.2% and 74.8% of total revenue,
respectively.

In 2000, 1999 and 1998, 69.6%, 37.4% and 34.3%, respectively, of
the Companys total revenue was attributable to sales
outside of the United States. In particular, in 2000, 26.6% of
the Companys total revenue was attributable to sales made
to European markets and 42.1% was attributable to sales to
markets in the Far East. In 1999, 12.4% of the Companys
total revenue was attributable to sales made to European markets
and 22.9% was attributable to sales to markets in the Far East.

Since 1971, the Company has owned a 50% interest in the Far East
Joint Venture. The remaining 50% is owned by Obara Corporation, a
 publicly traded Japanese company that supplies products to the
automotive industry. The Far East Joint Venture designs and
manufactures most of the equipment sold by the Company to the
thin film memory disk media and silicon wafer markets in the U.S.
 and Europe. It also distributes such products in the Far East
and provides sales and service channels in the Far East for
products manufactured by the Company, including distribution of
the Companys CMP systems to manufacturers of semiconductor
devices. The Companys equity interest in the Far East Joint
 Venture is accounted for using the equity method. As a result,
the Companys share of the net earnings (loss) of the Far
East Joint Venture appear in the Equity in net earnings
(loss) of affiliates caption on the Companys
consolidated statements of operations. The Far East Joint Venture
 has paid dividends in the past, but is expected to reinvest
substantially all earnings back into the business. The
Companys share of the net earnings (loss) of the Far East
Joint Venture has not in the past resulted and is not expected in
 the future to result in a material effect on the cash flows of
the Company. As of June 3, 2000, the Companys equity
interest in the Far East Joint Venture was $19.8 million,
representing 4.6% of the Companys total assets and 8.4% of
stockholders equity.

On June 27, 2000, the Company announced an agreement with
Obara Corporation to transfer 100% of the CMP sales and service
operations in the Far East region to SpeedFam-IPEC. Per the
agreement, Obara Corporation will assume the business operations
for non-CMP activities. In conjunction with this agreement, the
Company is evaluating its impact on SpeedFam-IPECs domestic
 non-CMP operations. Based upon this ongoing review, as well as
the terms of the agreement reached with Obara Corporation, the
Company believes it will incur a one-time non-cash charge to
operations in the range of $10 million to $20 million in the
first half of 2001. The Company believes there will be no
material cash outlays in conjunction with finalizing this

12



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Pursuant to a joint venture agreement dated September 7,
1984, the Company and Fujimi Incorporated formed Fujimi
Corporation (the Fujimi Joint Venture), an Illinois corporation.
Fujimi Incorporated and the Company each owned 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. The agreement
was in effect until it was terminated in the second quarter of
2000, at which time the Company sold its 50% interest in the
joint venture to Fujimi Incorporated. Proceeds from the sale were
 $10.0 million and the Company recorded a gain on the sale of
$6.1 million.

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 (loss) 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 on the Companys results of
 operations.

Effective December 1, 1999, the Company changed its fiscal
year from the twelve-month period ended May 31 to a 52 or
53 week period ending on the Saturday nearest May 31.
Accordingly, the 2000 fiscal year ended on June 3 and contained
53 weeks, whereas the previous two fiscal years ended on
May 31 and contained 52 weeks. All references to years
relate to fiscal years unless otherwise noted.

Results of Operations

The following table sets forth certain consolidated statements of
 operations data for the periods indicated as a percentage of
total revenue:

|                                          |  |      |       |      |  |      |       |    |  |  |       |   
|----------------------------------------- |  | ---- | ----- | ---- |  | ---- | ----- | -- |  |  | ----- | --
|                                          |  | 2000 |       | 1999 |  | 1998
|                                          |  |      |       |      |  |     
|Net sales                                 |  |      | 100.0 |      |  |      | 100.0 |    |  |  | 100.0 |   
|                                         
|                                         
|                                         
|                                         
|Cost of sales                             |  |      | 67.3  |      |  |      | 90.1  |    |  |  | 61.8  |   
|                                          |  |      |       |      |  |      |       |    |  |  |       |   
|Gross margin                              |  |      | 32.7  |      |  |      | 9.9   |    |  |  | 38.2  |   
|                                         
|                                         
|                                         
|                                         
|Operating expenses:                       |  |      |       |      |  |      |       |    |  |  |       |   
|                                         
|                                         
|                                         
|                                         
|Research, development and engineering     |  |      | 19.6  |      |  |      | 28.6  |    |  |  | 18.0  |   
|                                         
|                                         
|                                         
|                                         
|Selling, general and administrative       |  |      | 19.1  |      |  |      | 31.5  |    |  |  | 19.4  |   
|                                         
|                                         
|                                         
|                                         
|Merger, integration and restructuring     |  |      |      |      |  |      | 18.6  |    |  |  |      |   
|                                          |  |      |       |      |  |      |       |    |  |  |       |   
|Operating profit (loss)                   |  |      | (6.0  | )    |  |      | (68.8 | )  |  |  | 0.8   |   
|                                         
|                                         
|                                         
|                                         
|Other income, net                         |  |      | 2.0   |      |  |      | 2.0   |    |  |  | 0.9   |   
|                                          |  |      |       |      |  |      |       |    |  |  |       |   
|Income (loss) before income taxes         |  |      | (4.0  | )    |  |      | (66.8 | )  |  |  | 1.7   |   
|                                         
|                                         
|                                         
|                                         
|Income tax expense (benefit)              |  |      |      |      |  |      | (1.8  | )  |  |  | 7.9   |   
|                                          |  |      |       |      |  |      |       |    |  |  |       |   
|Loss                                      |  |      | (4.0  | )    |  |      | (65.0 | )  |  |  | (6.2  | ) 
|                                         
|                                         
|                                         
|                                         
|Equity in net income (loss) of affiliates |  |      | (1.2  | )    |  |      | 0.4   |    |  |  | 1.2   |   
|                                          |  |      |       |      |  |      |       |    |  |  |       |   
|Net loss from continuing operations       |  |      | (5.2  | )%   |  |      | (64.6 | )% |  |  | (5.0  | )%
|                                          |  |      |       |      |  |      |       |    |  |  |       |   

2000 Compared with 1999

Net Sales.Net sales for 2000 were $274.0 million, up
26.6% from net sales of $216.4 million in 1999. Sales of CMP
systems totaled $230.2 million, or 84.0% of net sales, up 43.3%
from the $160.6 million of CMP system sales in 1999. Sales of CMP
 systems increased significantly in 2000 as a reflection of
strong demand for semiconductor manufacturing equipment, which
was caused by an increasing demand from semiconductor device
manufacturers. Sales volume was higher in 2000 than in 1999
because the semiconductor and

13



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Sales of thin film memory and silicon wafer products in 2000
accounted for $29.2 million, or 10.6% of net sales, as compared
to $42.4 million, or 19.6% of net sales in 1999. During 2000,
thin film memory disk manufacturers continued to experience
manufacturing over-capacity which in turn reduced capital
spending. In addition, this over-capacity situation has created a
 larger market for used equipment making it even more difficult
to sell new equipment. While the Company continues to actively
pursue consumable sales, the Company does not foresee a return of
 high volume equipment sales to this market. The silicon wafer
market also experienced continued softness in demand due to the
ongoing manufacturing over-capacity caused by various factors
including available capacity and increased production
efficiencies due to the fact that more chips could be produced on
 a given wafer per machine.

Sales of products for general industrial applications increased
to $14.7 million, or 5.4% of net sales in 2000 compared with
$13.3 million, or 6.2% of net sales in 1999 due to increased
shipments in European markets.

Included in net sales are commissions from affiliates which
increased to $2.9 million in 2000, compared to $2.2 million in
1999 due to an increase in the Companys distribution in the
 U.S. and Europe of products manufactured by the Far East Joint
Venture.

In December 1999, the Staff of the Securities and Exchange
Commission (SEC) issued Staff Accounting Bulletin
(SAB) No. 101, Revenue Recognition in Financial
Statements. SAB 101 provides guidance on the
recognition, presentation and disclosure of revenue in financial
statements of all publicly held companies. The semiconductor
capital equipment industry association and a number of
association members have met with the Staff of the SEC to discuss
 and evaluate the applicability of SAB 101 and various
practical implementation considerations. On June 26, 2000,
the Staff of the SEC issued Staff Accounting Bulletin
No. 101B (SAB 101B), which permitted the delay in the
Companys implementation date of SAB 101 until the
fourth quarter of 2001. Accordingly, any shipments previously
reported as revenue, including revenue reported during the first
nine months of 2001, which do not meet SAB 101s
guidance will be recorded as revenue in future periods. Changes
in our revenue recognition policy resulting from the
interpretation of SAB 101 and SAB 101B would not
involve the restatement of prior financial statements, but would,
 to the extent applicable, be reported as a change in accounting
principle in the fourth quarter of 2001.

Management believes that SAB 101 and SAB 101B, to the
extent that they impact the Company, will not affect the
underlying strength or weakness of the business operations as
measured by the dollar value of the Companys product
shipments and cash flows.

Gross Margin.In 2000, gross margin was $89.5 million, or
32.7% of total revenue, compared to $21.4 million, or 9.9% of
total revenue, in 1999. Gross margin, both in dollars and as a
percentage of total revenue, was up year over year primarily due
to an increase in total revenue during 2000 compared to the prior
 year period, as well as increased production efficiencies as a
merged Company. In addition, during 1999 the Company wrote down
inventory in the amount of $13.6 million in connection with the
merged Companys new strategic plan to discontinue certain
product lines and also increased its allowance for excess
inventory and obsolescence. In 1999, the Company faced
significant competition in the sale of its products from other
equipment manufacturers, in addition to increased customer
demands to meet changing process requirements and develop new
technologies. As these factors grew in significance in 1999, the
Company determined that additional excess and obsolescence
reserves were necessary considering the weakness in order
activity and lower demand for the Companys products that
became apparent in the fourth quarter of 1999.

Research, Development and Engineering.In 2000, research,
development and engineering expense decreased to $53.7 million,
or 19.6% of total revenue, compared to $61.8 million, or 28.6% of
 total revenue, in 1999. The decrease in research, development
and engineering expense was due to managements efforts to
realign the Companys research and development efforts
around critical and key programs while eliminating duplicate
projects.

14



---



Selling, General and Administrative.In 2000, selling,
general and administrative expense decreased to $52.4 million, or
 19.1% of total revenue from $68.2 million, or 31.5% of total
revenue, in 1999. The decrease in selling, general and
administrative expense, both in dollars and as a percentage of
total revenue, resulted primarily from managements efforts
to control expenses which includes eliminating functional
duplications throughout the merged Company.

Merger, Integration and Restructuring.In the fourth
quarter of 1999, the Company recorded the following merger,
integration and restructuring costs totaling $53.9 million: $6.9
million direct merger costs; $16.9 million lease termination
costs including $2.3 million in lease improvement write-offs;
$4.2 million write-down of equipment and $19.4 million write-down
 of inventory due to certain discontinued product lines; $4.7
million related to severance costs and $1.8 million related to
other merger, integration and restructuring write-offs and costs.
 In 1999, merger, integration and restructuring expenses included
 in operating expenses were $40.3 million, or 18.6% of total
revenue. These charges were incurred primarily to close duplicate
 facilities, record transaction costs, account for certain
employee termination benefits and record adjustments and accruals
 resulting from strategic decisions to discontinue certain
product lines and sales and marketing activities as a merged
Company. The severance and other related employee costs provided
for the reduction of approximately 70 employment positions
resulting from facility closures, and the elimination of
duplicate positions or positions no longer necessary due to the
streamlining of operations. Notification of the planned severance
 and the amount of the related benefits were made to employees
prior to May 31, 1999.

During 2000, the Company completed the majority of its
restructuring activities in accordance with its previously
established and announced plans. Through June 3, 2000, the
Company incurred $27.0 million in asset write-downs and paid and
charged to the liability $17.7 million. The remaining
restructuring accrual for lease termination, severance and other
expenses associated with the merger was approximately $9.2
million as of June 3, 2000, which the Company believes is
adequate to cover the remaining liabilities. Cash expenditures
related to the merger, integration and restructuring charges are
expected to be $2.0 million for 2001 and paid from cash generated
 from operations. During 2000, lease terminations payments on
certain vacated facilities (which were included in the
restructuring charge) primarily related to remaining rent,
related utilities and common area maintenance on the closed
Phoenix, Arizona manufacturing and administrative facility. The
Company also estimated in May 1999, given the then-current
real estate market conditions, that it would take approximately
9-12 months to sublease the facility. Sublease activity
began in May 2000 (as reflected in the remaining accrual)
and is projected to be carried out through the Companys
lease term. The Companys management has been and is
currently in the process of securing additional subleases or
other negotiated agreements for the Phoenix, Arizona
manufacturing and administrative facility.

During 2000 and going forward, lease termination payments
associated with its Phoenix, Arizona facility not recovered
through sublease activity have been and are projected to be
offset by savings associated with consolidation of the merged
Companys facilities and administrative functions.

Other Income (Expense).Other income (expense) increased
to $5.6 million in 2000 from $4.3 million in 1999. This increase
from prior year resulted from a $6.1 million gain recorded in the
 second quarter of 2000 on the sale of the Companys 50%
interest in its joint venture, Fujimi Corporation. In the first
quarter of 1999, the Company recorded a gain arising from the
collection of insurance proceeds for a CMP tool, which was
destroyed in transit. Other income in 1999 also included an
increase in interest income due to the Companys decision in
 the first quarter of 1999 to transfer a significant portion of
the Companys short-term investments to higher yielding
taxable securities.

Provision for Income Taxes.At the end of 1999, as well as
 at the end of 2000, the Company established a valuation
allowance for deferred tax assets generated by its operating
losses and is in a net operating loss carryforward position. As a
 result, the effective tax rate for 2000 was zero. Income tax
benefit was $3.9 million for 1999. The effective tax benefit rate
 for 1999 was approximately 2.7%. In 1999, the expected tax
benefit computed by applying the statutory rate to the current
year loss was offset by a $51.5 million increase to the
Companys deferred tax valuation allowance. The deferred tax
 valuation allowance fully offsets the Companys net
deferred tax assets at June 3, 2000 and May 31, 1999.

15



---



Equity in Net Earnings (Loss) of Affiliates.Equity in net
 loss of affiliates was $3.3 million in 2000 compared to equity
in net earnings of $0.9 million in 1999. This decline compared to
 the prior year was due to significantly decreased sales revenue
of the Far East Joint Venture. Investments by manufacturers of
both silicon wafers and thin film memory disks continued to
weaken in 2000. Also during 2000, the Far East Joint Venture
recorded a charge for certain asset impairments, severance costs
and other reorganization charges to account for the slowdown in
the thin film memory disk media market and the transition of CMP
research and development operations to the Company. The
Companys share of this charge was approximately $2.9
million.

During 2000, the Companys share of the net loss of the Far
East Joint Venture was $3.8 million compared with the
Companys share of the net earnings of the Far East Joint
Venture of $0.1 million in 1999. Historically, the Far East Joint
 Venture has not paid significant dividends, although in 1999,
the Far East Joint Venture paid $0.5 million in dividends to the
Company.

1999 Compared with 1998

Net Sales.Net sales for 1999 were $216.4 million, down
42.2% from net sales of $374.3 million in 1998. Sales of CMP
systems totaled $160.6 million, or 74.2% of net sales, down 42.6%
 from the $280.1 million of CMP system sales in 1998. Sales of
CMP systems declined significantly in 1999 from the prior year
due to a worldwide slowdown in overall demand for semiconductor
manufacturing equipment, including CMP systems, which was caused
by an over-capacity situation in the semiconductor device market
worldwide. In addition, the Company saw erosion in its market
share of new sales due to increased competition in the sales of
CMP systems to semiconductor manufacturers.

Sales of thin film memory and silicon wafer products in 1999
accounted for $42.4 million, or 19.6% of net sales, as compared
to $80.2 million, or 21.4% of net sales in 1998. During 1999,
thin film memory disk manufacturers continued to experience
manufacturing over-capacity which in turn reduced capital
spending. This industry continued to feel price per
unit pressures which in turn forced a reduction in capital
spending for equipment the Company supplies from its U.S.
operations. The decline in sales was also due to continued
slowdown in the silicon wafer market. This slowness was due to
the ongoing manufacturing over-capacity caused by various factors
 including the Asian economic conditions and increased production
 efficiencies due to the fact that more chips could be produced
on a given wafer per machine. Sales in the industrial
applications market were $13.3 million, or 6.2% of net sales in
1999, compared to the $14.0 million, or 3.8% of net sales in
1998.

Included in net sales are commissions from affiliates which
decreased to $2.2 million in the year ended May 31, 1999,
compared to $9.0 million in the year ended May 31, 1998. The
 decrease in 1999, as compared to 1998, was due to the continued
slowdown in the thin film memory disk market, and silicon wafer
markets.

Gross Margin.In 1999, gross margin was $21.4 million, or
9.9% of total revenue, compared to $142.9 million, or 38.2% of
total revenue, in 1998. Gross margin, both in dollars and as a
percentage of total revenue, was down year over year, primarily
due to higher material costs for some of the Companys
mainline tools, higher overhead costs due to excess production
capacity spread over a smaller revenue base, lower commission
revenue, pricing pressure in all markets and shifts in the
product mix. In addition, in the fourth quarter of 1999, the
Company recorded approximately $13.6 million in integration
inventory charges associated with the new Companys
strategic plan to discontinue certain product lines and
accordingly increased its reserves for excess inventory and
obsolescence. In 1999, the Company faced significantly increased
competition in the sale of its products to equipment
manufacturers, in addition to increased customer demands to meet
changing process requirements and develop new technologies. As
these factors grew in significance in 1999, the Company
determined to record an increase in its allowance for excess and
obsolescence to inventory to coincide with the increased weakness
 in order activity and demand for the Companys products in
the fourth quarter of 1999.

Research, Development and Engineering.In 1999, research,
development and engineering expense increased as a percent of
total revenue to $61.8 million, or 28.6%, compared to $67.2
million, or 18.0% of total revenue, in 1998. During 1999, the
Company delivered numerous enhancements to the Auriga-CTM system and 776 orbital system. In addition, in 1999, the
Company continued to focus on enhanced performance for

16



---





Selling, General and Administrative.In 1999, selling,
general and administrative expense decreased to $68.2 million
from $72.9 million in 1998. In 1999, selling, general and
administrative expense increased as a percent of total revenue to
 31.5% from 19.4% in 1998. Selling, general and administrative
expense, in dollars, declined in 1999 from 1998 due to
managements efforts to control expenses to align them with
lower revenue expectations, including decreased travel, an
across-the-board reduction in all management salaries, a freeze
on new hires, and reductions in the Companys global
workforce. Selling, general and administrative expense in 1999 as
 a percentage of total revenue increased substantially from prior
 year primarily due to reduced revenues in 1999.

Merger, Integration and Restructuring.In the fourth
quarter of 1999, the Company recorded the following merger,
integration and restructuring costs totaling $53.9 million: $6.9
million direct merger costs; $16.9 million lease termination
costs including $2.3 million in lease improvement write-offs;
$4.2 million write-down of equipment and $19.4 million write-down
 of inventory due to certain discontinued product lines; $4.7
million related to severance costs and $1.8 million related to
other merger, integration and restructuring write-offs and costs.
 Through May 31, 1999, the Company incurred $26.8 million in
 asset write-downs and paid and charged to the liability $4.1
million. The remaining restructuring accrual for lease
termination, severance and other expenses associated with the
merger was approximately $23.0 million as of May 31, 1999 which
the Company believed was adequate to cover the remaining
liabilities. In 1999, merger, integration and restructuring
expenses included in operating expenses were $40.3 million, or
18.6% of total revenue. These charges were incurred primarily to
close duplicate facilities, record transaction costs, account for
 certain employee termination benefits and record adjustments and
 accruals resulting from strategic decisions to discontinue
certain product lines and sales and marketing activities as a
merged Company.

Other Income (Expense).Other income
(expense) increased to $4.3 million in 1999 from $3.5
million in 1998. This increase was due primarily to a gain
arising from the collection of insurance proceeds for a CMP tool,
 which was destroyed in transit. Other income also increased in
1999 due to the Companys decision in the first quarter of
1999 to transfer a significant portion of the Companys
short-term investments to higher yielding taxable securities.

Provision for Income Taxes.Income tax benefit was $3.9
million for 1999 compared to an income tax expense of $29.6
million in 1998. The effective tax expense (benefit) rates for
1999 and 1998 were approximately (2.7)% and 466%, respectively.
Tax expense in 1998 resulted primarily from a $25.9 million net
charge, which increased the Companys deferred tax valuation
 allowance. In 1999, the tax benefit created by the current year
loss was offset by a $51.5 million increase to the Companys
 deferred tax valuation allowance. This increase in the deferred
tax valuation allowance fully offset the Companys net
deferred tax assets.

Equity in Net Earnings of Affiliates.For 1999, equity in
net earnings of affiliates decreased to $0.9 million compared to
$4.4 million in 1998. Equity in the net earnings of affiliates
was down from the prior year primarily due to significantly
decreased sales revenue of the Far East Joint Venture.
Investments by manufacturers of both silicon wafer and thin film
memory disks were reduced significantly in 1999 compared to 1998.
 This reduced manufacturing volume also resulting in lower sales
of consumable goods.

Liquidity and Capital Resources

As of June 3, 2000, the Company had $100.3 million in cash,
cash equivalents and short-term investments compared to $147.0
million at May 31, 1999. The Company used $45.2 million of
cash in operating activities during 2000 compared to $51.6
million in 1999. During 2000, cash primarily decreased due to a
$52.7 million increase in accounts receivable as a result of the
revenue growth during 2000. Changes in other working capital
accounts provided cash of $7.0 million in 2000. In 2000, the net
loss was $14.2 million, adjusted for non-cash items of $17.4
million for depreciation and amortization expense and $3.3
million in equity in the net loss of the Far East Joint Venture
which were offset by a $6.1 million gain on the sale of Fujimi
Corporation and other items.

17



---



Net cash provided by investing activities totaled $18.4 million
in 2000 compared with $41.5 million in 1999. The Company incurred
 capital expenditures of $15.1 million and $31.4 million in 2000
and 1999, respectively. The majority of the cash was used to fund
 building improvements, software and equipment purchases in 2000.
 During 1999, the majority of cash expenditures were used to fund
 the construction of a 109,000 square foot Technology Center next
 to the corporate headquarters in Chandler, Arizona with the
remaining expenditures relating to purchase of equipment and
software. During the second quarter of 2000, the Company sold its
 50% interest in its joint venture, Fujimi Corporation, to its
50% partner, Fujimi Incorporated which generated proceeds of
$10.0 million. In addition, cash of $2.3 million was provided
from the licensing of certain technologies and transferring
associated assets. During 2000, cash was also used to purchase
short-term investments of $64.3 million offset by proceeds of
maturing investments totaling $85.8 million.

Financing activities provided $2.3 million and $1.6 million
during 2000 and 1999, respectively. The sale of stock to
employees and the exercise of stock options generated proceeds of
 $3.4 million during each year. Principal payments on capital
lease obligations amounted to $1.2 million in 2000 compared to
$1.1 million in 1999. Total long-term debt decreased to $116.2
million at June 3, 2000 compared to $117.4 million at
May 31, 1999. Total long-term debt as a percentage of
stockholders equity increased to 49.0% as of June 3,
2000 from 47.6% as of May 31, 1999.

The Company believes that its current cash position and cash
generated through operations will be sufficient to meet the
Companys cash needs during the next 12 months.

On June 27, 2000, the Company announced that it reached an
agreement with its partner in the Far East Joint Venture, Obara
Corporation, that will transfer full ownership of CMP sales and
service operations in that region to the Company. Per the
agreement, Obara Will assume the business operations for non-CMP
activities. In conjunction with this agreement, the Company is
evaluating its impact on its domestic non-CMP operations. Based
upon this ongoing review, as well as the terms of the agreement
reached with Obara Corporation, the Company believes it will
incur a special, non-cash charge to operations in the range of
$10.0 million to $20.0 million in the first six months of 2001.
The Company believes there will be no material cash outlays in
conjunction with finalizing this transaction

Statement of Financial Accounting Standards
(SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities and No. 138,
Accounting for Certain Derivative Instruments and Certain
Hedging Activities, establishes accounting and reporting
standards for derivative financial instruments and hedging
activities. These statements require that the Company recognize
all derivatives as either assets or liabilities on the balance
sheet and measure those instruments at fair value. Derivatives
that are not hedges must be adjusted to fair value through
income. If the derivative is a hedge, depending on the nature of
the hedge, changes in the fair value of derivatives will either
be offset against changes in the fair value of the hedged assets,
 liabilities, or firm commitments through earnings or recognized
in other comprehensive income until the hedged item is recognized
 in earnings. The ineffective portion of a derivatives
change in fair value will be immediately recognized in earnings.
The Company will adopt SFAS No. 133 and No. 138 in the
first quarter of 2002, and does not expect the adoption to have a
 material effect on its financial condition or results of
operations.

In December 1999, the Staff of the Securities and Exchange
Commission (SEC) issued Staff Accounting Bulletin
(SAB) No. 101, Revenue Recognition in Financial
Statements. SAB 101 provides guidance on the
recognition, presentation and disclosure of revenue in financial
statements of all publicly held companies. The semiconductor
capital equipment industry association and a number of
association members have met with the Staff of the SEC to discuss
 and evaluate the applicability of SAB 101 and various
practical implementation considerations. On June 26, 2000,
the Staff of the SEC issued Staff Accounting Bulletin
No. 101B (SAB 101B), which permitted the delay in the
Companys implementation date of SAB 101 until the
fourth quarter of 2001. Accordingly, any shipments previously
reported as revenue, including revenue reported during the first
nine months of 2001, which do not meet SAB 101s
guidance will be recorded as revenue in future periods. Changes
in our revenue recognition policy resulting from the
interpretation of SAB 101 and SAB 101B would not
involve the restatement of prior financial statements, but would,
 to the extent applicable, be reported as a change in accounting
principle in the fourth quarter of 2001.

18



---



Management believes that SAB 101 and SAB 101B, to the
extent that they impact the Company, will not affect the
underlying strength or weakness of the business operations as
measured by the dollar value of the Companys product
shipments and cash flows.

Year 2000

In calendar year 1999, the Company completed all of its Year 2000
 review and conversion projects to address all necessary changes,
 testing and implementation issues. This project encompassed
three major areas of review; internal systems (hardware and
software), supplier compliance and Company products. To date, the
 Company has not experienced any interruption to its business
activities or incurred any impairment to its financial condition
or results of operations as a result of entering calendar year
2000. The Company will continue to monitor its own internal
systems and products to determine the impact, if any, of problems
 associated with the Year 2000.

Cautionary Statement Regarding Forward-Looking Statements

This report contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Actual
results could differ materially from those projected in the
forward-looking statements because of a number of factors, risks
and uncertainties, including the risk factors described in this
discussion and elsewhere in this report. Such forward-looking
statements include, but are not limited to, statements that
relate to the Companys future revenue, product development,
 product backlog, customers, demand, acceptance and market share,
 competitiveness, gross margins, levels of research and
development and operating expenses, intellectual property,
managements plans and objectives for current and future
operations of the Company, the effects of the Companys
reorganization of the Far East Joint Venture, the ability of the
Company to complete the reorganization of the Far East Joint
Venture, and the markets in which the Company does business. In
addition, the words anticipate, expect,
intend, believe and similar expressions
generally identify forward-looking statements. The information
included in this report is as of the filing date with the
Securities and Exchange Commission and future events or
circumstances could differ significantly from the forward-looking
 statements included herein.

19



---



RISK FACTORS

The Companys business is subject to numerous risks,
including those discussed below. If any of the events described
in these risks occurs, the Companys business, financial
condition and results of operations could be seriously harmed.

The Company faces intense competition, including from
companies with greater resources.Several companies currently
 market CMP systems that directly compete with the Companys
 products, including Applied Materials, Inc. and Ebara
Corporation. For several reasons, the Company may not compete
effectively with competitors. These reasons include:



| |   |                                                                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Some competitors may have greater financial resources than the
	Company. They also may have more extensive engineering,
	manufacturing, marketing and customer service and support
	capabilities.                                                            
|
| |  | Some competitors may supply a broader range of semiconductor
	capital equipment than the Company. As a result, these
	competitors may have better relationships with semiconductor
	manufacturers, including current and potential customers of the
	Company.
|
| |  | The Company expects competitors to continue to improve their
	existing technology and introduce new products. This could cause
	a decline in the Companys sales or lead to intensified
	price-based competition.                                            
|
| |  | Other capital equipment manufacturers not currently involved in
	the development of CMP systems may enter the market or develop
	technology that reduces the need for the Companys products.                                                                
|
| |  | Once a semiconductor manufacturer commits to purchase a
	competitors equipment, the manufacturer generally relies on
	 that equipment for an entire production line and continues to
	purchase that equipment exclusively for an extended period of
	time.  

Increased competitive pressure could lead to lower prices for the
 Companys products, thereby materially adversely affecting
the Companys business, financial condition and results of
operations. There can be no assurance that the Company will be
able to compete successfully in the future.

The Company may not develop products in time to meet changing
technologies.Semiconductor manufacturing equipment and
processes are subject to rapid technological changes and product
obsolescence. The success of the Company in developing,
introducing and selling new and enhanced systems depends upon a
variety of factors including:



| |   |                                                                              
| | - | -----------------------------------------------------------------------------
| |  | product selection                                                            
|
| |  | timely and efficient completion of product design and development            
|
| |  | timely and efficient implementation of manufacturing and assembly
	 processes
|
| |  | product performance in the field                                             
|
| |  | effective sales and marketing                                                

The Companys business is highly cyclical.The
Companys business depends substantially on the capital
expenditures of semiconductor manufacturers and, to a lesser
extent, thin film memory disk and silicon wafer manufacturers.
These industries are highly cyclical and have historically
experienced periodic downturns, which have had 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 have in the past and are
expected in the future to materially adversely affect the
business and operating results of the Company. The semiconductor
device industry has recently experienced a slowdown and the
memory disk and silicon wafer industries are currently
experiencing a slowdown. These events have negatively impacted
the Companys results of operations.

There can be no assurance that the Company will be successful in
selecting, developing, manufacturing and marketing new products
or in enhancing its existing products. As is typical in the
semiconductor capital equipment market, the Company has
experienced delays from time to time in the introduction of, and
certain technical and manufacturing difficulties with, certain of
 its systems and enhancements and may experience

20



---





Competitive pressures require the Company to continue to enhance
performance for finer geometrics in oxide and tungsten
applications, while developing new process capabilities for
emerging STI, copper and 300mm applications. The Company will
also continue to enhance the plasma assisted chemical etch
processes.

Product or process development problems could harm the
Companys results of operations.The Companys
products are complex, and from time to time have defects or bugs
that are difficult and costly to fix. This can harm results of
operations for the Company, in two ways:



| |   |                                                                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Company incurs substantial costs to ensure the functionality
	and reliability of products earlier in their life cycle. This can
	 reduce orders, increase manufacturing costs, adversely impact
	working capital and increase service and warranty expenses.
|
| |  | The Company requires significant lead-times between product
	introduction and commercial shipment. As a result, the Company
	may have to write off inventory and other assets related to
	products and could lose customers and revenue.                        

There can be no assurance that the Company will be successful in
preventing product and process development problems that could
potentially harm the Companys results of operations.

The Companys quarterly operating results and stock price
 may fluctuate for reasons not within its control.The
Companys quarterly operating results may fluctuate due to a
 variety of factors, including:



| |   |                                                                                                                                                                                                                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | industry demand for capital equipment, which depends on economic
	conditions in the semiconductor, memory disk and silicon wafer
	markets                                                                                                                                                                                                                             
|
| |  | timing of new product introductions                                                                                                                                                                                                                                                                                                                                   
|
| |  | ability to develop and implement new technologies                                                                                                                                                                                                                                                                                                                     
|
| |  | timing, cancellation or delay of customer orders and shipments.
	The Company continues to derive a significant portion of revenue
	from the sale of a relatively small number of machines during a
	given quarter. Order and delivery delays and cancellations, even
	of one or two systems, may cause the Company to miss quarterly
	revenue and profit expectations.
|
| |  | unexpected costs associated with sales and service of the CMP
	tools and processes                                                                                                                                                                                                                                                                                    
|
| |  | quarterly operating results of the Companys joint ventures,
	 which are accounted for on the equity method                                                                                                                                                                                                                                                           
|
| |  | foreign currency exchange rates                                                                                                                                                                                                                                                                                                                                       

Results of operations in any period are not an indication of
future results. Fluctuations in the Companys operating
results may also result in fluctuations in the Companys
common stock price. Operating results may fluctuate widely in a
short period of time due to factors specific to the Company such
as:



| |   |                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------
| |  | variation in quarterly results                                                                                                                   
|
| |  | changes in analysts earnings estimates                                                                                                          
|
| |  | announcements regarding restructurings, technological
	innovations, departures of key officers or employees, or the
	introduction of new products

21



---



All of the above factors could decrease the trading price of the
Companys common stock. The Companys stock price may
also fluctuate due to factors specific to the semiconductor
industry, which has experienced significant price fluctuations in
 recent years. Investors in the Companys stock should be
willing to incur the risk of such price fluctuations.

If the market price of the Companys stock is adversely
affected, the Company may experience difficulty in raising
capital or making acquisitions, which could have a material
adverse effect on the Companys business, financial
condition and stock price. In addition, if the market price of
the Companys common stock is adversely affected, the
Company may become the object of securities class action
litigation. If the Company is sued in a securities class action,
the Company may incur substantial costs and managements
attention and resources may be diverted, which could have a
material adverse effect on the business, financial condition and
stock price.

In addition, stock markets have experienced extreme price
volatility in recent years. This volatility has had a substantial
 effect on the market price of securities issued by many high
technology companies, in many cases for reasons unrelated to the
operating performance of the specific companies, and the
Companys Common Stock has experienced volatility not
necessarily related to announcements of Company performance.
Broad market fluctuations may adversely affect the market price
of the Companys Common Stock.

The Company depends on a small number of major customers.
Currently, and for the foreseeable future, the Company expects
that it will sell machines to a limited number of major
customers. To date, the CMP process has been used primarily to
fabricate advanced semiconductors, which accounts for only a
portion of the overall semiconductor market. In 2000, two
customers accounted for 11.8% and 11.1%, respectively, of its
total revenue. In 1999, two customers accounted for 11.4% and
10.5%, respectively, of its total revenue. The Companys ten
 largest customers accounted for 64.9%, 60.8% and 53.4% of the
Companys total revenue in 2000, 1999 and 1998,
respectively. The loss of a significant customer or a substantial
 reduction in orders by any significant customer, including
reductions due to customer departures from recent buying
patterns, market, economic or competitive conditions in the
semiconductor industry, could adversely effect the Companys
 business, financial condition and results of operations.

Orders in backlog may not result in future revenue if
customers cancel or reschedule orders.The Company includes
in backlog only those customer orders for which it has accepted
purchase orders. Expected revenue may be lower if customers
cancel or reschedule orders, which they can generally do without
penalty.

The Companys success depends on international sales,
particularly in Asia and Europe.International sales
accounted for 69.6% of the Companys total revenue for 2000,
 37.4% for 1999 and 34.3% for 1998. The Company expects that
international sales will continue to account for a significant
portion of total revenue in future periods. International sales
are subject to risks, including:



| |   |                                                                                             
| | - | --------------------------------------------------------------------------------------------
| |  | foreign exchange issues                                                                     
|
| |  | political, economic and regulatory environment of the countries
	where customers are located
|
| |  | collectibility of accounts receivable                                                       
|
| |  | inadequate intellectual property protection                                                 
|
| |  | intense price competition                                                                   

The Company derives a substantial portion of its revenues from
customers in Asian countries particularly Japan and Korea.
Economic developments in late 1997 and early 1998 resulted in
decreased capital investments by Asian customers. Recent economic
 developments indicate that the economies of Japan, Korea and
other Asian countries have recovered somewhat from 1997 and 1998
levels. Any negative economic developments or delays in the
economic recovery of Asian countries could result in the
cancellation or delay of orders for the Companys products
from Asian customers, thus materially adversely affecting the
Companys business, financial condition or results of
operations.

The Company may not realize the potential benefits of the
reorganization of the Far East Joint Venture. One of the
purposes of the reorganization of the Far East Joint Venture is
to focus the Company more on the

22



---







| |   |                                                                                                                                                                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The continued and increased acceptance of CMP among semiconductor
	 manufacturers is still a primary risk factor in the
	Companys growth. The reorganization of the Far East Joint
	Venture makes the Company more dependent on the CMP business. If
	this market fails to continue to develop, the Company will
	suffer.
|
| |  | The Company believes that it will incur a one-time non-cash
	charge to operations in the range of $10 million to $20 million
	in the first half of 2001 as a result of the reorganization. This
	 could cause the stock price to decline.                                                                                 

The success of the Companys CMP operations in Asia after
the reorganization depends upon its ability to retain key
employees. None of the key employees in Asia have long-term
employment contracts. The Company does not have any direct
experience managing operations in Asia. Some employees may decide
 to leave after the reorganization for this and other reasons.
This may negatively affect the Companys operations in Asia,
 which represent a large portion of the Companys total
revenue.

If the Company is unable to protect its intellectual property,
 its business could suffer.The Companys intellectual
property portfolio is very important to its success. However, the
 Company may not be able to protect its technology because:



| |   |                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------
| |  | pending and new patent applications may not be approved in a
	timely manner or approved at all                       
|
| |  | third parties may try to challenge or invalidate existing patents
	 and new patents                                  
|
| |  | policing unauthorized use of intellectual property is difficult
	and expensive                                       
|
| |  | the laws of some foreign countries do not protect intellectual
	property rights as much as U.S. laws                 
|
| |  | competitors may independently develop similar technology or
	design around intellectual property owned by the Company

The Companys growth depends on continued and increased
acceptance of CMP among semiconductor manufacturers.While
CMP is used by a number of advanced logic semiconductor
manufacturers, CMP has been used to manufacture advanced memory
devices only in the past 3 years. Continued and increased
acceptance of CMP systems depends on many factors considered by
potential customers, including:



| |   |                    
| | - | -------------------
| |  | cost of ownership  
|
| |  | throughput         
|
| |  | process flexibility
|
| |  | performance        
|
| |  | reliability        
|
| |  | customer support   

Failure to adequately meet potential customers needs with
respect to one or more of these factors may result in decreased
acceptance of CMP and, therefore, the Companys CMP systems,
 which may in turn negatively impact the Companys
profitability.

23



---



Third parties may prevent the Company from selling products that
allegedly infringe on those third parties intellectual
property rights. The Company cannot be certain that third parties
 will not in the future claim that its products infringe their
intellectual property rights. Third parties may



| |   |                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | bring claims of patent, copyright or trademark infringement                                                                                                         
|
| |  | obtain patents or other intellectual property rights that limit
	the Companys ability to do business or require the Company
	to license or cross-license technology
|
| |  | bring costly, time consuming lawsuits                                                                                                                               

Third parties hold many patents relating to CMP machines and
processes. In the event the Company loses any of its intellectual
 property rights or otherwise determines that it needs to obtain
licenses to third party intellectual property, there is no
assurance that the Company will be able to obtain such licenses
on reasonable terms, if at all. The Company currently licenses
the right to manufacture CMP machines employing an orbital motion
 in its Avant Gaard 676, 776, 876 and MomentumTM from
a semiconductor manufacturer.

The Company may be subject to risks associated with
acquisitions and dispositions. The Company continually
evaluates strategic acquisitions of other businesses and
dispositions of portions of its business that it determines are
not complementary to its strategy. If the Company were to
consummate an acquisition, the Company would be subject to a
number risks, including the following:



| |   |                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------
| |  | difficulty in assimilating the acquired operations and retaining
	acquired personnel                                  
|
| |  | limits on the Companys ability to retain acquired
	distribution channels and customers                               
|
| |  | disruption of the Companys ongoing business                                                                          
|
| |  | limits on the Companys ability to successfully incorporate
	acquired technology and rights into its service offerings
|
| |  | maintenance of uniform standards, controls, procedures and
	policies                                                  

The Company is dependent on key management and technical
personnel. The Companys performance and ability to
execute is substantially dependent on the performance of the
Companys executive officers and key technical and
engineering employees. The loss of the services of any of these
executive officers or key employees could have a material adverse
 effect on the Companys business, operating results,
financial condition, cash flows, market perceptions or the price
of the Companys stock.

The Companys future success also depends on its ability to
identify, hire, train and retain other highly qualified
managerial and technical personnel. Competition for such
personnel is intense. If the Company is not successful in
identifying, hiring, training and retaining such personnel, it
could have a material adverse effect on the Companys
business, operating results, financial condition, cash flows,
market perceptions or the price of the Companys stock.

The Company uses financial instruments that potentially
subject it to concentrations of credit risk.The Company
enters into foreign exchange contracts to hedge certain firm
commitments denominated in foreign currencies, principally
Japanese Yen. The Company also invests its cash in deposits in
banks, money market funds, government and corporate debt
securities. The Company does not use derivative financial
instruments in its investment portfolio. The Company places its
investments with high credit quality issuers and by policy,
limits the amount of credit exposure to any one issuer. The
Company mitigates default risk by investing in only the safest
and highest credit quality securities and by monitoring the
credit rating of investment issuers. The portfolio includes only
marketable securities with active secondary or resale markets to
ensure portfolio liquidity. To date, the Company has not
experienced material losses on these investments. However, there
can be no assurance that the Company will not in the future
experience losses that could materially adversely affect the
Companys business, financial condition and results of
operations.

24



---



Item 7A.  Quantitative and Qualitative
Disclosures about Market Risk.

Interest Rate Risk.The Companys exposure to market
risk for changes in interest rates relates primarily to the
Companys investment portfolio and long-term debt
obligations. The Company does not use derivative financial
instruments in its investment portfolio. The Company places its
investments with high credit quality issuers and, by policy,
limits the amount of credit exposure to any one issuer.

The Company mitigates default risk by investing in only the
safest and highest credit quality securities and by monitoring
the credit rating of investment issuers. The portfolio includes
only marketable securities with active secondary or resale
markets to ensure portfolio liquidity.

The Company has no cash flow exposure due to rate changes for
cash equivalents and short-term investments, as all of these
investments are at fixed interest rates. Long-term debt is at a
fixed interest rate. The long-term debt was primarily incurred in
 connection with the Companys issuance of convertible
debenture bonds.

The table below presents principal amounts and related weighted
average interest rates by year of maturity for the Companys
 investment portfolio and debt obligations (in thousands).

|                            |                       |              |         |      |   |      |     |      |   |      |    |            |   |       |         |            |   |  |   |   |  |  |   |   |  |   |         |      |   |   |         |  | 
|--------------------------- | --------------------- | ------------ | ------- | ---- | - | ---- | --- | ---- | - | ---- | -- | ---------- | - | ----- | ------- | ---------- | - |  | - | - |  |  | - | - |  | - | ------- | ---- | - | - | ------- |  | 
|                            |                       |              |         |      |   |      |     |      |   |      |    |            |   |       |         | Fair Value
|                            |                       |              |         |      |   |      |     |      |   |      |    |            |   |       |         | June 3,   
|                            |                       | 2001         |         | 2002 |   | 2003 |     | 2004 |   | 2005 |    | Thereafter |   | Total |         | 2000      
|                            |                       |              |         |      |   |      |     |      |   |      |    |            |   |       |         |           
|                            |                       |             
|                            |                       | in thousands
|                           
|                           
|                           
|                           
|Cash equivalents            |                       | $            | 72,060  |      |   |      |    |      |   |      |   |            |   |       |        |            |   |  |  |   |  |  |  |   |  | $ | 72,060  |      |   | $ | 72,060  | 
|                           
|                           
|                           
|                           
|                            | Average interest rate |              |         | 5.94 | % |      |     |     |   |      |    |           |   |       |         |           |   |  |   |  |  |  |   |  |  |   |         | 5.94 | % |   |         |  | 
|                           
|                           
|                           
|                           
|Short-term investments      |                       | $            | 28,723  |      |   |      |    |      |   |      |   |            |   |       |        |            |   |  |  |   |  |  |  |   |  | $ | 28,723  |      |   | $ | 28,236  | 
|                           
|                           
|                           
|                           
|                            | Average interest rate |              |         | 6.09 | % |      |     |     |   |      |    |           |   |       |         |           |   |  |   |  |  |  |   |  |  |   |         | 6.09 | % |   |         |  | 
|                           
|                           
|                           
|                           
|Total investment securities |                       | $            | 100,783 |      |   |      |    |      |   |      |   |            |   |       |        |            |   |  |  |   |  |  |  |   |  | $ | 100,783 |      |   | $ | 100,296 | 
|                           
|                           
|                           
|                           
|                            | Average interest rate |              |         | 5.98 | % |      |     |     |   |      |    |           |   |       |         |           |   |  |   |  |  |  |   |  |  |   |         | 5.98 | % |   |         |  | 
|                           
|                           
|                           
|                           
|Long term debt              |                       | $            | 1,077   |      |   |      | 149 |      |   |      | 13 |            |   |       | 115,000 |            |   |  |  |   |  |  |  |   |  | $ | 116,239 |      |   | $ | 116,239 | 
|                           
|                           
|                           
|                           
|                            | Average interest rate |              |         | 9.13 | % |      |     | 9.02 | % |      |    | 8.79       | % |       |         | 6.25       | % |  |   |  |  |  |   |  |  |   |         | 6.28 | % |   |         |  | 

Foreign Currency Risk.The Company transacts business in
various foreign countries. Its primary foreign currency cash
flows are in countries in Asia and Europe. During 2000 and 1999,
the Company employed a foreign currency hedging program utilizing
 foreign currency forward exchange contracts. Under this program,
 increases or decreases in currency commitments, as translated
into U.S. dollars, are primarily offset by realized gains and
losses on the hedging instruments. The goal of the hedging
program is to economically guarantee or lock in exchange rates on
 the Companys foreign currency cash outflows and to
minimize the impact to the Company of foreign currency
fluctuations. The Company does not use foreign currency forward
exchange contracts for speculative or trading purposes.

The following table provides information as of June 3, 2000
about the Companys derivative financial instruments, which
are comprised of foreign currency forward exchange contracts. The
 information is provided in U.S. dollar equivalent amounts, as
presented in the Companys financial statements. The table
presents the notional amounts (at the contract exchange rates),
the weighted average contractual foreign currency exchange rates,
 and the estimated fair value of those contracts.

|                                             |                             |                                                |   |               |   |            |  |        |  |  |   |      |  
|-------------------------------------------- | --------------------------- | ---------------------------------------------- | - | ------------- | - | ---------- |  | ------ |  |  | - | ---- | -
|                                             |                             | Notional                                       |   | Average       |   | Estimated 
|June 3, 2000                                 |                             | Amount                                         |   | Contract Rate |   | Fair Value
|                                             |                             |                                                |   |               |   |           
|                                             |                             |                                               
|                                             |                             | In thousands, except for average contract rate
|                                            
|                                            
|                                            
|                                            
|Foreign currency forward exchange contracts: |                             |                                                |   |               |   |            |  |        |  |  |   |     
|                                            
|                                            
|                                            
|                                            
|                                             | Japanese yen, net purchases |                                                | $ | (784          | ) |            |  | 104.51 |  |  | $ | (661 | )

25



---



Item 8.  Financial Statements and
Supplementary Data.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

|                                                                                                      |  |      |    | 
|----------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                                      |  | Page
|                                                                                                      |  |     
|SPEEDFAM-IPEC, INC. AND CONSOLIDATED SUBSIDIARIES                                                     |  |      |    | 
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                     
|Independent Auditors Report                                                                          |  |      | 27 | 
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                     
|Consolidated Balance Sheets  June 3, 2000 and
	May 31, 1999                                          |  |      | 28 | 
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                     
|Consolidated Statements of Operations  Years Ended
	June  3, 2000 and May 31, 1999 and 1998          |  |      | 29 | 
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                     
|Consolidated Statements of Stockholders Equity 
	Years Ended June 3, 2000 and May 31, 1999 and 1998 |  |      | 30 | 
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                     
|Consolidated Statements of Cash Flows  Years Ended
	June  3, 2000 and May 31, 1999 and 1998          |  |      | 31 | 
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                     
|Notes to Consolidated Financial Statements                                                            |  |      | 33 | 
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                     
|SPEEDFAM-IPEC CO., LTD. AND CONSOLIDATED SUBSIDIARIES                                                 |  |      |    | 
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                     
|Independent Auditors Report                                                                          |  |      | 57 | 
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                     
|Consolidated Balance Sheets  April 30, 2000 and
	1999                                                |  |      | 58 | 
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                     
|Consolidated Statements of Operations  Years ended
	April 30, 2000, 1999, and 1998                   |  |      | 59 | 
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                     
|Consolidated Statements of Stockholders Equity 
	Years ended April 30, 2000, 1999, and 1998         |  |      | 60 | 
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                     
|Consolidated Statements of Cash Flows  Years ended
	April 30, 2000, 1999, and 1998                   |  |      | 61 | 
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                     
|Notes to Consolidated Financial Statements                                                            |  |      | 62 | 

The above consolidated financial statements of SpeedFam-IPEC
Co., Ltd. and consolidated subsidiaries are included herein
pursuant to Rule 3-09 of Regulation S-X.

26



---



Independent Auditors Report

The Board of Directors



We have audited the accompanying consolidated balance sheets of
SpeedFam-IPEC, Inc. and consolidated subsidiaries as of
June 3, 2000 and May 31, 1999, and the related
consolidated statements of operations, stockholders equity
and comprehensive income, and cash flows for each of the three
fiscal years in the period from June 1, 1997 through
June 3, 2000. These consolidated financial statements are
the responsibility of the management of SpeedFam-IPEC, Inc. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. 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-IPEC, Inc. and consolidated subsidiaries as
of June 3, 2000 and May 31, 1999, and the results of
their operations and their cash flows for each of the three
fiscal years in the period from June 1, 1997 through
June 3, 2000 in conformity with accounting principles
generally accepted in the United States of America.

KPMG LLP

Chicago, Illinois



27



---



SPEEDFAM-IPEC, INC.

CONSOLIDATED BALANCE SHEETS

June 3, 2000 and May 31, 1999


|                                     |                                                                                                                                                        |                                            |        |          |         |  |        |          |         | 
|------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------ | ------ | -------- | ------- |  | ------ | -------- | ------- | 
|                                     |                                                                                                                                                        | 2000                                       |        | 1999    
|                                     |                                                                                                                                                        |                                            |        |         
|                                     |                                                                                                                                                        |                                           
|                                     |                                                                                                                                                        | (in thousands)                            
|                                    
|                                    
|                                    
|                                    
|Assets                              
|                                    
|                                    
|                                    
|                                    
|Current assets:                      |                                                                                                                                                        |                                            |        |          |         |  |        |         
|                                    
|                                    
|                                    
|                                    
|                                     | Cash and cash equivalents                                                                                                                              |                                            | $      | 72,060   |         |  |        | 97,003   |        
|                                    
|                                    
|                                    
|                                    
|                                     | Short-term investments                                                                                                                                 |                                            |        | 28,236   |         |  |        | 50,020   |        
|                                    
|                                    
|                                    
|                                    
|                                     | Trade accounts receivable, less allowance for doubtful accounts
	of $2,549 in 2000 and $5,600 in 1999                                                  |                                            |        | 129,102  |         |  |        | 76,808   |        
|                                    
|                                    
|                                    
|                                    
|                                     | Inventories                                                                                                                                            |                                            |        | 81,192   |         |  |        | 80,744   |        
|                                    
|                                    
|                                    
|                                    
|                                     | Prepaid expenses and other current assets                                                                                                              |                                            |        | 3,301    |         |  |        | 9,790    |        
|                                     |                                                                                                                                                        |                                            |        |          |         |  |        |         
|                                     |                                                                                                                                                        | Total current assets                       |        |          | 313,891 |  |        |          | 314,365 | 
|                                    
|                                    
|                                    
|                                    
|Investments in affiliates            |                                                                                                                                                        |                                            | 19,810 |          |         |  | 25,360 |         
|                                    
|                                    
|                                    
|                                    
|Property, plant, and equipment, net  |                                                                                                                                                        |                                            | 87,913 |          |         |  | 88,997 |         
|                                    
|                                    
|                                    
|                                    
|Other assets                         |                                                                                                                                                        |                                            | 13,466 |          |         |  | 15,056 |         
|                                     |                                                                                                                                                        |                                            |        |          |         |  |        |         
|                                     |                                                                                                                                                        | Total assets                               |        | $        | 435,080 |  |        |          | 443,778 | 
|                                     |                                                                                                                                                        |                                            |        |          |         |  |        |         
|                                    
|                                    
|                                    
|                                    
|Liabilities and Stockholders Equity
|                                    
|                                    
|                                    
|                                    
|Current liabilities:                 |                                                                                                                                                        |                                            |        |          |         |  |        |         
|                                    
|                                    
|                                    
|                                    
|                                     | Current portion of long-term debt                                                                                                                      |                                            | $      | 1,077    |         |  |        | 1,275    |        
|                                    
|                                    
|                                    
|                                    
|                                     | Accounts payable                                                                                                                                       |                                            |        | 43,982   |         |  |        | 20,296   |        
|                                    
|                                    
|                                    
|                                    
|                                     | Due to affiliates                                                                                                                                      |                                            |        | 7,372    |         |  |        | 4,805    |        
|                                    
|                                    
|                                    
|                                    
|                                     | Accrued liabilities                                                                                                                                    |                                            |        | 23,264   |         |  |        | 44,254   |        
|                                     |                                                                                                                                                        |                                            |        |          |         |  |        |         
|                                     |                                                                                                                                                        | Total current liabilities                  |        |          | 75,695  |  |        |          | 70,630  | 
|                                     |                                                                                                                                                        |                                            |        |          |         |  |        |         
|Long-term liabilities:               |                                                                                                                                                        |                                            |        |          |         |  |        |         
|                                    
|                                    
|                                    
|                                    
|                                     | Long-term debt                                                                                                                                         |                                            |        | 115,162  |         |  |        | 116,129  |        
|                                    
|                                    
|                                    
|                                    
|                                     | Other liabilities                                                                                                                                      |                                            |        | 7,253    |         |  |        | 10,269   |        
|                                     |                                                                                                                                                        |                                            |        |          |         |  |        |         
|                                     |                                                                                                                                                        | Total long-term liabilities                |        |          | 122,415 |  |        |          | 126,398 | 
|                                     |                                                                                                                                                        |                                            |        |          |         |  |        |         
|Stockholders equity:                |                                                                                                                                                        |                                            |        |          |         |  |        |         
|                                    
|                                    
|                                    
|                                    
|                                     | Common stock, no par value, 96,000 shares authorized, 29,703 and
	29,392 shares issued and outstanding at June 3, 2000 and
	May 31, 1999, respectively |                                            |        | 1        |         |  |        | 1        |        
|                                    
|                                    
|                                    
|                                    
|                                     | Additional paid-in capital                                                                                                                             |                                            |        | 430,706  |         |  |        | 427,290  |        
|                                    
|                                    
|                                    
|                                    
|                                     | Retained earnings (deficit)                                                                                                                            |                                            |        | (194,489 | )       |  |        | (180,311 | )      
|                                    
|                                    
|                                    
|                                    
|                                     | Accumulated comprehensive income (loss)                                                                                                                |                                            |        | 752      |         |  |        | (230     | )      
|                                     |                                                                                                                                                        |                                            |        |          |         |  |        |         
|                                     |                                                                                                                                                        | Total stockholders equity                 |        |          | 236,970 |  |        |          | 246,750 | 
|                                     |                                                                                                                                                        |                                            |        |          |         |  |        |         
|                                     |                                                                                                                                                        | Total liabilities and stockholders equity |        | $        | 435,080 |  |        |          | 443,778 | 
|                                     |                                                                                                                                                        |                                            |        |          |         |  |        |         

See accompanying notes to consolidated financial statements.

28



---



SPEEDFAM-IPEC, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

Years Ended June 3, 2000 and May 31, 1999 and 1998


|                                                                        |                                        |                                              |                                              |        |       |         |         |        |       |          |         |        |       |         |  
|----------------------------------------------------------------------- | -------------------------------------- | -------------------------------------------- | -------------------------------------------- | ------ | ----- | ------- | ------- | ------ | ----- | -------- | ------- | ------ | ----- | ------- | -
|                                                                        |                                        | 2000                                         |                                              | 1999   |       | 1998   
|                                                                        |                                        |                                              |                                              |        |       |        
|                                                                        |                                        |                                             
|                                                                        |                                        | (in thousands, except per share data)       
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Net sales                                                               |                                        | $                                            | 274,048                                      |        |       |         | 216,425 |        |       |          | 374,268 |       
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Cost of sales                                                           |                                        |                                              | 184,527                                      |        |       |         | 194,989 |        |       |          | 231,332 |       
|                                                                        |                                        |                                              |                                              |        |       |         |         |        |       |          |         |       
|                                                                        |                                        |                                              | Gross margin                                 |        |       | 89,521  |         |        |       | 21,436   |         |        |       | 142,936 |  
|                                                                        |                                        |                                              |                                              |        |       |         |         |        |       |          |         |       
|Operating expenses:                                                     |                                        |                                              |                                              |        |       |         |         |        |       |          |         |       
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        | Research, development, and engineering |                                              |                                              | 53,714 |       |         |         | 61,817 |       |          |         | 67,182 |      
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        | Selling, general, and administrative   |                                              |                                              | 52,356 |       |         |         | 68,237 |       |          |         | 72,916 |      
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        | Merger, integration, and restructuring |                                              |                                              |       |       |         |         | 40,300 |       |          |         |       |      
|                                                                        |                                        |                                              |                                              |        |       |         |         |        |       |          |         |       
|                                                                        |                                        |                                              | Total operating expenses                     |        |       | 106,070 |         |        |       | 170,354  |         |        |       | 140,098 |  
|                                                                        |                                        |                                              |                                              |        |       |         |         |        |       |          |         |       
|                                                                        |                                        |                                              | Operating income (loss)                      |        |       | (16,549 | )       |        |       | (148,918 | )       |        |       | 2,838   |  
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Other income (expense)                                                  |                                        |                                              | 5,649                                        |        |       |         | 4,297   |        |       |          | 3,510   |       
|                                                                        |                                        |                                              |                                              |        |       |         |         |        |       |          |         |       
|                                                                        |                                        |                                              | Income (loss) before income taxes            |        |       | (10,900 | )       |        |       | (144,621 | )       |        |       | 6,348   |  
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Income tax expense (benefit)                                            |                                        |                                              |                                             |        |       |         | (3,930  | )      |       |          | 29,584  |       
|                                                                        |                                        |                                              |                                              |        |       |         |         |        |       |          |         |       
|                                                                        |                                        |                                              | Loss                                         |        |       | (10,900 | )       |        |       | (140,691 | )       |        |       | (23,236 | )
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Equity in net earnings (loss) of affiliates                             |                                        |                                              | (3,278                                       | )      |       |         | 916     |        |       |          | 4,418   |       
|                                                                        |                                        |                                              |                                              |        |       |         |         |        |       |          |         |       
|                                                                        |                                        |                                              | Loss from continuing operations              |        |       | (14,178 | )       |        |       | (139,775 | )       |        |       | (18,818 | )
|                                                                        |                                        |                                              |                                              |        |       |         |         |        |       |          |         |       
|Discontinued operations  loss on disposal of IPEC
	Clean, net of taxes |                                        |                                              |                                             |        |       |         |        |        |       |          | (10,578 | )     
|                                                                        |                                        |                                              |                                              |        |       |         |         |        |       |          |         |       
|                                                                        |                                        |                                              | Net loss                                     |        |       | (14,178 | )       |        |       | (139,775 | )       |        |       | (29,396 | )
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Cumulative dividend on preferred stock                                  |                                        |                                              |                                             |        |       |         | (174    | )      |       |          | (244    | )     
|                                                                        |                                        |                                              |                                              |        |       |         |         |        |       |          |         |       
|                                                                        |                                        |                                              | Net loss attributable to common stockholders |        | $     | (14,178 | )       |        |       | (139,949 | )       |        |       | (29,640 | )
|                                                                        |                                        |                                              |                                              |        |       |         |         |        |       |          |         |       
|Net loss per common share:                                              |                                        |                                              |                                              |        |       |         |         |        |       |          |         |       
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        | Basic and diluted:                     |                                              |                                              |        |       |         |         |        |       |          |         |        |      
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        |                                        | From continuing operations                   |                                              | $      | (0.48 | )       |         |        | (4.84 | )        |         |        | (0.69 | )      
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        |                                        | From discontinued operations                 |                                              |        |      |         |         |        |      |          |         |        | (0.39 | )      
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        |                                        | Net loss attributable to common stockholders |                                              |        | (0.48 | )       |         |        | (4.84 | )        |         |        | (1.08 | )      
|                                                                        |                                        |                                              |                                              |        |       |         |         |        |       |          |         |       
|Weighted average shares used in per share calculation:                  |                                        |                                              |                                              |        |       |         |         |        |       |          |         |       
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        | Basic and diluted                      |                                              |                                              | 29,503 |       |         |         | 28,890 |       |          |         | 27,469 |      
|                                                                        |                                        |                                              |                                              |        |       |         |         |        |       |          |         |       

See accompanying notes to consolidated financial statements.

29



---



SPEEDFAM-IPEC, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND

COMPREHENSIVE INCOME


Years ended June 3, 2000 and May 31, 1999 and 1998


|                                                                                   |                                                |                |    |            |  |           |         |               |  |       |          |          |   |  |       |        |   |  |          |          |  
|---------------------------------------------------------------------------------- | ---------------------------------------------- | -------------- | -- | ---------- |  | --------- | ------- | ------------- |  | ----- | -------- | -------- | - |  | ----- | ------ | - |  | -------- | -------- | -
|                                                                                   |                                                |                |    |            |  |           |         | Accumulated   |  |      
|                                                                                   |                                                |                |    |            |  |           |         | Other         |  |      
|                                                                                   |                                                |                |    | Additional |  | Retained  |         | Comprehensive |  |      
|                                                                                   |                                                | Common         |    | Paid-in    |  | Earnings  |         | Income        |  |      
|                                                                                   |                                                | Stock          |    | Capital    |  | (Deficit) |         | (Loss)        |  | Total
|                                                                                   |                                                |                |    |            |  |           |         |               |  |      
|                                                                                   |                                                |               
|                                                                                   |                                                | (in thousands)
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Balance at June 1, 1997                                                            |                                                | $              | 6  |            |  |           | 295,113 |               |  |       | (8,384   | )        |   |  | 1,582 |        |   |  | 288,317  |         
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Comprehensive income (loss):                                                       |                                                |                |    |            |  |           |         |               |  |       |          |          |   |  |       |        |   |  |          |         
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Net earnings (loss)                            |                |    |           |  |           |         |              |  |       |          | (29,396  | ) |  |       |       |   |  |          | (29,396  | )
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Foreign currency translation adjustments       |                |    |           |  |           |         |              |  |       |          |         |   |  |       | (2,569 | ) |  |          | (2,569   | )
|                                                                                   |                                                |                |    |            |  |           |         |               |  |       |          |          |   |  |       |        |   |  |          |         
|Total comprehensive income (loss)                                                  |                                                |                |    |            |  |           |         |               |  |       |          |          |   |  |       |        |   |  | (31,965  | )       
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Issuance of common stock                                                           |                                                |                |   |            |  |           | 116,704 |               |  |       |         |          |   |  |      |        |   |  | 116,704  |         
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Conversion of Class A common stock to common stock                                 |                                                |                | (3 | )          |  |           | 3       |               |  |       |         |          |   |  |      |        |   |  |         |         
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Preferred stock dividends paid                                                     |                                                |                |   |            |  |           |        |               |  |       | (246     | )        |   |  |      |        |   |  | (246     | )       
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Unearned compensation, net                                                         |                                                |                |   |            |  |           | (896    | )             |  |       |         |          |   |  |      |        |   |  | (896     | )       
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Exercise of stock options, net of tax benefits and employee stock
	 plan purchases |                                                |                |   |            |  |           | 12,222  |               |  |       |         |          |   |  |      |        |   |  | 12,222   |         
|                                                                                   |                                                |                |    |            |  |           |         |               |  |       |          |          |   |  |       |        |   |  |          |         
|Balance at May 31, 1998                                                            |                                                |                | 3  |            |  |           | 423,146 |               |  |       | (38,026  | )        |   |  | (987  | )      |   |  | 384,136  |         
|                                                                                   |                                                |                |    |            |  |           |         |               |  |       |          |          |   |  |       |        |   |  |          |         
|Comprehensive income (loss):                                                       |                                                |                |    |            |  |           |         |               |  |       |          |          |   |  |       |        |   |  |          |         
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Net earnings (loss)                            |                |    |           |  |           |         |              |  |       |          | (139,775 | ) |  |       |       |   |  |          | (139,775 | )
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Foreign currency translation adjustments       |                |    |           |  |           |         |              |  |       |          |         |   |  |       | 927    |   |  |          | 927      |  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Net unrealized change in investment securities |                |    |           |  |           |         |              |  |       |          |         |   |  |       | (170   | ) |  |          | (170     | )
|                                                                                   |                                                |                |    |            |  |           |         |               |  |       |          |          |   |  |       |        |   |  |          |         
|Total comprehensive income (loss)                                                  |                                                |                |    |            |  |           |         |               |  |       |          |          |   |  |       |        |   |  | (139,018 | )       
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Conversion of Class A common stock to common stock                                 |                                                |                | (2 | )          |  |           | 2       |               |  |       |         |          |   |  |      |        |   |  |         |         
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|June 1999 IPEC net income                                                          |                                                |                |   |            |  |           |        |               |  |       | (2,232   | )        |   |  |      |        |   |  | (2,232   | )       
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Preferred stock dividends paid                                                     |                                                |                |   |            |  |           |        |               |  |       | (278     | )        |   |  |      |        |   |  | (278     | )       
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Unearned compensation, net                                                         |                                                |                |   |            |  |           | 742     |               |  |       |         |          |   |  |      |        |   |  | 742      |         
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Exercise of stock options, net of tax benefits and employee stock
	 plan purchases |                                                |                |   |            |  |           | 3,400   |               |  |       |         |          |   |  |      |        |   |  | 3,400    |         
|                                                                                   |                                                |                |    |            |  |           |         |               |  |       |          |          |   |  |       |        |   |  |          |         
|Balance at May 31, 1999                                                            |                                                |                | 1  |            |  |           | 427,290 |               |  |       | (180,311 | )        |   |  | (230  | )      |   |  | 246,750  |         
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Comprehensive income (loss):                                                       |                                                |                |    |            |  |           |         |               |  |       |          |          |   |  |       |        |   |  |          |         
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Net earnings (loss)                            |                |    |           |  |           |         |              |  |       |          | (14,178  | ) |  |       |       |   |  |          | (14,178  | )
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Foreign currency translation adjustments       |                |    |           |  |           |         |              |  |       |          |         |   |  |       | 1,299  |   |  |          | 1,299    |  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Net unrealized change in investment securities |                |    |           |  |           |         |              |  |       |          |         |   |  |       | (317   | ) |  |          | (317     | )
|                                                                                   |                                                |                |    |            |  |           |         |               |  |       |          |          |   |  |       |        |   |  |          |         
|Total comprehensive income (loss)                                                  |                                                |                |    |            |  |           |         |               |  |       |          |          |   |  |       |        |   |  | (13,196  | )       
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Exercise of stock options, net of tax benefits and employee stock
	 plan purchases |                                                |                |   |            |  |           | 3,416   |               |  |       |         |          |   |  |      |        |   |  | 3,416    |         
|                                                                                   |                                                |                |    |            |  |           |         |               |  |       |          |          |   |  |       |        |   |  |          |         
|Balance at June 3, 2000                                                            |                                                | $              | 1  |            |  |           | 430,706 |               |  |       | (194,489 | )        |   |  | 752   |        |   |  | 236,970  |         
|                                                                                   |                                                |                |    |            |  |           |         |               |  |       |          |          |   |  |       |        |   |  |          |         

See accompanying notes to consolidated financial statements.

30



---



SPEEDFAM-IPEC, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended June 3, 2000 and May 31, 1999 and 1998


|                                                |                                                                                         |                                              |                                           |                                                      |        |         |         |          |        |         |         |          |        |         |          |  
|----------------------------------------------- | --------------------------------------------------------------------------------------- | -------------------------------------------- | ----------------------------------------- | ---------------------------------------------------- | ------ | ------- | ------- | -------- | ------ | ------- | ------- | -------- | ------ | ------- | -------- | -
|                                                |                                                                                         | 2000                                         |                                           | 1999                                                 |        | 1998   
|                                                |                                                                                         |                                              |                                           |                                                      |        |        
|                                                |                                                                                         |                                             
|                                                |                                                                                         | (in thousands)                              
|                                               
|                                               
|                                               
|                                               
|Cash flows from operating activities:           |                                                                                         |                                              |                                           |                                                      |        |         |         |          |        |         |         |         
|                                               
|                                               
|                                               
|                                               
|                                                | Net loss                                                                                |                                              | $                                         | (14,178                                              | )      |         |         | (139,775 | )      |         |         | (29,396  | )     
|                                               
|                                               
|                                               
|                                               
|                                                | Adjustments to reconcile net earnings (loss) to net cash used in
	operating activities: |                                              |                                           |                                                      |        |         |         |          |        |         |         |          |       
|                                               
|                                               
|                                               
|                                               
|                                                |                                                                                         | June 1999 IPEC net income                    |                                           |                                                      |       |         |         |          | (2,232 | )       |         |          |       |        
|                                               
|                                               
|                                               
|                                               
|                                                |                                                                                         | Equity in net (earnings) loss of affiliates  |                                           |                                                      | 3,278  |         |         |          | (916   | )       |         |          | (4,418 | )      
|                                               
|                                               
|                                               
|                                               
|                                                |                                                                                         | Depreciation and amortization                |                                           |                                                      | 17,446 |         |         |          | 20,421 |         |         |          | 15,546 |        
|                                               
|                                               
|                                               
|                                               
|                                                |                                                                                         | Loss on disposal of IPEC Clean, net of taxes |                                           |                                                      |       |         |         |          |       |         |         |          | 10,578 |        
|                                               
|                                               
|                                               
|                                               
|                                                |                                                                                         | Gain on the sale of Fujimi Corporation       |                                           |                                                      | (6,103 | )       |         |          |       |         |         |          |       |        
|                                               
|                                               
|                                               
|                                               
|                                                |                                                                                         | Merger, integration, and restructuring costs |                                           |                                                      |       |         |         |          | 49,800 |         |         |          |       |        
|                                               
|                                               
|                                               
|                                               
|                                                |                                                                                         | Deferred income tax expense (benefit)        |                                           |                                                      |       |         |         |          | (4,662 | )       |         |          | 25,516 |        
|                                               
|                                               
|                                               
|                                               
|                                                |                                                                                         | (Gain) loss on sales of assets               |                                           |                                                      |       |         |         |          | 5,419  |         |         |          | (42    | )      
|                                               
|                                               
|                                               
|                                               
|                                                |                                                                                         | Other                                        |                                           |                                                      | 54     |         |         |          | (151   | )       |         |          | (150   | )      
|                                               
|                                               
|                                               
|                                               
|                                                |                                                                                         | (Increase) decrease in assets:               |                                           |                                                      |        |         |         |          |        |         |         |          |        |        
|                                               
|                                               
|                                               
|                                               
|                                                |                                                                                         |                                              | Trade accounts receivable                 |                                                      |        | (52,703 | )       |          |        | 12,226  |         |          |        | (4,445  | )       
|                                               
|                                               
|                                               
|                                               
|                                                |                                                                                         |                                              | Inventories                               |                                                      |        | (1,271  | )       |          |        | 20,459  |         |          |        | (42,088 | )       
|                                               
|                                               
|                                               
|                                               
|                                                |                                                                                         |                                              | Prepaid expenses and other current assets |                                                      |        | 6,526   |         |          |        | 4,495   |         |          |        | (3,602  | )       
|                                               
|                                               
|                                               
|                                               
|                                                |                                                                                         | Increase (decrease) in liabilities:          |                                           |                                                      |        |         |         |          |        |         |         |          |        |        
|                                               
|                                               
|                                               
|                                               
|                                                |                                                                                         |                                              | Accounts payable and due to affiliates    |                                                      |        | 26,853  |         |          |        | (14,554 | )       |          |        | (9,016  | )       
|                                               
|                                               
|                                               
|                                               
|                                                |                                                                                         |                                              | Accrued liabilities                       |                                                      |        | (25,261 | )       |          |        | (2,137  | )       |          |        | (8,179  | )       
|                                               
|                                               
|                                               
|                                               
|                                                |                                                                                         |                                              | Income taxes payable                      |                                                      |        | 130     |         |          |        |        |         |          |        | (2,609  | )       
|                                               
|                                               
|                                               
|                                               
|                                                |                                                                                         | Net assets of discontinued operations        |                                           |                                                      |       |         |         |          |       |         |         |          | (802   | )      
|                                                |                                                                                         |                                              |                                           |                                                      |        |         |         |          |        |         |         |         
|                                                |                                                                                         |                                              |                                           | Net cash used in operating activities                |        |         | (45,229 | )        |        |         | (51,607 | )        |        |         | (53,107  | )
|                                                |                                                                                         |                                              |                                           |                                                      |        |         |         |          |        |         |         |         
|Cash flows from investing activities:           |                                                                                         |                                              |                                           |                                                      |        |         |         |          |        |         |         |         
|                                               
|                                               
|                                               
|                                               
|                                                | Purchases of short-term investments                                                     |                                              |                                           | (64,340                                              | )      |         |         | (55,616  | )      |         |         | (609,172 | )     
|                                               
|                                               
|                                               
|                                               
|                                                | Maturities of short-term investments                                                    |                                              |                                           | 85,808                                               |        |         |         | 90,369   |        |         |         | 508,521  |       
|                                               
|                                               
|                                               
|                                               
|                                                | Sales of short-term investments                                                         |                                              |                                           |                                                     |        |         |         | 35,871   |        |         |         |         |       
|                                               
|                                               
|                                               
|                                               
|                                                | Capital expenditures                                                                    |                                              |                                           | (15,060                                              | )      |         |         | (31,361  | )      |         |         | (49,065  | )     
|                                               
|                                               
|                                               
|                                               
|                                                | Proceeds from the sale of Fujimi Corporation                                            |                                              |                                           | 10,000                                               |        |         |         |         |        |         |         |         |       
|                                               
|                                               
|                                               
|                                               
|                                                | Proceeds from licensing technology and transfer of associated
	assets                   |                                              |                                           | 2,335                                                |        |         |         |         |        |         |         |         |       
|                                               
|                                               
|                                               
|                                               
|                                                | Dividends from affiliates                                                               |                                              |                                           |                                                     |        |         |         | 1,521    |        |         |         | 2,325    |       
|                                               
|                                               
|                                               
|                                               
|                                                | Other investing activities                                                              |                                              |                                           | (371                                                 | )      |         |         | 719      |        |         |         | (740     | )     
|                                                |                                                                                         |                                              |                                           |                                                      |        |         |         |          |        |         |         |         
|                                                |                                                                                         |                                              |                                           | Net cash provided by (used in) investing activities  |        |         | 18,372  |          |        |         | 41,503  |          |        |         | (148,131 | )
|                                                |                                                                                         |                                              |                                           |                                                      |        |         |         |          |        |         |         |         
|Cash flows from financing activities:           |                                                                                         |                                              |                                           |                                                      |        |         |         |          |        |         |         |         
|                                               
|                                               
|                                               
|                                               
|                                                | Repayment of notes payable                                                              |                                              |                                           |                                                     |        |         |         | (395     | )      |         |         | (124     | )     
|                                               
|                                               
|                                               
|                                               
|                                                | Net proceeds from issuance of common stock and warrants                                 |                                              |                                           |                                                     |        |         |         |         |        |         |         | 122,111  |       
|                                               
|                                               
|                                               
|                                               
|                                                | Proceeds from exercise of stock options and employee stock
	purchases                   |                                              |                                           | 3,416                                                |        |         |         | 3,400    |        |         |         | 3,723    |       
|                                               
|                                               
|                                               
|                                               
|                                                | Payment of preferred stock dividend                                                     |                                              |                                           |                                                     |        |         |         | (278     | )      |         |         | (246     | )     
|                                               
|                                               
|                                               
|                                               
|                                                | Proceeds from long-term debt                                                            |                                              |                                           |                                                     |        |         |         |         |        |         |         | 111,181  |       
|                                               
|                                               
|                                               
|                                               
|                                                | Principal payments on long-term debt                                                    |                                              |                                           | (1,165                                               | )      |         |         | (1,082   | )      |         |         | (27,559  | )     
|                                                |                                                                                         |                                              |                                           |                                                      |        |         |         |          |        |         |         |         
|                                                |                                                                                         |                                              |                                           | Net cash provided by financing activities            |        |         | 2,251   |          |        |         | 1,645   |          |        |         | 209,086  |  
|                                                |                                                                                         |                                              |                                           |                                                      |        |         |         |          |        |         |         |         
|Effect of foreign currency rate changes on cash |                                                                                         |                                              | (337                                      | )                                                    |        |         | 980     |          |        |         | (701    | )       
|                                                |                                                                                         |                                              |                                           |                                                      |        |         |         |          |        |         |         |         
|                                                |                                                                                         |                                              |                                           | Net increase (decrease) in cash and cash equivalents |        |         | (24,943 | )        |        |         | (7,479  | )        |        |         | 7,147    |  
|                                               
|                                               
|                                               
|                                               
|Cash and cash equivalents at beginning of year  |                                                                                         |                                              | 97,003                                    |                                                      |        |         | 104,482 |          |        |         | 97,335  |         
|                                                |                                                                                         |                                              |                                           |                                                      |        |         |         |          |        |         |         |         
|Cash and cash equivalents at end of year        |                                                                                         | $                                            | 72,060                                    |                                                      |        |         | 97,003  |          |        |         | 104,482 |         
|                                                |                                                                                         |                                              |                                           |                                                      |        |         |         |          |        |         |         |         

31



---



SPEEDFAM-IPEC, INC.


CONSOLIDATED STATEMENTS OF CASH FLOWS  (Continued)

|                                   |                                                                                              |                |  |      |       |      |  |         |       |  |  |   |       | 
|---------------------------------- | -------------------------------------------------------------------------------------------- | -------------- |  | ---- | ----- | ---- |  | ------- | ----- |  |  | - | ----- | 
|                                   |                                                                                              | 2000           |  | 1999 |       | 1998
|                                   |                                                                                              |                |  |      |       |     
|                                   |                                                                                              |               
|                                   |                                                                                              | (in thousands)
|Supplemental cash flow information |                                                                                              |                |  |      |       |      |  |         |       |  |  |  
|                                  
|                                  
|                                  
|                                  
|                                   | Cash paid during the year for:                                                               |                |  |      |       |      |  |         |       |  |  |   |      
|                                  
|                                  
|                                  
|                                  
|                                   |                                                                                              | Interest       |  | $    | 7,379 |      |  |         | 7,463 |  |  |   | 4,771 | 
|                                  
|                                  
|                                  
|                                  
|                                   |                                                                                              | Income taxes   |  |      | 435   |      |  |         | 845   |  |  |   | 7,261 | 
|                                  
|                                  
|                                  
|                                  
|                                   | Non-cash financing activities  book value of common
	stock issued in a pooling of interests |                |  |     |       |      |  | 126,992 |       |  |  |  |      
|                                   |                                                                                              |                |  |      |       |      |  |         |       |  |  |  

See accompanying notes to consolidated financial statements.

32



---



SPEEDFAM-IPEC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)  Summary of Significant Accounting Policies

SpeedFam-IPEC, Inc. (SpeedFam-IPEC or the Company), an Illinois
corporation, designs, develops, manufactures, markets, and
supports chemical mechanical planarization (CMP) systems
used in the fabrication of semiconductor devices and other
high-throughput, precision surface processing system.
SpeedFam-IPECs flat surface processing systems are used in
general industrial applications markets. The Company also markets
 and distributes polishing liquids (slurries), parts, and
consumables used in its customers manufacturing processes.

(a)  Principles of Consolidation

The accompanying consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries after
elimination of all significant intercompany accounts and
transactions.

The Companys investment in the common stock of its 50%
owned joint venture, SpeedFam-IPEC Co., Ltd., is accounted for by
 the equity method using a fiscal year ended April 30. The
Companys investment in the common stock of its 50% joint
venture, Fujimi Corporation, was accounted for by the equity
method prior to the sale of the Companys interest in the
second quarter of 2000.

(b)  Change in Fiscal Year

Effective December 1, 1999, the Company changed its fiscal
year from the twelve-month period ended May 31 to a 52 or
53 week period ending on the Saturday nearest May 31.
Accordingly, the 2000 fiscal year ended on June 3 and
contained 53 weeks, whereas the previous two fiscal years
ended on May 31 and contained 52 weeks. All references
to years relate to fiscal years unless otherwise noted.

(c)  Cash and Cash Equivalents and
Short-term Investments

Cash and cash equivalents include deposits in banks and highly
liquid investments with original maturities of three months or
less at the date of purchase.

The Companys short-term investments consist of government
and corporate debt securities. All of the Companys
short-term investments are classified as available-for-sale.
Available-for-sale securities are recorded at fair value.
Unrealized holding gains and losses, net of related tax effect,
on available-for-sale securities are excluded from earnings and
are reported as a separate component of other comprehensive
income until realized. Realized gains and losses from the sale of
 available-for-sale securities are determined on a specific
identification basis.

A decline in market value of any available-for-sale security
below cost that is deemed to be other than temporary is
considered an impairment of 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 available-for-sale security as an
adjustment to yield using the effective interest method. Interest
 income is recognized when earned.

(d)  Inventories

Inventories are stated at the lower of cost (first-in, first-out
method) or market.

33



---



SPEEDFAM-IPEC, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

(e)  Property, Plant, and Equipment

Property, plant, and equipment are stated at cost less
accumulated depreciation. Depreciation is provided on the
straight-line method over the estimated useful lives of the
assets. The estimated useful lives of the assets are as follows:

|                           |  |  |               | 
|-------------------------- |  |  | ------------- | 
|                          
|                          
|                          
|                          
|Buildings and improvements |  |  | 7 to 40 years | 
|                          
|                          
|                          
|                          
|Machinery and equipment    |  |  | 3 to 7 years  | 
|                          
|                          
|                          
|                          
|Furniture and fixtures     |  |  | 3 to 5 years  | 
|                          
|                          
|                          
|                          
|Leasehold improvements     |  |  | 2 to 10 years | 
|                           |  |  |               | 

Equipment recorded under capital leases is stated at the lower of
 fair market value or the present value of minimum lease payments
 at the inception of the lease. Equipment recorded under capital
leases and leasehold improvements are amortized using the
straight-line method over the shorter of the lease term or the
estimated useful lives of the related assets.

(f)  Income Taxes

Income taxes are accounted for 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 and operating loss and
 tax credit carryforwards. 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.

(g)  Revenue Recognition

Net sales consists of system and service contract revenues as
well as commissions from affiliates, which 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. Revenues related to system sales is recognized upon
shipment. Service contract revenue is recognized upon completion
of the service.

(h)  Installation and Warranty Costs

The Company generally warrants its systems for a period of up to
12 months from shipment for material and labor to repair and
 service the system. A provision for the estimated costs of
installation and warranty is recorded upon shipment based on past
 experience.

(i)  Foreign Currency Translation

The local currency is the functional currency for all foreign
operations. Accordingly, translation gains or losses related to
the foreign subsidiaries financial statements are included
as a component of stockholders equity.

(j)  Earnings (Loss) Per Share

Basic earnings (loss) per common share is based upon the
weighted average number of common shares outstanding. Diluted
earnings (loss) per common share assumes the exercise of all
options and warrants which are dilutive, whether exerciseable or
not.

In calculating diluted net loss per common share, 860,000,
375,000 and 1,600 common stock equivalent shares (determined
under the treasury stock method) consisting of stock options,
warrants, convertible notes,

34



---



SPEEDFAM-IPEC, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

and convertible preferred stock have been excluded because their
inclusion would have been anti-dilutive for 2000, 1999 and 1998,
respectively.

(k)  Significant Customers and
Concentration of Credit Risk

The Company sells products and services primarily to
semiconductor manufacturers, and extends credit based on an
evaluation of the customers financial condition, generally
without requiring collateral. As a result of the economic
difficulties within certain Asian countries, the Company has
increased sales subject to extended payment terms within this
region. Exposure to losses on receivables is principally
dependent on each customers financial condition. The
Company monitors its exposure for credit losses and maintains
allowances for anticipated losses.

(l)  Patents, Trademarks, and Goodwill

Patents and trademarks included in other assets, in the net
amount of $7.6 million and $6.3 million at the end of 2000 and
1999, respectively, are amortized on a straight-line basis over 5
 to 17 years for patents and 5 years for trademarks.

Goodwill included in other assets, in the net amount of $2.5
million and $3.3 million at the end of 2000 and 1999,
respectively, represents the excess cost over the fair value of
tangible and intangible assets acquired and is amortized over
10 years using the straight-line method.

(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
disclosures 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

The Company applies the intrinsic value-based method of
accounting for its stock options issued to employees. As such,
compensation expense is recorded on the date of grant only if the
 current market price of the underlying stock exceeds the
exercise price. Under Accounting Principles Board
Opinion 25, Accounting for Stock Issued to
Employees, because the exercise price of the Companys
 employee stock options equals the market price of the underlying
 stock on the date of grant, no compensation expense is
recognized.

(p)  Fair Value of Financial
Instruments

The Companys financial instruments at June 3, 2000 and
 May 31, 1999 include cash equivalents, short-term
investments, trade receivables, trade payables, foreign exchange
contracts, and long-term debt. Information about the fair value
of short-term investments is presented in Note 4. The
carrying value of cash equivalents, trade receivables, and trade
payables approximates fair value because of the short maturity of
 these instruments. Fair values relating to foreign currency
contracts (used for hedging purposes) reflect the estimated net
amounts that the Company would receive or pay to terminate the
contracts at the reporting date based on quoted market prices of
comparable contracts and are not material at June 3, 2000
and May 31, 1999. The fair value of the Companys
long-term debt is not materially different from its financial
statement

35



---



SPEEDFAM-IPEC, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

carrying value at the end of 2000 and 1999. The fair value of the
 Companys long-term debt is estimated based on current
rates offered to the Company for debt of the same remaining
maturities.

(q)  Impairment of Long-lived Assets
and Long-lived Assets to Be Disposed Of

The Company continually evaluates whether events and
circumstances have occurred that indicate the estimated useful
lives of long-lived assets or intangible assets may warrant
revision or that the remaining balance may not be recoverable.
When factors indicate that an asset should be evaluated for
possible impairment, the Company uses an estimate of the related
undiscounted net cash flows generated by the asset over the
remaining estimated life of the asset in measuring whether the
asset is recoverable. Material factors which may alter the useful
 life of the asset or determine that the balance may not be
recoverable include effects of new technologies, obsolescence,
demand, competition, and other economic factors. If an asset is
considered to be impaired, the impairment to be recognized is
measured as the amount by which the carrying amount of the asset
exceeds its fair value.

An asset to be disposed of is reported at the lower of its
carrying amount or fair value less costs to sell.

(r)  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 primarily include foreign currency forward contracts.
 The Company evaluates and monitors consolidated net exposures by
 currency and maturity, and external derivative financial
instruments correlate with the net exposures in all material
respects. Gains and losses on hedges of existing assets and
liabilities are included in the carrying amounts of those assets
or liabilities and are ultimately recognized in income when those
 carrying amounts are converted. Gains or losses related to
hedges of firm commitments are deferred and included in the bases
 of the transactions when they are completed. Gains or losses on
unhedged foreign currency transactions, if any, are included in
income as part of cost of sales. Gains and losses on derivative
financial instruments which protect the Company from exposure in
a particular currency, but do not currently have a designated
underlying transaction, are also included in income as part of
cost of sales. If a hedged item matures, or is sold,
extinguished, terminated, or is related to an anticipated
transaction that is no longer likely to take place, the
derivative financial instrument is closed and the related gain or
 loss is included in income as part of cost of sales.

(s)  Reclassifications

Certain reclassifications have been made in the 1999 and 1998
financial statements to conform to the 2000 presentation.

(t)  Recent Accounting Pronouncements

Statement of Financial Accounting Standards
(SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities and No. 138,
Accounting for Certain Derivative Instruments and Certain
Hedging Activities, establishes accounting and reporting
standards for derivative financial instruments and hedging
activities. These statements require that the Company recognize
all derivatives as either assets or liabilities on the balance
sheet and measure those instruments at fair value. Derivatives
that are not hedges must be adjusted to fair value through
income. If the derivative is a hedge, depending on the nature of
the hedge, changes in the fair value of derivatives will either
be offset against changes in the fair value of the hedged assets,
 liabilities, or firm commitments through earnings or recognized
in other comprehensive income until the hedged item is recognized
 in earnings. The ineffective portion of a derivatives
change in fair value will be immediately recognized in earnings.
The Company will adopt SFAS No. 133 and No. 138 in
 the first quarter

36



---



SPEEDFAM-IPEC, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

of 2002, and does not expect the adoption to have a material
effect on its financial condition or results of operations.

In December 1999, the Staff of the Securities and Exchange
Commission (SEC) issued Staff Accounting Bulletin
(SAB) No. 101, Revenue Recognition in Financial
Statements. SAB 101 provides guidance on the
recognition, presentation and disclosure of revenue in financial
statements of all publicly held companies. The semiconductor
capital equipment industry association and a number of
association members have met with the Staff of the SEC to discuss
 and evaluate the applicability of SAB 101 and various
practical implementation considerations. The Company currently
expects to adopt the new accounting principle effective the
fourth quarter of 2001. On June 26, 2000, the Staff of the
SEC issued Staff Accounting Bulletin No. 101B
(SAB 101B), which permitted the delay in the Companys
implementation date of SAB 101 until the fourth quarter of
2001. Accordingly, any shipments previously reported as revenue,
including revenue reported during the first nine months of 2001,
which do not meet SAB 101s guidance will be recorded
as revenue in future periods. Changes in our revenue recognition
policy resulting from the interpretation of SAB 101 and
SAB 101B would not involve the restatement of prior
financial statements, but would, to the extent applicable, be
reported as a change in accounting principle in the fourth
quarter of 2001.

Management believes that SAB 101 and SAB 101B, to the
extent that they impact the Company, will not affect the
underlying strength or weakness of the business operations as
measured by the dollar value of the Companys product
shipments and cash flows.

(2)  Merger

In April 1999, SpeedFam International, Inc. (SpeedFam)
issued 13.0 million shares of its common stock in exchange for
all outstanding common and preferred stock of Integrated Process
Equipment Corp. (IPEC). In conjunction with this merger, SpeedFam
 amended its articles of incorporation to change the corporate
name of SpeedFam to SpeedFam-IPEC, Inc.

Effective upon the consummation of the merger, each share of the
outstanding common stock of IPEC was converted into .71 shares of
 common stock of the Company. Outstanding IPEC employee stock
options, warrants, and convertible notes were similarly converted
 into options, warrants, and convertible notes to purchase
Company stock. In addition, each share of the Series B-1
preferred stock, Series B-2 preferred stock, and
Series B-3 preferred stock of IPEC has been converted into
8.90, 8.10, and 10.65 shares of common stock of the Company,
respectively.

The merger constituted a tax-free reorganization and has been
treated as a pooling-of-interests. Accordingly, the assets and
liabilities of IPEC were carried forward to the Company at
historical values and the consolidated financial statements for
the periods prior to the combination have been restated to
include the accounts and results of operations of IPEC.

Prior to the combination, IPECs fiscal year ended
June 30. In recording the pooling-of-interests combination,
IPECs financial statements for the twelve months ended
May 31, 1999 were combined with SpeedFams financial
statements for the same period and IPECs financial
statements for the years ended June 30, 1998 were combined
with SpeedFams financial statements for the years ended
May 31, 1998. IPECs unaudited results of operations
for the one month ended June 30, 1998 included revenue of
$19.7 million and net earnings of $2.2 million. An adjustment has
 been made to stockholders equity as of May 31, 1999
to eliminate the effect of including IPECs results of
operations for the one month ended June 30, 1998 in the
results of operations of the combined enterprise for both 1999
and 1998. There were no significant transactions between SpeedFam
 and IPEC prior to the combination or significant differences in
accounting policies that required elimination or adjustment in
the combined financial statements.

37



---



SPEEDFAM-IPEC, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

(3)  Merger, Integration, and Restructuring Costs

In connection with the merger, the Company recorded various
merger, integration, and restructuring costs in 1999. Direct
merger costs primarily consist of professional fees, such as
investment banking, legal, and accounting for services rendered
through the date of the merger. The Company recorded integration
and restructuring costs for lease terminations, the write-off of
duplicative equipment previously used for demonstration purposes,
 the writedown of inventory and equipment related to product
lines that will no longer be supported, and severance costs
resulting from workforce reductions.

The merger of the two companies resulted in the closing of
several facilities, the most significant being the former IPEC
corporate office and two manufacturing facilities. The IPEC
corporate office and one of the manufacturing facilities were
vacated as of May 31, 1999. The other manufacturing facility
 was vacated during 2000. As a result, the Company accrued lease
termination costs for the estimated payments required to be made
subsequent to vacating the facilities and wrote off leasehold
improvements made at these facilities.

As part of the business strategy developed by the combined
entity, certain product lines were no longer supported. These
product lines relate to wafer shaping and measuring applications,
 and the 372 CMP product line formerly produced by IPEC.
Certain equipment and inventory associated with these product
lines were written down to estimated market value. Market value
was determined based on estimated liquidation value. The
disposals occurred during 2000.

The severance and other related employee costs provided for the
reduction of approximately 70 employment positions resulting from
 facility closures, and the elimination of duplicate positions or
 positions no longer necessary due to the streamlining of
operations. Notification of the planned severance and the amount
of the related benefits was made to employees prior to
May 31, 1999.

In the fourth quarter of 1999, the Company recorded the following
 merger, integration and restructuring costs totaling $53.9
million: $6.9 million direct merger costs; $16.9 million lease
termination costs including $2.3 million in lease improvement
write-offs; $4.2 million write-down of equipment and $19.4
million write-down of inventory due to certain discontinued
product lines; $4.7 million related to severance costs and $1.8
million related to other merger, integration and restructuring
write-offs and costs. These charges were incurred primarily to
close duplicate facilities, record transaction costs, account for
 certain employee termination benefits and record adjustments and
 accruals resulting from strategic decisions to discontinue
certain product lines and sales and marketing activities as a
merged company.

Through June 3, 2000, the Company incurred $27.0 million in
asset write-downs and paid and charged to the liability $17.7
million. The remaining restructuring accrual for lease
termination, severance and other expenses associated with the
merger was approximately $9.2 million as of June 3, 2000,
which the Company believes is adequate to cover the remaining
liabilities. During 2000, lease terminations costs on certain
vacated facilities (which was included in the restructuring
charge) primarily related to remaining rent, related utilities
and common area maintenance on the closed Phoenix, Arizona
manufacturing and administrative facility. The Company also
estimated in May 1999, given the then-current real estate
market conditions, that it would take approximately
9-12 months to sublease the facility. Sublease activity
began in May 2000 (as reflected in the remaining accrual)
and is projected to be carried out through the end of the
Companys lease term. The Companys management has been
 and is currently in the process of securing additional subleases
 or other negotiated agreements for the Phoenix, Arizona
manufacturing and administrative facility.

38



---



SPEEDFAM-IPEC, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

The following tables summarize the components of and activity
related to the merger, integration, and restructuring costs
during 2000 and 1999 (in thousands):

|                           |  |              |        |               |  |              |        |         |  |  |     |  |  |  |       | 
|-------------------------- |  | ------------ | ------ | ------------- |  | ------------ | ------ | ------- |  |  | --- |  |  |  | ----- | 
|                           |  |              |        |               |  |             
|                           |  | Accrued      |        | 2000 Activity |  | Accrued     
|                           |  | Liability at |        |               |  | Liability at
|                           |  | May 31,      |        | Cash          |  | Asset        |        | June 3,
|                           |  | 1999         |        | Expenditures  |  | Write-downs  |        | 2000   
|                           |  |              |        |               |  |              |        |        
|Direct merger costs        |  | $            | 3,600  |               |  |              | 3,600  |         |  |  |    |  |  |  |      | 
|                          
|                          
|                          
|                          
|Lease termination costs    |  |              | 14,600 |               |  |              | 6,035  |         |  |  |    |  |  |  | 8,565 | 
|                          
|                          
|                          
|                          
|Discontinued product lines |  |              | 100    |               |  |              | 100    |         |  |  |    |  |  |  |      | 
|                          
|                          
|                          
|                          
|Severance costs            |  |              | 4,200  |               |  |              | 3,828  |         |  |  |    |  |  |  | 372   | 
|                          
|                          
|                          
|                          
|Other costs                |  |              | 500    |               |  |              |       |         |  |  | 236 |  |  |  | 264   | 
|                           |  |              |        |               |  |              |        |         |  |  |     |  |  |  |       | 
|                           |  | $            | 23,000 |               |  |              | 13,563 |         |  |  | 236 |  |  |  | 9,201 | 
|                           |  |              |        |               |  |              |        |         |  |  |     |  |  |  |       | 

|                           |  |           |        |               |  |              |       |         |  |  |        |  |  |  |        | 
|-------------------------- |  | --------- | ------ | ------------- |  | ------------ | ----- | ------- |  |  | ------ |  |  |  | ------ | 
|                           |  |           |        |               |  |             
|                           |  |           |        | 1999 Activity |  | Accrued     
|                           |  | Total     |        |               |  | Liability at
|                           |  | Estimated |        | Cash          |  | Asset        |       | May 31,
|                           |  | Costs     |        | Expenditures  |  | Write-downs  |       | 1999   
|                           |  |           |        |               |  |              |       |        
|Direct merger costs        |  | $         | 6,900  |               |  |              | 3,300 |         |  |  |       |  |  |  | 3,600  | 
|                          
|                          
|                          
|                          
|Lease termination costs    |  |           | 16,900 |               |  |              |      |         |  |  | 2,300  |  |  |  | 14,600 | 
|                          
|                          
|                          
|                          
|Demonstration equipment    |  |           | 4,200  |               |  |              |      |         |  |  | 4,200  |  |  |  |       | 
|                          
|                          
|                          
|                          
|Discontinued product lines |  |           | 19,400 |               |  |              |      |         |  |  | 19,300 |  |  |  | 100    | 
|                          
|                          
|                          
|                          
|Severance costs            |  |           | 4,700  |               |  |              | 500   |         |  |  |       |  |  |  | 4,200  | 
|                          
|                          
|                          
|                          
|Other costs                |  |           | 1,800  |               |  |              | 300   |         |  |  | 1,000  |  |  |  | 500    | 
|                           |  |           |        |               |  |              |       |         |  |  |        |  |  |  |        | 
|                           |  | $         | 53,900 |               |  |              | 4,100 |         |  |  | 26,800 |  |  |  | 23,000 | 
|                           |  |           |        |               |  |              |       |         |  |  |        |  |  |  |        | 

The 1999 merger, integration, and restructuring costs were
classified in the statement of operations for the year ended
May 31, 1999 in cost of sales and in selling, general, and
administrative expenses. The following table summarizes the
classification of the merger and integration charges (in
thousands):

|                                             |  |   |        | 
|-------------------------------------------- |  | - | ------ | 
|                                            
|                                            
|                                            
|                                            
|Cost of sales                                |  | $ | 13,600 | 
|                                            
|                                            
|                                            
|                                            
|Merger, integration, and restructuring costs |  |   | 40,300 | 
|                                             |  |   |        | 
|                                             |  | $ | 53,900 | 
|                                             |  |   |        | 

(4)  Short-term Investments

The amortized cost, gross unrealized gains, gross unrealized
losses, and approximate fair value of short-term investments
classified as available-for-sale are summarized as follows at
June 3, 2000 and May 31, 1999 (in thousands):

|                                    |  |      |        |            |  |            |   |             |  |  |      |   |  |  |        | 
|----------------------------------- |  | ---- | ------ | ---------- |  | ---------- | - | ----------- |  |  | ---- | - |  |  | ------ | 
|                                    |  |     
|                                    |  | 2000
|                                    |  |     
|                                    |  |      |        | Gross      |  | Gross      |   | Approximate
|                                    |  |      |        | Unrealized |  | Unrealized |   | Fair       
|                                    |  | Cost |        | Gains      |  | Losses     |   | Value      
|                                    |  |      |        |            |  |            |   |            
|Municipal and state governments     |  | $    | 20,511 |            |  |            |  |             |  |  | (394 | ) |  |  | 20,117 | 
|                                   
|                                   
|                                   
|                                   
|Corporate debt securities and other |  |      | 8,212  |            |  |            |  |             |  |  | (93  | ) |  |  | 8,119  | 
|                                    |  |      |        |            |  |            |   |             |  |  |      |   |  |  |        | 
|                                    |  | $    | 28,723 |            |  |            |  |             |  |  | (487 | ) |  |  | 28,236 | 
|                                    |  |      |        |            |  |            |   |             |  |  |      |   |  |  |        | 

39



---



SPEEDFAM-IPEC, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

|                                    |  |      |        |            |  |            |   |             |  |  |      |   |  |  |        | 
|----------------------------------- |  | ---- | ------ | ---------- |  | ---------- | - | ----------- |  |  | ---- | - |  |  | ------ | 
|                                    |  |     
|                                    |  | 1999
|                                    |  |     
|                                    |  |      |        | Gross      |  | Gross      |   | Approximate
|                                    |  |      |        | Unrealized |  | Unrealized |   | Fair       
|                                    |  | Cost |        | Gains      |  | Losses     |   | Value      
|                                    |  |      |        |            |  |            |   |            
|Municipal and state governments     |  | $    | 26,357 |            |  |            | 1 |             |  |  | (70  | ) |  |  | 26,288 | 
|                                   
|                                   
|                                   
|                                   
|Corporate debt securities and other |  |      | 23,833 |            |  |            |  |             |  |  | (101 | ) |  |  | 23,732 | 
|                                    |  |      |        |            |  |            |   |             |  |  |      |   |  |  |        | 
|                                    |  | $    | 50,190 |            |  |            | 1 |             |  |  | (171 | ) |  |  | 50,020 | 
|                                    |  |      |        |            |  |            |   |             |  |  |      |   |  |  |        | 

(5)  Inventories

Inventories at the end of 2000 and 1999 are summarized as follows
 (in thousands):

|                |                   |      |        |        |  |  |        |        | 
|--------------- | ----------------- | ---- | ------ | ------ |  |  | ------ | ------ | 
|                |                   | 2000 |        | 1999  
|                |                   |      |        |       
|Raw materials   |                   | $    | 54,058 |        |  |  | 48,082 |       
|               
|               
|               
|               
|Work-in-process |                   |      | 21,396 |        |  |  | 23,428 |       
|               
|               
|               
|               
|Finished goods  |                   |      | 5,738  |        |  |  | 9,234  |       
|                |                   |      |        |        |  |  |        |       
|                | Total inventories |      | $      | 81,192 |  |  |        | 80,744 | 
|                |                   |      |        |        |  |  |        |       

(6)  Property, Plant, and Equipment

Property, plant, and equipment at the end of 2000 and 1999 are
summarized as follows (in thousands):

|                              |                                    |      |         |        |  |  |         |        | 
|----------------------------- | ---------------------------------- | ---- | ------- | ------ |  |  | ------- | ------ | 
|                              |                                    | 2000 |         | 1999  
|                              |                                    |      |         |       
|Land                          |                                    | $    | 8,547   |        |  |  | 8,547   |       
|                             
|                             
|                             
|                             
|Buildings                     |                                    |      | 38,709  |        |  |  | 40,911  |       
|                             
|                             
|                             
|                             
|Machinery and equipment       |                                    |      | 70,539  |        |  |  | 69,066  |       
|                             
|                             
|                             
|                             
|Furniture and fixtures        |                                    |      | 4,324   |        |  |  | 3,529   |       
|                             
|                             
|                             
|                             
|Leasehold improvements        |                                    |      | 1,131   |        |  |  | 1,607   |       
|                             
|                             
|                             
|                             
|Construction in progress      |                                    |      | 7,882   |        |  |  | 2,906   |       
|                              |                                    |      |         |        |  |  |         |       
|                              |                                    |      | 131,132 |        |  |  | 126,566 |       
|                             
|                             
|                             
|                             
|Less accumulated depreciation |                                    |      | (43,219 | )      |  |  | (37,569 | )     
|                              |                                    |      |         |        |  |  |         |       
|                              | Net property, plant, and equipment |      | $       | 87,913 |  |  |         | 88,997 | 
|                              |                                    |      |         |        |  |  |         |       

Depreciation expense was $15.3 million, $19.1 million, and $12.4
million in 2000, 1999, and 1998, respectively.

(7)  Accrued Liabilities

Accrued liabilities at the end of 2000 and 1999 are summarized as
 follows (in thousands):

|                                                     |                           |      |       |        |  |  |        |        | 
|---------------------------------------------------- | ------------------------- | ---- | ----- | ------ |  |  | ------ | ------ | 
|                                                     |                           | 2000 |       | 1999  
|                                                     |                           |      |       |       
|Accrued warranty and installation costs              |                           | $    | 8,665 |        |  |  | 13,245 |       
|                                                    
|                                                    
|                                                    
|                                                    
|Accrued payroll and benefits                         |                           |      | 4,588 |        |  |  | 6,217  |       
|                                                    
|                                                    
|                                                    
|                                                    
|Accrued merger, integration, and restructuring costs |                           |      | 1,952 |        |  |  | 9,429  |       
|                                                    
|                                                    
|                                                    
|                                                    
|Other accrued liabilities                            |                           |      | 8,059 |        |  |  | 15,363 |       
|                                                     |                           |      |       |        |  |  |        |       
|                                                     | Total accrued liabilities |      | $     | 23,264 |  |  |        | 44,254 | 
|                                                     |                           |      |       |        |  |  |        |       

40



---



SPEEDFAM-IPEC, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

(8)  Investments in Affiliates

The Company owns a 50% interest in SpeedFam-IPEC Co., Ltd. The
Companys equity investment in SpeedFam-IPEC Co., Ltd. was
$19.8 million and $21.8 million at June 3, 2000 and
May 31, 1999, respectively. SpeedFam-IPEC Co., Ltd.s
consolidated financial statements include the accounts of the
following subsidiaries:

|                                 |  |            
|-------------------------------- |  | -----------
|Company                          |  | Location   
|                                 |  |            
|SpeedFam Clean Systems Co., Ltd. |  | Japan      
|                                
|                                
|                                
|                                
|Saku Seiki Co., Ltd.             |  | Japan      
|                                
|                                
|                                
|                                
|SpeedFam-IPEC Taiwan Ltd.        |  | Taiwan     
|                                
|                                
|                                
|                                
|SpeedFam-IPEC Korea Ltd.         |  | South Korea
|                                
|                                
|                                
|                                
|SpeedFam-IPEC India (Pvt.) Ltd.  |  | India      
|                                
|                                
|                                
|                                
|SpeedFam-IPEC (S.E.A.) Pte. Ltd. |  | Singapore  
|                                
|                                
|                                
|                                
|SpeedFam-IPEC (Malaysia) SDN BHD |  | Malaysia   

Significant intercompany balances and transactions have been
eliminated. SpeedFam-IPEC Co., Ltd.s investments in three
affiliated Japanese companies, Met-Coil Ltd.; GRT Co., Ltd. and
Clean Technology Co., Ltd. are accounted for by the equity
method.

41



---



SPEEDFAM-IPEC, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

Condensed consolidated financial statements of SpeedFam-IPEC Co.,
 Ltd. are as follows (in thousands):

Balance Sheets

|                                     |                                                             |                                            |        |        |         |  |        |        |         | 
|------------------------------------ | ----------------------------------------------------------- | ------------------------------------------ | ------ | ------ | ------- |  | ------ | ------ | ------- | 
|                                     |                                                             |                                           
|                                     |                                                             | April 30,                                 
|                                     |                                                             |                                           
|                                     |                                                             | 2000                                       |        | 1999  
|                                     |                                                             |                                            |        |       
|                                    
|                                    
|                                    
|                                    
|Assets                              
|                                    
|                                    
|                                    
|                                    
|Current assets:                      |                                                             |                                            |        |        |         |  |        |       
|                                    
|                                    
|                                    
|                                    
|                                     | Cash and short-term investments                             |                                            | $      | 14,884 |         |  |        | 8,963  |        
|                                    
|                                    
|                                    
|                                    
|                                     | Trade accounts receivable, net and due from affiliates      |                                            |        | 52,085 |         |  |        | 55,670 |        
|                                    
|                                    
|                                    
|                                    
|                                     | Inventories                                                 |                                            |        | 8,150  |         |  |        | 13,445 |        
|                                    
|                                    
|                                    
|                                    
|                                     | Prepaid expenses and other current assets                   |                                            |        | 3,984  |         |  |        | 3,682  |        
|                                     |                                                             |                                            |        |        |         |  |        |       
|                                     |                                                             | Total current assets                       |        |        | 79,103  |  |        |        | 81,760  | 
|                                    
|                                    
|                                    
|                                    
|Property, plant, and equipment, net  |                                                             |                                            | 33,535 |        |         |  | 36,003 |       
|                                    
|                                    
|                                    
|                                    
|Other assets                         |                                                             |                                            | 14,895 |        |         |  | 10,759 |       
|                                     |                                                             |                                            |        |        |         |  |        |       
|                                     |                                                             | Total assets                               |        | $      | 127,533 |  |        |        | 128,522 | 
|                                     |                                                             |                                            |        |        |         |  |        |       
|                                    
|                                    
|                                    
|                                    
|Liabilities and Stockholders Equity
|                                    
|                                    
|                                    
|                                    
|Current liabilities:                 |                                                             |                                            |        |        |         |  |        |       
|                                    
|                                    
|                                    
|                                    
|                                     | Short-term borrowings and current portion of long-term debt |                                            | $      | 24,586 |         |  |        | 26,381 |        
|                                    
|                                    
|                                    
|                                    
|                                     | Accounts payable                                            |                                            |        | 25,713 |         |  |        | 25,546 |        
|                                    
|                                    
|                                    
|                                    
|                                     | Accrued liabilities                                         |                                            |        | 8,412  |         |  |        | 5,862  |        
|                                    
|                                    
|                                    
|                                    
|                                     | Income taxes payable                                        |                                            |        | 1,610  |         |  |        |       |        
|                                     |                                                             |                                            |        |        |         |  |        |       
|                                     |                                                             | Total current liabilities                  |        |        | 60,321  |  |        |        | 57,789  | 
|                                     |                                                             |                                            |        |        |         |  |        |       
|Long-term debt                       |                                                             |                                            | 20,455 |        |         |  | 19,607 |       
|                                    
|                                    
|                                    
|                                    
|Other long-term liabilities          |                                                             |                                            | 7,141  |        |         |  | 7,599  |       
|                                     |                                                             |                                            |        |        |         |  |        |       
|                                     |                                                             | Total long-term liabilities                |        |        | 27,596  |  |        |        | 27,206  | 
|                                     |                                                             |                                            |        |        |         |  |        |       
|Stockholders equity                 |                                                             |                                            | 39,616 |        |         |  | 43,527 |       
|                                     |                                                             |                                            |        |        |         |  |        |       
|                                     |                                                             | Total liabilities and stockholders equity |        | $      | 127,533 |  |        |        | 128,522 | 
|                                     |                                                             |                                            |        |        |         |  |        |       

42



---



SPEEDFAM-IPEC, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

Statements of Earnings and
Retained Earnings (in thousands)

|                                       |                                       |                       |         |         |   |      |         |        |   |  |         |        | 
|-------------------------------------- | ------------------------------------- | --------------------- | ------- | ------- | - | ---- | ------- | ------ | - |  | ------- | ------ | 
|                                       |                                       |                      
|                                       |                                       | Years Ended April 30,
|                                       |                                       |                      
|                                       |                                       | 2000                  |         | 1999    |   | 1998
|                                       |                                       |                       |         |         |   |     
|Net sales                              |                                       | $                     | 108,000 |         |   |      | 136,232 |        |   |  | 221,738 |       
|                                      
|                                      
|                                      
|                                      
|Costs and operating expenses           |                                       |                       | 118,922 |         |   |      | 135,378 |        |   |  | 210,900 |       
|                                       |                                       |                       |         |         |   |      |         |        |   |  |         |       
|                                       | Earnings before income taxes          |                       |         | (10,922 | ) |      |         | 854    |   |  |         | 10,838 | 
|                                      
|                                      
|                                      
|                                      
|Income taxes                           |                                       |                       | (3,346  | )       |   |      | 1,332   |        |   |  | 5,041   |       
|                                       |                                       |                       |         |         |   |      |         |        |   |  |         |       
|                                       | Net earnings before minority interest |                       |         | (7,576  | ) |      |         | (478   | ) |  |         | 5,797  | 
|                                      
|                                      
|                                      
|                                      
|Minority interest                      |                                       |                       | 50      |         |   |      | 684     |        |   |  | 66      |       
|                                       |                                       |                       |         |         |   |      |         |        |   |  |         |       
|                                       | Net earnings                          |                       |         | (7,526  | ) |      |         | 206    |   |  |         | 5,863  | 
|                                      
|                                      
|                                      
|                                      
|Retained earnings at beginning of year |                                       |                       | 40,326  |         |   |      | 41,162  |        |   |  | 37,049  |       
|                                      
|                                      
|                                      
|                                      
|Dividends                              |                                       |                       |        |         |   |      | (1,042  | )      |   |  | (1,750  | )     
|                                       |                                       |                       |         |         |   |      |         |        |   |  |         |       
|                                       | Retained earnings at end of year      |                       | $       | 32,800  |   |      |         | 40,326 |   |  |         | 41,162 | 
|                                       |                                       |                       |         |         |   |      |         |        |   |  |         |       

The following is a summary of SpeedFam-IPEC, Inc. and
consolidated subsidiaries transactions with SpeedFam-IPEC
Co., Ltd. and its subsidiaries (in thousands).

|                                       |  |      |        |      |  |      |       |  |  |  |       | 
|-------------------------------------- |  | ---- | ------ | ---- |  | ---- | ----- |  |  |  | ----- | 
|                                       |  | 2000 |        | 1999 |  | 1998
|                                       |  |      |        |      |  |     
|Sales to SpeedFam-IPEC Co., Ltd.       |  | $    | 3,636  |      |  |      | 659   |  |  |  | 924   | 
|                                       |  |      |        |      |  |      |       |  |  |  |       | 
|Purchases from SpeedFam-IPEC Co., Ltd. |  | $    | 13,133 |      |  |      | 3,030 |  |  |  | 6,344 | 
|                                       |  |      |        |      |  |      |       |  |  |  |       | 
|Commissions revenue                    |  | $    | 2,875  |      |  |      | 2,217 |  |  |  | 9,009 | 
|                                       |  |      |        |      |  |      |       |  |  |  |       | 
|Commission expense                     |  | $    | 8,068  |      |  |      | 4,727 |  |  |  | 4,433 | 
|                                       |  |      |        |      |  |      |       |  |  |  |       | 

Net amounts due to SpeedFam-IPEC Co., Ltd. included in the
consolidated balance sheets at the end of 2000 and 1999 are $7.4
million and $4.8 million, respectively.

In November 1999, the Company sold its 50% interest in the
joint venture, Fujimi Corporation, to its 50% partner, Fujimi
Incorporated. Total proceeds from the sale were $10.0 million.
The gain on the sale of $6.1 million is classified as other
income in the accompanying consolidated statement of operations
for the year ended June 3, 2000. The Companys equity
investment in Fujimi Corporation was $3.6 million at the end of
1999. Summary financial information relating to Fujimi
Corporation is as follows:

Statements of Earnings (in thousands)

|                             |                              |                   |         |                     |  |      |         |       |  |  |         |       | 
|---------------------------- | ---------------------------- | ----------------- | ------- | ------------------- |  | ---- | ------- | ----- |  |  | ------- | ----- | 
|                             |                              |                   |         |                    
|                             |                              |                   |         | Years Ended May 31,
|                             |                              | June 1, 1999 -    |         |                    
|                             |                              | November 30, 1999 |         | 1999                |  | 1998
|                             |                              |                   |         |                     |  |     
|Net sales                    |                              | $                 | 11,629  |                     |  |      | 22,746  |       |  |  | 36,767  |      
|                            
|                            
|                            
|                            
|Costs and operating expenses |                              |                   | (10,629 | )                   |  |      | (20,028 | )     |  |  | (31,332 | )    
|                             |                              |                   |         |                     |  |      |         |       |  |  |         |      
|                             | Earnings before income taxes |                   |         | 1,000               |  |      |         | 2,718 |  |  |         | 5,435 | 
|                            
|                            
|                            
|                            
|Income taxes                 |                              |                   | (400    | )                   |  |      | (1,039  | )     |  |  | (2,207  | )    
|                             |                              |                   |         |                     |  |      |         |       |  |  |         |      
|                             | Net earnings                 |                   | $       | 600                 |  |      |         | 1,679 |  |  |         | 3,228 | 
|                             |                              |                   |         |                     |  |      |         |       |  |  |         |      

43



---



SPEEDFAM-IPEC, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

(9)  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
(loss) from consolidated companies before income taxes are
as follows (in thousands):

|        |       |      |         |         |   |      |          |          |   |  |       |       | 
|------- | ----- | ---- | ------- | ------- | - | ---- | -------- | -------- | - |  | ----- | ----- | 
|        |       | 2000 |         | 1999    |   | 1998
|        |       |      |         |         |   |     
|U.S     |       | $    | (12,044 | )       |   |      | (146,437 | )        |   |  | 3,942 |      
|       
|       
|       
|       
|Non-U.S |       |      | 1,144   |         |   |      | 1,816    |          |   |  | 2,406 |      
|        |       |      |         |         |   |      |          |          |   |  |       |      
|        | Total |      | $       | (10,900 | ) |      |          | (144,621 | ) |  |       | 6,348 | 
|        |       |      |         |         |   |      |          |          |   |  |       |      

Income tax expense (benefit) is included in the statements
of operations as follows (in thousands):

|                        |       |      |   |      |  |      |        |        |   |  |        |        | 
|----------------------- | ----- | ---- | - | ---- |  | ---- | ------ | ------ | - |  | ------ | ------ | 
|                        |       | 2000 |   | 1999 |  | 1998
|                        |       |      |   |      |  |     
|Continuing operations   |       | $    |  |      |  |      | (3,930 | )      |   |  | 29,584 |       
|                       
|                       
|                       
|                       
|Discontinued operations |       |      |  |      |  |      |       |        |   |  |       |       
|                        |       |      |   |      |  |      |        |        |   |  |        |       
|                        | Total |      | $ |     |  |      |        | (3,930 | ) |  |        | 29,584 | 
|                        |       |      |   |      |  |      |        |        |   |  |        |       

Income tax expense (benefit) related to continuing
operations is as follows (in thousands):

|          |                        |                              |   |      |   |      |     |        |        |   |       |        |        | 
|--------- | ---------------------- | ---------------------------- | - | ---- | - | ---- | --- | ------ | ------ | - | ----- | ------ | ------ | 
|          |                        | 2000                         |   | 1999 |   | 1998
|          |                        |                              |   |      |   |     
|Current:  |                        |                              |   |      |   |      |     |        |        |   |       |       
|         
|         
|         
|         
|          | U.S. Federal           |                              | $ |     |   |      |     |       |        |   |       | 2,348  |       
|         
|         
|         
|         
|          | State                  |                              |   |     |   |      |     | 22     |        |   |       | 1,080  |       
|         
|         
|         
|         
|          | Non-U.S                |                              |   |     |   |      |     | 710    |        |   |       | 640    |       
|          |                        |                              |   |      |   |      |     |        |        |   |       |       
|          |                        |                              |  |      |   |      | 732 |        |        |   | 4,068 |       
|          |                        |                              |   |      |   |      |     |        |        |   |       |       
|Deferred: |                        |                              |   |      |   |      |     |        |        |   |       |       
|         
|         
|         
|         
|          | U.S. Federal and state |                              |   |     |   |      |     | (4,622 | )      |   |       | 25,366 |       
|         
|         
|         
|         
|          | Non-U.S                |                              |   |     |   |      |     | (40    | )      |   |       | 150    |       
|          |                        |                              |   |      |   |      |     |        |        |   |       |       
|          |                        |                              |   |      |  |      |     |        | (4,662 | ) |       |        | 25,516 | 
|          |                        |                              |   |      |   |      |     |        |        |   |       |       
|          |                        | Income tax expense (benefit) |   | $    |  |      |     |        | (3,930 | ) |       |        | 29,584 | 
|          |                        |                              |   |      |   |      |     |        |        |   |       |       

44



---



SPEEDFAM-IPEC, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

The tax effects of temporary differences that give rise to the
deferred tax assets (liabilities) at the end of 2000 and
1999 are attributable to (in thousands):

|                          |                                                  |                            |        |         |     |   |        |         |     |  
|------------------------- | ------------------------------------------------ | -------------------------- | ------ | ------- | --- | - | ------ | ------- | --- | -
|                          |                                                  | 2000                       |        | 1999   
|                          |                                                  |                            |        |        
|Deferred tax assets:      |                                                  |                            |        |         |     |   |        |        
|                         
|                         
|                         
|                         
|                          | Financial valuation accounts                     |                            | $      | 13,781  |     |   |        | 18,655  |    
|                         
|                         
|                         
|                         
|                          | Expenses not currently deductible                |                            |        | 3,683   |     |   |        | 2,017   |    
|                         
|                         
|                         
|                         
|                          | Merger, integration, and restructuring accruals  |                            |        | 3,680   |     |   |        | 21,421  |    
|                         
|                         
|                         
|                         
|                          | Net operating loss carryforwards and tax credits |                            |        | 75,003  |     |   |        | 55,096  |    
|                         
|                         
|                         
|                         
|                          | Other                                            |                            |        | 366     |     |   |        | 906     |    
|                          |                                                  |                            |        |         |     |   |        |        
|                          |                                                  |                            | 96,513 |         |     |   | 98,095 |        
|                         
|                         
|                         
|                         
|                          | Valuation allowance                              |                            |        | (95,856 | )   |   |        | (91,564 | )  
|                          |                                                  |                            |        |         |     |   |        |        
|                          |                                                  |                            | 657    |         |     |   | 6,531  |        
|                         
|                         
|                         
|                         
|Deferred tax liabilities: |                                                  |                            |        |         |     |   |        |        
|                         
|                         
|                         
|                         
|                          | Depreciation and amortization differences        |                            |        | (668    | )   |   |        | (6,542  | )  
|                          |                                                  |                            |        |         |     |   |        |        
|                          |                                                  | Net deferred tax liability |        | $       | (11 | ) |        |         | (11 | )
|                          |                                                  |                            |        |         |     |   |        |        

The net deferred tax liability has been recorded in the
accompanying consolidated balance sheets as a component of other
liabilities.

The Company has in excess of $168.0 million of Federal net
operating loss carryforwards at June 3, 2000 which expire
between 2001 and 2019. The Company also has $5.0 million of
Federal research and development tax credit carryforwards
available. These carryforwards begin to expire in 2011.

The valuation allowance for deferred taxes was increased by $4.3
million and $51.5 million during 2000 and 1999, respectively. A
valuation allowance is required to be recorded against deferred
tax assets if it is more likely than not that the tax assets will
 not be realized. This determination is dependent on many
factors, including the Companys ability to generate taxable
 income within the net operating loss carryforward period. The
Company has established a full valuation allowance against all of
 its deferred tax assets. The Company will recognize future
benefits only as reassessment demonstrates that the deferred tax
assets are realizable. While the need for this valuation
allowance is subject to periodic review, if the allowance is
reduced, the tax benefits attributable to the deferred tax assets
 will be recorded in future operations as a reduction of the
Companys income tax expense.

45



---



SPEEDFAM-IPEC, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

A reconciliation between the Companys effective tax rate
and the expected tax rate on earnings before income taxes is as
follows:

|                                                                                                    |                           |      |     |      |   |      |     |    |    |  |     |     |  
|--------------------------------------------------------------------------------------------------- | ------------------------- | ---- | --- | ---- | - | ---- | --- | -- | -- |  | --- | --- | -
|                                                                                                    |                           | 2000 |     | 1999 |   | 1998
|                                                                                                    |                           |      |     |      |   |     
|Expected income tax rate                                                                            |                           |      | (34 | )%   |   |      | (34 | )% |    |  | 34  | %  
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|State taxes, net of U.S. Federal tax benefit                                                        |                           |      | (6  | )    |   |      | (6  | )  |    |  | 12  |    
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|Foreign sales corporation                                                                           |                           |      |    |      |   |      |    |    |    |  | (19 | )  
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|Research and development and other tax credits                                                      |                           |      | (22 | )    |   |      | (2  | )  |    |  |    |    
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|Tax exempt investment securities                                                                    |                           |      |    |      |   |      |    |    |    |  | (17 | )  
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|Disposition of investments                                                                          |                           |      | 14  |      |   |      |    |    |    |  |    |    
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|Non-deductible expenses, including purchased research and
	development and amortization of goodwill |                           |      | 8   |      |   |      | 1   |    |    |  | 42  |    
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|Change in beginning of year valuation allowance                                                     |                           |      | 39  |      |   |      | 36  |    |    |  | 391 |    
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|Stock option compensation                                                                           |                           |      |    |      |   |      |    |    |    |  | 21  |    
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|Other                                                                                               |                           |      | 1   |      |   |      | 2   |    |    |  | 2   |    
|                                                                                                    |                           |      |     |      |   |      |     |    |    |  |     |    
|                                                                                                    | Effective income tax rate |      |     | 0    | % |      |     | (3 | )% |  |     | 466 | %
|                                                                                                    |                           |      |     |      |   |      |     |    |    |  |     |    

No provision is made for income taxes on undistributed earnings
of wholly owned non-U.S. subsidiaries and SpeedFam-IPEC Co.,
Ltd., because it is the Companys present intention to
reinvest substantially all the earnings of these operations. At
the end of 2000, there was approximately $24.5 million 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.

(10)  Discontinued Operations

In the second quarter of 1997, the Company announced its decision
 to focus its resources on manufacturing CMP and CMP related
equipment. As a result of this decision, the Company adopted a
plan for the disposition by sale or closure of IPEC Clean in
calendar 1997.

Following the decision to dispose of IPEC Clean in calendar 1997,
 the Company entered into negotiations to sell its remaining
assets. The deteriorating business climate in the Pacific Rim
resulted in customers delaying expected purchases from IPEC Clean
 and the Company was unable to consummate a sale. The Company
closed IPEC Clean in the third quarter of 1998. A charge of $10.6
 million to write down accounts receivable, inventory, equipment,
 and other assets to liquidation value and to record additional
liabilities was recorded in 1998.

(11)  Revolving Credit Facilities

On October 31, 1996, SpeedFam-IPEC Limited in the United
Kingdom, a wholly owned subsidiary of the Company, entered into a
 £950,000 ($1.4 million) multi-currency revolving line of
credit with the London branch of an U.S. bank. The revolving line
 of credit is secured by property and equipment of the subsidiary
 and is payable on demand. If the line of credit is utilized,
interest will accrue on the outstanding balance at 2.0% above the
 banks base rate (8% and 7.25% at June 3, 2000 and
April 30, 1999). As of June 3, 2000 and April 30,
1999, no amounts were outstanding on this credit facility.

46



---



SPEEDFAM-IPEC, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

(12)  Long-term Debt

Long-term debt at June 3, 2000 and May 31, 1999
consists of the following (in thousands):

|                                                                      |                                        |      |         |         |  |  |         |         | 
|--------------------------------------------------------------------- | -------------------------------------- | ---- | ------- | ------- |  |  | ------- | ------- | 
|                                                                      |                                        | 2000 |         | 1999   
|                                                                      |                                        |      |         |        
|Convertible subordinated notes                                        |                                        | $    | 115,000 |         |  |  | 115,000 |        
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|Capital lease obligations, interest rates ranging from 8.7% to
	9.88% |                                        |      | 1,239   |         |  |  | 2,404   |        
|                                                                      |                                        |      |         |         |  |  |         |        
|                                                                      |                                        |      | 116,239 |         |  |  | 117,404 |        
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|Less current portion                                                  |                                        |      | 1,077   |         |  |  | 1,275   |        
|                                                                      |                                        |      |         |         |  |  |         |        
|                                                                      | Long term debt, net of current portion |      | $       | 115,162 |  |  |         | 116,129 | 
|                                                                      |                                        |      |         |         |  |  |         |        

The Company completed a private placement in the first quarter of
 1998 of $115.0 million Convertible Subordinated Notes (Notes)
due in 2004 bearing interest at a rate of 6.25%. The Notes were
subsequently registered with the Securities and Exchange
Commission in year 1998. Interest is payable semi-annually in
March and September. The Notes are subordinated to all existing
and future senior indebtedness and are effectively subordinated
to all liabilities, including trade payables and lease
obligations of the Company and its subsidiaries. The Notes can be
 converted into the Companys common stock at a conversion
price of $54.93 per share. The Notes are not redeemable by the
Company prior to September 20, 2000. Debt issuance costs of $3.8
million incurred in connection with the issuance have been
included in other assets and are being amortized over seven
years.

The Company entered into lease financing arrangements for certain
 equipment that expire at various dates through July 2002.

The future maturities of long-term debt as of June 3, 2000
are as follows (in thousands):

|                          |       |        |         |         | 
|------------------------- | ----- | ------ | ------- | ------- | 
|Years Ending June 3, 2000 |       | Amount
|                          |       |       
|2001                      |       | $      | 1,077   |        
|                         
|                         
|                         
|                         
|2002                      |       |        | 149     |        
|                         
|                         
|                         
|                         
|2003                      |       |        | 13      |        
|                         
|                         
|                         
|                         
|2004                      |       |        | 115,000 |        
|                         
|                         
|                         
|                         
|Thereafter                |       |        |        |        
|                          |       |        |         |        
|                          | Total |        | $       | 116,239 | 
|                          |       |        |         |        

(13)  Stockholders Equity

Common Stock

The Company has 96.0 million shares of common stock authorized
for issuance, at no par value. There were 29.7 million and 29.4
million shares issued and outstanding as of June 3, 2000 and
 May 31, 1999, respectively.

Preferred Stock

The holders of Series B preferred stock were entitled to an
annual cumulative dividend amounting to $5.59 per share, payable
semiannually on December 31 and June 30, commencing
June 30, 1994. Each share of the Series B-1 preferred
stock, Series B-2 preferred stock, and Series B-3
preferred stock was converted into 8.90, 8.10, and 10.65 shares
of common stock, respectively, in connection with the merger.
There are 21,478 shares authorized for each of the series B-1,
B-2 and B-3 preferred stocks and no shares were issued and
outstanding as of June 3, 2000 and May 31, 1999.

47



---



SPEEDFAM-IPEC, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

Class A Common Stock

Each share of Class A common stock is entitled to four votes
 and can be converted into one share of the Companys common
 stock. Each share of common stock is entitled to one vote. At
the merger date, each share of IPEC Class A common stock was
 converted into .71 shares of SpeedFam-IPEC, Inc. common stock.
There are 2.5 million shares authorized but no shares were issued
 and outstanding as of June 3, 2000 and May 31, 1999.

(14)  Commitments and Contingencies

The Company is subject to lawsuits and other claims arising in
the ordinary course of business. In the opinion of management,
based on consultation with legal counsel, the effect of such
matters will not have a material adverse effect on the
Companys financial position or results of operations.

The Company and its subsidiaries occupy certain manufacturing and
 office facilities and use certain equipment under noncancelable
operating leases expiring at various dates through 2004. Rental
expense was approximately $3.0 million, $6.2 million, and $5.0
million in 2000, 1999, and 1998, respectively.

Future minimum lease payments for all noncancelable operating
leases having remaining terms in excess of one year at the end of
 2000, excluding the lease termination payments relating to the
former IPEC Planar facility which are classified as restructuring
 costs (refer to Note 3), are as follows (in thousands):

|                    |       |        |       |       | 
|------------------- | ----- | ------ | ----- | ----- | 
|Year                |       | Amount
|                    |       |       
|2001                |       | $      | 1,730 |      
|                   
|                   
|                   
|                   
|2002                |       |        | 1,264 |      
|                   
|                   
|                   
|                   
|2003                |       |        | 505   |      
|                   
|                   
|                   
|                   
|2004                |       |        | 120   |      
|                   
|                   
|                   
|                   
|2005 and thereafter |       |        |      |      
|                    |       |        |       |      
|                    | Total |        | $     | 3,619 | 
|                    |       |        |       |      

(15)  Forward Exchange Contracts

The notional amounts of foreign exchange contracts as of
June 3, 2000 and May 31, 1999 were as follows (in
thousands):

|                                                    |  |      |       |      |  |  |       | 
|--------------------------------------------------- |  | ---- | ----- | ---- |  |  | ----- | 
|                                                    |  | 2000 |       | 1999
|                                                    |  |      |       |     
|Forward exchange contracts to buy foreign currency  |  | $    | 1,981 |      |  |  | 1,862 | 
|                                                    |  |      |       |      |  |  |       | 
|Forward exchange contracts to sell foreign currency |  | $    | 1,197 |      |  |  | 4,390 | 
|                                                    |  |      |       |      |  |  |       | 

All currency forward contracts outstanding at June 3, 2000
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.

(16)  Employee Benefits

The Company maintains defined-contribution savings and
profit-sharing plans for its employees. The plans cover certain
employees who meet length of service requirements. Total Company
contributions aggregated to $1.1 million, $1.0 million, and $0.8
million in 2000, 1999, and 1998, respectively.

The Company granted to an officer 50,000 shares of common stock
which vested monthly from September 1997 through
February 2000. At the merger date, all unvested shares
became fully vested. The

48



---



SPEEDFAM-IPEC, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

Company deferred the related compensation of $1.3 million and
amortized the cost over the vesting period. Compensation expense
of $0.9 million and $0.4 million was recorded in 1999 and 1998,
respectively.

The Companys 1995 Employee Stock Purchase Plan qualifies
under Section 423 of the Internal Revenue Code and 500,000 shares
 of common stock are reserved for issuance under the plan.
Payroll deductions for the purchase of stock may not exceed 10%
of an employees base compensation or $25,000. The employee
stock purchase plan provides that eligible employees may purchase
 stock at 85% of its fair value on specified dates. Under the
plan, the Company sold approximately 67,000, 198,000 and 150,000
shares in 2000, 1999, and 1998, respectively.

(17)  Warrants and Stock Option Plans

Warrants

The following summarizes warrant activity:

|                                             |  |            |          |            |  |       |          |  |  |  |         | 
|-------------------------------------------- |  | ---------- | -------- | ---------- |  | ----- | -------- |  |  |  | ------- | 
|                                             |  | Common (a) |          | Common (b) |  | Total
|                                             |  |            |          |            |  |      
|Exercise price                               |  | $          | 41.20    |            |  |       | 34.61    |  |  |  |         | 
|                                             |  |            |          |            |  |       |          |  |  |  |         | 
|Expiration                                   |  |            | 12/26/00 |            |  |       | 12/16/02 |  |  |  |         | 
|                                             |  |            |          |            |  |       |          |  |  |  |         | 
|Outstanding at June 3, 2000 and May 31, 1999 |  |            | 7,100    |            |  |       | 338,210  |  |  |  | 345,310 | 
|                                             |  |            |          |            |  |       |          |  |  |  |         | 




|    |                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------
|(a) | These warrants were issued in connection with services provided
	during an acquisition and were assigned a value of $100,000.   
|   
|(b) | These warrants were issued in connection with preferred stock
	previously outstanding and were assigned a value of $4.8 million.

Stock Options

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 may be
granted to purchase up to 4,800,000 shares of the Companys
authorized but unissued common stock. Stock options are granted
at a price not less than the fair market value on the date of
grant. Stock option vesting periods range from four to five years
 with the exception of 164 stock options issued in 1992, which
vested immediately. The stock options expire 10 years after
the grant date, except for 71 stock options which expire five
years after the grant date.

The Companys 1992 Stock Option Plan (the Option Plan)
provides for the issuance of incentive stock options and
non-qualified stock options to purchase up to 3,727,500 shares of
 common stock to employees, directors, and consultants. The
grants vest over periods ranging up to five years. Options may be
 granted to purchase shares of the Companys common stock at
 not less than fair market value at the date of grant, and are
exercisable for a period not exceeding ten years from that date.

49



---



SPEEDFAM-IPEC, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

The following table summarizes option activity and related
information:

|                        |                     |         |           |                 |   |          |              |               |  |   |       |       | 
|----------------------- | ------------------- | ------- | --------- | --------------- | - | -------- | ------------ | ------------- |  | - | ----- | ----- | 
|                        |                     |         |           |                 |   | Weighted
|                        |                     |         |           |                 |   | Average 
|                        |                     |         |           |                 |   | Exercise
|                        |                     | Options |           | Price Per Share |   | Price   
|                        |                     |         |           |                 |   |         
|Balance at June 1, 1997 |                     |         | 3,435,382 |                 |   | $        | 2.04  40.49 |               |  | $ | 19.03 |      
|                       
|                       
|                       
|                       
|                        | Granted             |         |           | 1,127,550       |   |          |              | 16.20  59.00 |  |   |       | 29.41 | 
|                       
|                       
|                       
|                       
|                        | Exercised           |         |           | (447,793        | ) |          |              | 2.04  37.86  |  |   |       | 12.57 | 
|                       
|                       
|                       
|                       
|                        | Canceled or expired |         |           | (135,832        | ) |          |              | 2.04  56.50  |  |   |       | 23.98 | 
|                        |                     |         |           |                 |   |          |              |               |  |   |       |      
|Balance at May 31, 1998 |                     |         | 3,979,307 |                 |   | $        | 2.04  59.00 |               |  | $ | 22.32 |      
|                       
|                       
|                       
|                       
|                        | Granted             |         |           | 758,512         |   |          |              | 8.70  16.38  |  |   |       | 11.64 | 
|                       
|                       
|                       
|                       
|                        | Exercised           |         |           | (186,790        | ) |          |              | 2.04  15.32  |  |   |       | 3.26  | 
|                       
|                       
|                       
|                       
|                        | Canceled or expired |         |           | (737,190        | ) |          |              | 2.04  56.25  |  |   |       | 26.23 | 
|                        |                     |         |           |                 |   |          |              |               |  |   |       |      
|Balance at May 31, 1999 |                     |         | 3,813,839 |                 |   | $        | 2.04  59.00 |               |  | $ | 20.71 |      
|                       
|                       
|                       
|                       
|                        | Granted             |         |           | 2,213,750       |   |          |              | 9.44  21.50  |  |   |       | 11.86 | 
|                       
|                       
|                       
|                       
|                        | Exercised           |         |           | (242,214        | ) |          |              | 2.04  25.18  |  |   |       | 12.05 | 
|                       
|                       
|                       
|                       
|                        | Canceled or expired |         |           | (402,292        | ) |          |              | 2.04  56.25  |  |   |       | 19.98 | 
|                        |                     |         |           |                 |   |          |              |               |  |   |       |      
|Balance at June 3, 2000 |                     |         | 5,383,083 |                 |   | $        | 2.04  59.00 |               |  | $ | 17.51 |      
|                        |                     |         |           |                 |   |          |              |               |  |   |       |      

The following table summarizes information about stock options
outstanding at June 3, 2000:

|                |               |             |  |             |           |           |  |             |     |           |  |   |       |  |  |  |           |  |  |   |       | 
|--------------- | ------------- | ----------- |  | ----------- | --------- | --------- |  | ----------- | --- | --------- |  | - | ----- |  |  |  | --------- |  |  | - | ----- | 
|                |               |             |  | Weighted    |           |           |  |             |     |          
|                |               | Options     |  | Average     |           |           |  | Options     |     |          
|                |               | Outstanding |  | Remaining   |           | Weighted- |  | Exercisable |     | Weighted-
|                |               | at          |  | Contractual |           | Average   |  | at          |     | Average  
|Range of        |               | June 3,     |  | Life        |           | Exercise  |  | June 3,     |     | Exercise 
|Exercise Prices |               | 2000        |  | (Years)     |           | Price     |  | 2000        |     | Price    
|                |               |             |  |             |           |           |  |             |     |          
|$               | 2.04   5.90  |             |  |             | 169,626   |           |  |             | 4.3 |           |  | $ | 3.37  |  |  |  | 169,626   |  |  | $ | 3.37  | 
|$               | 5.91  11.80  |             |  |             | 1,245,430 |           |  |             | 8.9 |           |  |   | 9.87  |  |  |  | 193,320   |  |  |   | 9.87  | 
|$               | 11.81  17.70 |             |  |             | 1,555,049 |           |  |             | 9.6 |           |  |   | 12.90 |  |  |  | 230,410   |  |  |   | 13.37 | 
|$               | 17.71  23.60 |             |  |             | 1,600,186 |           |  |             | 6.7 |           |  |   | 19.68 |  |  |  | 1,272,748 |  |  |   | 19.64 | 
|$               | 23.61  29.50 |             |  |             | 55,265    |           |  |             | 8.1 |           |  |   | 24.88 |  |  |  | 30,736    |  |  |   | 24.81 | 
|$               | 29.51  35.40 |             |  |             | 8,852     |           |  |             | 7.6 |           |  |   | 33.93 |  |  |  | 8,312     |  |  |   | 34.00 | 
|$               | 35.41  41.30 |             |  |             | 721,957   |           |  |             | 7.6 |           |  |   | 37.09 |  |  |  | 456,934   |  |  |   | 37.01 | 
|$               | 41.31  47.20 |             |  |             | 7,008     |           |  |             | 7.6 |           |  |   | 46.07 |  |  |  | 1,480     |  |  |   | 45.67 | 
|$               | 47.21  53.10 |             |  |             | 800       |           |  |             | 7.3 |           |  |   | 51.00 |  |  |  | 320       |  |  |   | 51.00 | 
|$               | 53.11  59.00 |             |  |             | 18,910    |           |  |             | 7.0 |           |  |   | 55.36 |  |  |  | 8,140     |  |  |   | 55.25 | 
|                |               |             |  |             |           |           |  |             |     |           |  |   |       |  |  |  |           |  |  |   |       | 
|$               | 2.04  59.00  |             |  |             | 5,383,083 |           |  |             | 8.1 |           |  | $ | 17.51 |  |  |  | 2,372,026 |  |  | $ | 20.68 | 
|                |               |             |  |             |           |           |  |             |     |           |  |   |       |  |  |  |           |  |  |   |       | 

The Company applies the intrinsic value-based method of
accounting for its fixed plan stock options. 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

50



---



SPEEDFAM-IPEC, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

value at the grant date for awards in 2000, 1999 and 1998, the
Companys net loss and loss per share would have been
increased to the pro forma amounts indicated below (in thousands
except per share data):

|                                                         |  |      |         |      |  |      |          |   |  |  |         |  
|-------------------------------------------------------- |  | ---- | ------- | ---- |  | ---- | -------- | - |  |  | ------- | -
|                                                         |  | 2000 |         | 1999 |  | 1998
|                                                         |  |      |         |      |  |     
|Net loss attributable to common stockholders as reported |  | $    | (14,178 | )    |  |      | (139,949 | ) |  |  | (29,640 | )
|                                                        
|                                                        
|                                                        
|                                                        
|Pro forma net loss attributable to common stockholders   |  |      | (23,588 | )    |  |      | (148,630 | ) |  |  | (43,681 | )
|                                                        
|                                                        
|                                                        
|                                                        
|Basic and diluted loss per share as reported             |  |      | (0.48   | )    |  |      | (4.84    | ) |  |  | (1.08   | )
|                                                        
|                                                        
|                                                        
|                                                        
|Basic and diluted pro forma loss per share               |  |      | (0.80   | )    |  |      | (5.14    | ) |  |  | (1.59   | )
|                                                         |  |      |         |      |  |      |          |   |  |  |         |  

The pro forma net loss amounts presented above do not reflect the
 full impact of calculating compensation cost for options on a
fair value basis because compensation cost is reflected over the
options vesting period of up to 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 2000, 1999, and 1998.

|                        |  |      |      |      |  |      |      |   |  |  |             |  
|----------------------- |  | ---- | ---- | ---- |  | ---- | ---- | - |  |  | ----------- | -
|                        |  | 2000 |      | 1999 |  | 1998
|                        |  |      |      |      |  |     
|Dividend yield          |  |      | None |      |  |      | None |   |  |  | None        |  
|                       
|                       
|                       
|                       
|Expected volatility     |  |      | 85   | %    |  |      | 66   | % |  |  | 61  90     | %
|                       
|                       
|                       
|                       
|Risk-free interest rate |  |      | 6.60 |      |  |      | 5.63 |   |  |  | 5.53  6.25 |  
|                       
|                       
|                       
|                       
|Expected lives in years |  |      | 3    |      |  |      | 3    |   |  |  | 3           |  
|                        |  |      |      |      |  |      |      |   |  |  |             |  

The weighted average fair value of options granted was $6.88 per
share, $7.82 per share, and $15.96 per share for 2000, 1999, and
1998, respectively.

(18)  Business Segment Information

The Company classifies its products into three core business
segments: (i) the CMP Group, which is comprised of the
Companys development and production of chemical mechanical
planarization systems; (ii) the Surface Technology Group,
which is comprised of the development of high-throughput
precision surface processing equipment used in thin film memory
disk media; and (iii) the Industrial Applications Group,
which is comprised of the development and production of
high-throughput precision surface processing equipment used in
general industrial applications. Information concerning the
Companys business segments in 2000, 1999, and 1998 is as
follows (in thousands):

|                                 |                               |                               |                                       |        |         |         |  |         |         |          |   |        |         |         | 
|-------------------------------- | ----------------------------- | ----------------------------- | ------------------------------------- | ------ | ------- | ------- |  | ------- | ------- | -------- | - | ------ | ------- | ------- | 
|                                 |                               | 2000                          |                                       | 1999   |         | 1998   
|                                 |                               |                               |                                       |        |         |        
|Sales:                           |                               |                               |                                       |        |         |         |  |         |         |          |   |       
|                                
|                                
|                                
|                                
|                                 | Net sales to customers:       |                               |                                       |        |         |         |  |         |         |          |   |        |        
|                                
|                                
|                                
|                                
|                                 |                               | CMP Group                     |                                       | $      | 230,191 |         |  |         | 160,639 |          |   |        | 280,064 |        
|                                
|                                
|                                
|                                
|                                 |                               | Surface Technology Group      |                                       |        | 29,155  |         |  |         | 42,440  |          |   |        | 80,219  |        
|                                
|                                
|                                
|                                
|                                 |                               | Industrial Applications Group |                                       |        | 14,702  |         |  |         | 13,346  |          |   |        | 13,985  |        
|                                 |                               |                               |                                       |        |         |         |  |         |         |          |   |       
|                                 |                               |                               | Total net sales                       |        | $       | 274,048 |  |         |         | 216,425  |   |        |         | 374,268 | 
|                                 |                               |                               |                                       |        |         |         |  |         |         |          |   |       
|Segment operating profit (loss): |                               |                               |                                       |        |         |         |  |         |         |          |   |       
|                                
|                                
|                                
|                                
|                                 | CMP Group                     |                               | $                                     | (1,157 | )       |         |  | (89,527 | )       |          |   | 18,917 |        
|                                
|                                
|                                
|                                
|                                 | Surface Technology Group      |                               |                                       | (651   | )       |         |  | (30,429 | )       |          |   | 6,751  |        
|                                
|                                
|                                
|                                
|                                 | Industrial Applications Group |                               |                                       | 2,341  |         |         |  | 1,186   |         |          |   | 1,738  |        
|                                 |                               |                               |                                       |        |         |         |  |         |         |          |   |       
|                                 |                               |                               | Total segment operating profit (loss) |        |         | 533     |  |         |         | (118,770 | ) |        |         | 27,406  | 

51



---



SPEEDFAM-IPEC, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

|                          |                               |                                                                 |         |         |         |      |         |         |          |   |         |        |        | 
|------------------------- | ----------------------------- | --------------------------------------------------------------- | ------- | ------- | ------- | ---- | ------- | ------- | -------- | - | ------- | ------ | ------ | 
|                          |                               | 2000                                                            |         | 1999    |         | 1998
|                          |                               |                                                                 |         |         |         |     
|General corporate expense |                               |                                                                 | (10,233 | )       |         |      | (27,065 | )       |          |   | (24,339 | )     
|                         
|                         
|                         
|                         
|Interest income (expense) |                               |                                                                 | (1,200  | )       |         |      | 1,214   |         |          |   | 3,281   |       
|                          |                               |                                                                 |         |         |         |      |         |         |          |   |         |       
|                          |                               | Earnings (loss) from consolidated companies before income taxes |         | $       | (10,900 | )    |         |         | (144,621 | ) |         |        | 6,348  | 
|                          |                               |                                                                 |         |         |         |      |         |         |          |   |         |       
|Identifiable assets:      |                               |                                                                 |         |         |         |      |         |         |          |   |         |       
|                         
|                         
|                         
|                         
|                          | CMP Group                     |                                                                 | $       | 214,913 |         |      |         | 209,066 |          |   |         |        |       
|                         
|                         
|                         
|                         
|                          | Surface Technology Group      |                                                                 |         | 25,799  |         |      |         | 23,982  |          |   |         |        |       
|                         
|                         
|                         
|                         
|                          | Industrial Applications Group |                                                                 |         | 7,550   |         |      |         | 10,168  |          |   |         |        |       
|                         
|                         
|                         
|                         
|                          | Investments in affiliates     |                                                                 |         | 19,810  |         |      |         | 25,360  |          |   |         |        |       
|                         
|                         
|                         
|                         
|                          | Corporate assets              |                                                                 |         | 167,008 |         |      |         | 175,202 |          |   |         |        |       
|                          |                               |                                                                 |         |         |         |      |         |         |          |   |         |       
|                          |                               | Total identifiable assets                                       |         | $       | 435,080 |      |         |         | 443,778  |   |         |        |        | 
|                          |                               |                                                                 |         |         |         |      |         |         |          |   |         |       
|Capital expenditures:     |                               |                                                                 |         |         |         |      |         |         |          |   |         |       
|                         
|                         
|                         
|                         
|                          | CMP Group                     |                                                                 | $       | 9,790   |         |      |         | 29,825  |          |   |         | 46,675 |       
|                         
|                         
|                         
|                         
|                          | Surface Technology Group      |                                                                 |         | 225     |         |      |         | 469     |          |   |         | 295    |       
|                         
|                         
|                         
|                         
|                          | Industrial Applications Group |                                                                 |         |        |         |      |         | 45      |          |   |         | 800    |       
|                         
|                         
|                         
|                         
|                          | Corporate                     |                                                                 |         | 5,045   |         |      |         | 1,022   |          |   |         | 1,295  |       
|                          |                               |                                                                 |         |         |         |      |         |         |          |   |         |       
|                          |                               | Total capital expenditures                                      |         | $       | 15,060  |      |         |         | 31,361   |   |         |        | 49,065 | 
|                          |                               |                                                                 |         |         |         |      |         |         |          |   |         |       
|Depreciation expense:     |                               |                                                                 |         |         |         |      |         |         |          |   |         |       
|                         
|                         
|                         
|                         
|                          | CMP Group                     |                                                                 | $       | 11,101  |         |      |         | 16,226  |          |   |         | 8,709  |       
|                         
|                         
|                         
|                         
|                          | Surface Technology Group      |                                                                 |         | 808     |         |      |         | 1,250   |          |   |         | 1,912  |       
|                         
|                         
|                         
|                         
|                          | Industrial Applications Group |                                                                 |         | 176     |         |      |         | 321     |          |   |         | 321    |       
|                         
|                         
|                         
|                         
|                          | Corporate                     |                                                                 |         | 3,283   |         |      |         | 1,305   |          |   |         | 1,494  |       
|                          |                               |                                                                 |         |         |         |      |         |         |          |   |         |       
|                          |                               | Total depreciation expense                                      |         | $       | 15,368  |      |         |         | 19,102   |   |         |        | 12,436 | 
|                          |                               |                                                                 |         |         |         |      |         |         |          |   |         |       

Intersegment sales are not material. Segment operating profit
represents total net sales less cost of sales and operating
expenses, and excludes equity in net earnings of affiliates,
general corporate expenses, interest income and expense, and
income taxes. Segment identifiable assets are those assets
employed in each segments operation. Corporate assets
consist primarily of cash and cash equivalents, and short-term
investments.

52



---



SPEEDFAM-IPEC, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

Information regarding the Companys operations in the United
 States and internationally is presented below (in thousands):

|                                                |               |                                |   |         |         |      |  |         |         |  |  |         |         | 
|----------------------------------------------- | ------------- | ------------------------------ | - | ------- | ------- | ---- |  | ------- | ------- |  |  | ------- | ------- | 
|                                                |               | 2000                           |   | 1999    |         | 1998
|                                                |               |                                |   |         |         |     
|Third party sales (by destination of shipment): |               |                                |   |         |         |      |  |         |         |  |  |        
|                                               
|                                               
|                                               
|                                               
|                                                | United States |                                | $ | 83,461  |         |      |  | 135,476 |         |  |  | 245,779 |        
|                                               
|                                               
|                                               
|                                               
|                                                | Europe        |                                |   | 72,876  |         |      |  | 26,851  |         |  |  | 62,065  |        
|                                               
|                                               
|                                               
|                                               
|                                                | Asia          |                                |   | 115,407 |         |      |  | 49,643  |         |  |  | 59,318  |        
|                                               
|                                               
|                                               
|                                               
|                                                | Other         |                                |   | 2,304   |         |      |  | 4,455   |         |  |  | 7,106   |        
|                                                |               |                                |   |         |         |      |  |         |         |  |  |        
|                                                |               | Consolidated net sales         |   | $       | 274,048 |      |  |         | 216,425 |  |  |         | 374,268 | 
|                                                |               |                                |   |         |         |      |  |         |         |  |  |        
|Long-lived assets:                              |               |                                |   |         |         |      |  |         |         |  |  |        
|                                               
|                                               
|                                               
|                                               
|                                                | United States |                                |   | 120,799 |         |      |  | 128,917 |         |  |  |         |        
|                                               
|                                               
|                                               
|                                               
|                                                | Europe        |                                |   | 390     |         |      |  | 496     |         |  |  |         |        
|                                                |               |                                |   |         |         |      |  |         |         |  |  |        
|                                                |               | Consolidated long-lived assets |   |         | 121,189 |      |  |         | 129,413 |  |  |         |         | 
|                                                |               |                                |   |         |         |      |  |         |         |  |  |        

(19)  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 all of the Companys segments.

|         |  |      |    |      |  |      |    |   |  |  |    |  
|-------- |  | ---- | -- | ---- |  | ---- | -- | - |  |  | -- | -
|Customer |  | 2000 |    | 1999 |  | 1998
|         |  |      |    |      |  |     
|A        |  |      | 12 | %    |  |      | 11 | % |  |  | 19 | %
|        
|        
|        
|        
|B        |  |      | 11 | %    |  |      | *  |   |  |  | *  |  
|        
|        
|        
|        
|C        |  |      | *  |      |  |      | 11 | % |  |  | *  |  




|  |               
|- | --------------
|* | Less than 10%.

(20)  Quarterly Financial Information (Unaudited)

Following is a summary of unaudited quarterly information (in
thousands except per share data):

|                         |                                                         |         |   |         |   |         |  |         |   |  |  |         |   |  |  |         |    
|------------------------ | ------------------------------------------------------- | ------- | - | ------- | - | ------- |  | ------- | - |  |  | ------- | - |  |  | ------- | ---
|                         |                                                         | First   |   | Second  |   | Third   |  | Fourth 
|                         |                                                         | Quarter |   | Quarter |   | Quarter |  | Quarter
|                         |                                                         |         |   |         |   |         |  |        
|Year ended May 31, 1999: |                                                         |         |   |         |   |         |  |         |   |  |  |         |   |  |  |        
|                        
|                        
|                        
|                        
|                         | Total net sales                                         |         | $ | 65,569  |   |         |  | 48,265  |   |  |  | 53,279  |   |  |  | 49,312  |    
|                         |                                                         |         |   |         |   |         |  |         |   |  |  |         |   |  |  |        
|                         | Gross margin                                            |         | $ | 19,170  |   |         |  | 9,004   |   |  |  | 12,549  |   |  |  | (19,287 | )  
|                         |                                                         |         |   |         |   |         |  |         |   |  |  |         |   |  |  |        
|                         | Net earnings (loss) attributable to common stockholders |         |   | (7,310  | ) |         |  | (17,000 | ) |  |  | (15,729 | ) |  |  | (99,910 | )**
|                         |                                                         |         |   |         |   |         |  |         |   |  |  |         |   |  |  |        
|                         | Basic net earnings (loss) per share*                    |         | $ | (0.25   | ) |         |  | (0.59   | ) |  |  | (0.54   | ) |  |  | (3.42   | )  
|                         |                                                         |         |   |         |   |         |  |         |   |  |  |         |   |  |  |        
|                         | Diluted net earnings (loss) per share*                  |         | $ | (0.25   | ) |         |  | (0.59   | ) |  |  | (0.54   | ) |  |  | (3.42   | )  
|                         |                                                         |         |   |         |   |         |  |         |   |  |  |         |   |  |  |        

53



---



SPEEDFAM-IPEC, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

|                         |                                                         |         |   |         |   |         |  |         |   |  |  |        |   |  |  |        | 
|------------------------ | ------------------------------------------------------- | ------- | - | ------- | - | ------- |  | ------- | - |  |  | ------ | - |  |  | ------ | 
|                         |                                                         | First   |   | Second  |   | Third   |  | Fourth 
|                         |                                                         | Quarter |   | Quarter |   | Quarter |  | Quarter
|                         |                                                         |         |   |         |   |         |  |        
|Year ended June 3, 2000: |                                                         |         |   |         |   |         |  |         |   |  |  |        |   |  |  |       
|                        
|                        
|                        
|                        
|                         | Total net sales                                         |         | $ | 50,327  |   |         |  | 55,777  |   |  |  | 73,058 |   |  |  | 94,886 | 
|                         |                                                         |         |   |         |   |         |  |         |   |  |  |        |   |  |  |       
|                         | Gross margin                                            |         | $ | 15,167  |   |         |  | 18,040  |   |  |  | 24,469 |   |  |  | 31,845 | 
|                         |                                                         |         |   |         |   |         |  |         |   |  |  |        |   |  |  |       
|                         | Net earnings (loss) attributable to common stockholders |         | $ | (10,963 | ) |         |  | (4,490  | ) |  |  | (1,882 | ) |  |  | 3,157  | 
|                         |                                                         |         |   |         |   |         |  |         |   |  |  |        |   |  |  |       
|                         | Basic net earnings (loss) per share*                    |         | $ | (0.37   | ) |         |  | (0.15   | ) |  |  | (0.06  | ) |  |  | 0.11   | 
|                         |                                                         |         |   |         |   |         |  |         |   |  |  |        |   |  |  |       
|                         | Diluted net earnings (loss) per share                   |         | $ | (0.37   | ) |         |  | (0.15   | ) |  |  | (0.06  | ) |  |  | 0.10   | 
|                         |                                                         |         |   |         |   |         |  |         |   |  |  |        |   |  |  |       




|   |                                                                                                                                             
|-- | --------------------------------------------------------------------------------------------------------------------------------------------
|*  | Cross-footed and fiscal year end amounts may differ due to
	rounding differences.                                                           
|  
|** | The loss recorded by the Company in the fourth quarter of 1999
	includes $53.9 million for merger, integration, and restructuring
	 charges.

(21)  Other Income (Expense)

Other income (expense) consisted of the following for 2000,
1999, and 1998 (in thousands):

|                                       |  |      |        |      |  |      |        |   |  |  |        |  
|-------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ | - |  |  | ------ | -
|                                       |  | 2000 |        | 1999 |  | 1998
|                                       |  |      |        |      |  |     
|Interest income                        |  | $    | 6,808  |      |  |      | 9,691  |   |  |  | 10,089 |  
|                                      
|                                      
|                                      
|                                      
|Interest expense                       |  |      | (8,008 | )    |  |      | (8,477 | ) |  |  | (6,808 | )
|                                      
|                                      
|                                      
|                                      
|Insurance recovery on damaged shipment |  |      |       |      |  |      | 2,500  |   |  |  |       |  
|                                      
|                                      
|                                      
|                                      
|Gain on sale of Fujimi Corporation     |  |      | 6,103  |      |  |      |       |   |  |  |       |  
|                                      
|                                      
|                                      
|                                      
|Miscellaneous, net                     |  |      | 746    |      |  |      | 583    |   |  |  | 229    |  
|                                       |  |      |        |      |  |      |        |   |  |  |        |  
|                                       |  | $    | 5,649  |      |  |      | 4,297  |   |  |  | 3,510  |  
|                                       |  |      |        |      |  |      |        |   |  |  |        |  

(22)  Other Comprehensive Income

Changes in accumulated other comprehensive income (loss) are
 as follows (in thousands):

|                                                     |                              |      |   |       |   |      |  |      |   |  |  |        |  
|---------------------------------------------------- | ---------------------------- | ---- | - | ----- | - | ---- |  | ---- | - |  |  | ------ | -
|                                                     |                              | 2000 |   | 1999  |   | 1998
|                                                     |                              |      |   |       |   |     
|Foreign currency translation adjustments:            |                              |      |   |       |   |      |  |      |   |  |  |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Balance at beginning of year |      | $ | (60   | ) |      |  | (987 | ) |  |  | 1,582  |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Adjustments for year         |      |   | 1,299 |   |      |  | 927  |   |  |  | (2,569 | )
|                                                     |                              |      |   |       |   |      |  |      |   |  |  |       
|                                                     | Balance at end of year       |      | $ | 1,239 |   |      |  | (60  | ) |  |  | (987   | )
|                                                     |                              |      |   |       |   |      |  |      |   |  |  |       
|Unrealized holding gains (losses) on securities:     |                              |      |   |       |   |      |  |      |   |  |  |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Balance at beginning of year |      | $ | (170  | ) |      |  |     |   |  |  |       |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Adjustments for year         |      |   | (317  | ) |      |  | (170 | ) |  |  |       |  
|                                                     |                              |      |   |       |   |      |  |      |   |  |  |       
|                                                     | Balance at end of year       |      | $ | (487  | ) |      |  | (170 | ) |  |  |       |  
|                                                     |                              |      |   |       |   |      |  |      |   |  |  |       
|Total accumulated other comprehensive income (loss): |                              |      |   |       |   |      |  |      |   |  |  |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Balance at beginning of year |      | $ | (230  | ) |      |  | (987 | ) |  |  | 1,582  |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Adjustments for year         |      |   | 982   |   |      |  | 757  |   |  |  | (2,569 | )
|                                                     |                              |      |   |       |   |      |  |      |   |  |  |       
|                                                     | Balance at end of year       |      | $ | 752   |   |      |  | (230 | ) |  |  | (987   | )
|                                                     |                              |      |   |       |   |      |  |      |   |  |  |       

54



---



SPEEDFAM-IPEC, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

(23)  Related Party Transactions

During 2000, 1999 and 1998, the Company had purchases of raw
materials of approximately $2.9 million, $5.9 million and $2.2
million, respectively, from Berkeley Process Controls, a
California- based company, that is affiliated with the
Companys Co-Chairman of the Board of Directors.

(24)  Subsequent Events (unaudited)

On June 29, 2000, the Company announced that it reached an
agreement with its partner, Obara Corporation, in the Far East
Joint Venture (SpeedFam-IPEC, Co. Ltd), that will transfer full
ownership of CMP sales and service operations as well as all
related assets and liabilities to the Company. Per the agreement,
 Obara Corporation will assume the business operations for
non-CMP activities. In conjunction with this agreement, the
Company is evaluating its impact on its domestic non-CMP
operations. Based upon this ongoing review, as well as the terms
of the agreement reached with Obara Corporation, the Company
believes it will incur a special, non-cash charge to operations
in the range of $10.0 million to $20.0 million in the first half
of 2001. The Company believes there will be no material cash
outlays in conjunction with completing this transaction.

55



---



SPEEDFAM-IPEC CO., LTD.

Consolidated Financial Statements

April 30, 2000 and 1999

(With Independent Auditors Report Thereon)

56



---



Independent Auditors Report





We have audited the accompanying consolidated balance sheets of
SpeedFam-IPEC Co., Ltd. and subsidiaries as of April 30,
2000 and 1999, and the related consolidated statements of
operations, stockholders equity and comprehensive income,
and cash flows for each of the years in the three-year period
ended April 30, 2000. These consolidated financial
statements are the responsibility of the management of
SpeedFam-IPEC 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 auditing standards
generally accepted in the United States of America. 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-IPEC Co., Ltd. and subsidiaries as of
April 30, 2000 and 1999, and the results of their operations
 and their cash flows for each of the years in the three-year
period ended April 30, 2000, in conformity with accounting
principles generally accepted in the United States of America.

KPMG LLP

Chicago, Illinois



57



---



SPEEDFAM-IPEC CO., LTD.

CONSOLIDATED BALANCE SHEETS

April 30, 2000 and 1999


|                                     |                                                                                                                                                |                                            |        |        |         |  |        |        |         | 
|------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------ | ------ | ------- |  | ------ | ------ | ------- | 
|                                     |                                                                                                                                                | 2000                                       |        | 1999  
|                                     |                                                                                                                                                |                                            |        |       
|                                     |                                                                                                                                                |                                           
|                                     |                                                                                                                                                | (dollars in thousands,                    
|                                     |                                                                                                                                                | except share data)                        
|                                    
|                                    
|                                    
|                                    
|Assets                              
|                                    
|                                    
|                                    
|                                    
|Current assets:                      |                                                                                                                                                |                                            |        |        |         |  |        |       
|                                    
|                                    
|                                    
|                                    
|                                     | Cash and cash equivalents                                                                                                                      |                                            | $      | 9,584  |         |  |        | 4,058  |        
|                                    
|                                    
|                                    
|                                    
|                                     | Short-term investments                                                                                                                         |                                            |        | 5,300  |         |  |        | 4,905  |        
|                                    
|                                    
|                                    
|                                    
|                                     | Trade accounts and notes receivable, less allowance for doubtful
	accounts of $576 and $615 in 2000 and 1999, respectively                     |                                            |        | 41,753 |         |  |        | 51,959 |        
|                                    
|                                    
|                                    
|                                    
|                                     | Inventories                                                                                                                                    |                                            |        | 8,150  |         |  |        | 13,445 |        
|                                    
|                                    
|                                    
|                                    
|                                     | Due from affiliated companies                                                                                                                  |                                            |        | 10,332 |         |  |        | 3,711  |        
|                                    
|                                    
|                                    
|                                    
|                                     | Refundable income taxes                                                                                                                        |                                            |        |       |         |  |        | 1,467  |        
|                                    
|                                    
|                                    
|                                    
|                                     | Deferred income taxes                                                                                                                          |                                            |        | 3,110  |         |  |        | 1,445  |        
|                                    
|                                    
|                                    
|                                    
|                                     | Prepaid expenses and other current assets                                                                                                      |                                            |        | 874    |         |  |        | 770    |        
|                                     |                                                                                                                                                |                                            |        |        |         |  |        |       
|                                     |                                                                                                                                                | Total current assets                       |        |        | 79,103  |  |        |        | 81,760  | 
|                                    
|                                    
|                                    
|                                    
|Investment in affiliates             |                                                                                                                                                |                                            | 1,202  |        |         |  | 840    |       
|                                    
|                                    
|                                    
|                                    
|Property, plant, and equipment, net  |                                                                                                                                                |                                            | 33,535 |        |         |  | 36,003 |       
|                                    
|                                    
|                                    
|                                    
|Deferred income taxes                |                                                                                                                                                |                                            | 6,648  |        |         |  | 2,075  |       
|                                    
|                                    
|                                    
|                                    
|Other assets                         |                                                                                                                                                |                                            | 7,045  |        |         |  | 7,844  |       
|                                     |                                                                                                                                                |                                            |        |        |         |  |        |       
|                                     |                                                                                                                                                |                                            |        | $      | 127,533 |  |        |        | 128,522 | 
|                                     |                                                                                                                                                |                                            |        |        |         |  |        |       
|                                    
|                                    
|                                    
|                                    
|Liabilities and Stockholders Equity
|                                    
|                                    
|                                    
|                                    
|Current liabilities:                 |                                                                                                                                                |                                            |        |        |         |  |        |       
|                                    
|                                    
|                                    
|                                    
|                                     | Short-term borrowings                                                                                                                          |                                            | $      | 17,445 |         |  |        | 22,094 |        
|                                    
|                                    
|                                    
|                                    
|                                     | Current portion of long-term debt                                                                                                              |                                            |        | 6,700  |         |  |        | 3,896  |        
|                                    
|                                    
|                                    
|                                    
|                                     | Current portion of obligations under capital leases                                                                                            |                                            |        | 441    |         |  |        | 391    |        
|                                    
|                                    
|                                    
|                                    
|                                     | Accounts payable                                                                                                                               |                                            |        | 25,713 |         |  |        | 25,546 |        
|                                    
|                                    
|                                    
|                                    
|                                     | Accrued expenses                                                                                                                               |                                            |        | 8,412  |         |  |        | 5,862  |        
|                                    
|                                    
|                                    
|                                    
|                                     | Income taxes payable                                                                                                                           |                                            |        | 1,610  |         |  |        |       |        
|                                     |                                                                                                                                                |                                            |        |        |         |  |        |       
|                                     |                                                                                                                                                | Total current liabilities                  |        |        | 60,321  |  |        |        | 57,789  | 
|                                     |                                                                                                                                                |                                            |        |        |         |  |        |       
|Long-term liabilities:               |                                                                                                                                                |                                            |        |        |         |  |        |       
|                                    
|                                    
|                                    
|                                    
|                                     | Long-term debt                                                                                                                                 |                                            |        | 20,455 |         |  |        | 19,607 |        
|                                    
|                                    
|                                    
|                                    
|                                     | Obligations under capital leases                                                                                                               |                                            |        | 439    |         |  |        | 823    |        
|                                    
|                                    
|                                    
|                                    
|                                     | Liability for employee benefits                                                                                                                |                                            |        | 6,048  |         |  |        | 6,119  |        
|                                    
|                                    
|                                    
|                                    
|                                     | Minority interest                                                                                                                              |                                            |        | 654    |         |  |        | 657    |        
|                                     |                                                                                                                                                |                                            |        |        |         |  |        |       
|                                     |                                                                                                                                                | Total long-term liabilities                |        |        | 27,596  |  |        |        | 27,206  | 
|                                     |                                                                                                                                                |                                            |        |        |         |  |        |       
|Stockholders equity:                |                                                                                                                                                |                                            |        |        |         |  |        |       
|                                    
|                                    
|                                    
|                                    
|                                     | Common stock, $3 par value, 240,000 shares authorized, 198,000
	shares issued and outstanding at April 30, 2000 and 1999 and
	 paid in capital |                                            |        | 664    |         |  |        | 664    |        
|                                    
|                                    
|                                    
|                                    
|                                     | Retained earnings                                                                                                                              |                                            |        | 32,800 |         |  |        | 40,326 |        
|                                    
|                                    
|                                    
|                                    
|                                     | Accumulated other comprehensive income                                                                                                         |                                            |        | 6,152  |         |  |        | 2,537  |        
|                                     |                                                                                                                                                |                                            |        |        |         |  |        |       
|                                     |                                                                                                                                                | Total stockholders equity                 |        |        | 39,616  |  |        |        | 43,527  | 
|                                     |                                                                                                                                                |                                            |        |        |         |  |        |       
|                                     |                                                                                                                                                | Total liabilities and stockholders equity |        | $      | 127,533 |  |        |        | 128,522 | 
|                                     |                                                                                                                                                |                                            |        |        |         |  |        |       

See accompanying notes to consolidated financial statements.

58



---



SPEEDFAM-IPEC CO., LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS

Years ended April 30, 2000, 1999, and 1998


|                                                          |                                             |                        |         |      |   |      |         |        |   |  |         |        |  
|--------------------------------------------------------- | ------------------------------------------- | ---------------------- | ------- | ---- | - | ---- | ------- | ------ | - |  | ------- | ------ | -
|                                                          |                                             | 2000                   |         | 1999 |   | 1998
|                                                          |                                             |                        |         |      |   |     
|                                                          |                                             |                       
|                                                          |                                             | (dollars in thousands)
|                                                         
|                                                         
|                                                         
|                                                         
|Net sales                                                 |                                             | $                      | 108,000 |      |   |      | 136,232 |        |   |  | 221,738 |       
|                                                         
|                                                         
|                                                         
|                                                         
|Cost of sales                                             |                                             |                        | 78,369  |      |   |      | 99,276  |        |   |  | 165,152 |       
|                                                          |                                             |                        |         |      |   |      |         |        |   |  |         |       
|Gross margin                                              |                                             |                        | 29,631  |      |   |      | 36,956  |        |   |  | 56,586  |       
|                                                         
|                                                         
|                                                         
|                                                         
|Selling, general, and administrative expenses             |                                             |                        | 37,839  |      |   |      | 34,626  |        |   |  | 45,622  |       
|                                                         
|                                                         
|                                                         
|                                                         
|Restructuring costs                                       |                                             |                        | 3,067   |      |   |      |        |        |   |  |        |       
|                                                          |                                             |                        |         |      |   |      |         |        |   |  |         |       
|Operating profit (loss)                                   |                                             |                        | (11,275 | )    |   |      | 2,330   |        |   |  | 10,964  |       
|                                                          |                                             |                        |         |      |   |      |         |        |   |  |         |       
|Other income (expense):                                   |                                             |                        |         |      |   |      |         |        |   |  |         |       
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Gain (loss) on sales of assets              |                        |         | 4    |   |      |         | 45     |   |  |         | (956   | )
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Equity in net earnings (loss) of affiliates |                        |         | 289  |   |      |         | (103   | ) |  |         | 114    |  
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Interest income                             |                        |         | 533  |   |      |         | 604    |   |  |         | 426    |  
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Interest expense                            |                        |         | (996 | ) |      |         | (1,190 | ) |  |         | (1,114 | )
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Miscellaneous, net                          |                        |         | 523  |   |      |         | (832   | ) |  |         | 1,404  |  
|                                                          |                                             |                        |         |      |   |      |         |        |   |  |         |       
|                                                          |                                             |                        | 353     |      |   |      | (1,476  | )      |   |  | (126    | )     
|                                                          |                                             |                        |         |      |   |      |         |        |   |  |         |       
|Earnings (loss) before income taxes and minority interest |                                             |                        | (10,922 | )    |   |      | 854     |        |   |  | 10,838  |       
|                                                         
|                                                         
|                                                         
|                                                         
|Income tax expense (benefit)                              |                                             |                        | (3,346  | )    |   |      | 1,332   |        |   |  | 5,041   |       
|                                                          |                                             |                        |         |      |   |      |         |        |   |  |         |       
|Earnings (loss) before minority interest                  |                                             |                        | (7,576  | )    |   |      | (478    | )      |   |  | 5,797   |       
|                                                         
|                                                         
|                                                         
|                                                         
|Minority interest                                         |                                             |                        | 50      |      |   |      | 684     |        |   |  | 66      |       
|                                                          |                                             |                        |         |      |   |      |         |        |   |  |         |       
|Net earnings (loss)                                       |                                             | $                      | (7,526  | )    |   |      | 206     |        |   |  | 5,863   |       
|                                                          |                                             |                        |         |      |   |      |         |        |   |  |         |       

See accompanying notes to consolidated financial statements.

59



---



SPEEDFAM-IPEC CO., LTD.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND

COMPREHENSIVE INCOME


Years ended April 30, 2000, 1999, and 1998


|                             |                                          |                            |     |          |  |               |        |        |   |  |       |        |   |  |        |        |        |  
|---------------------------- | ---------------------------------------- | -------------------------- | --- | -------- |  | ------------- | ------ | ------ | - |  | ----- | ------ | - |  | ------ | ------ | ------ | -
|                             |                                          |                            |     |          |  | Accumulated   |        |       
|                             |                                          |                            |     |          |  | Other         |        |       
|                             |                                          |                            |     |          |  | Comprehensive |        |       
|                             |                                          | Common                     |     | Retained |  | Income        |        |       
|                             |                                          | Stock                      |     | Earnings |  | (Loss)        |        | Total 
|                             |                                          |                            |     |          |  |               |        |       
|                             |                                          |                           
|                             |                                          | (dollars in thousands)    
|                            
|                            
|                            
|                            
|Balance at April 30, 1997    |                                          | $                          | 664 |          |  |               | 37,049 |        |   |  | 3,013 |        |   |  | 40,726 |       
|                             |                                          |                            |     |          |  |               |        |        |   |  |       |        |   |  |        |       
|Comprehensive income:        |                                          |                            |     |          |  |               |        |        |   |  |       |        |   |  |        |       
|                            
|                            
|                            
|                            
|                             | Net earnings                             |                            |     |         |  |               |        | 5,863  |   |  |       |       |   |  |        | 5,863  |       
|                            
|                            
|                            
|                            
|                             | Foreign currency translation adjustments |                            |     |         |  |               |        |       |   |  |       | (3,661 | ) |  |        | (3,661 | )     
|                            
|                            
|                            
|                            
|                             | Unrealized losses on securities          |                            |     |         |  |               |        |       |   |  |       | (92    | ) |  |        | (92    | )     
|                             |                                          |                            |     |          |  |               |        |        |   |  |       |        |   |  |        |       
|                             |                                          | Total comprehensive income |     |          |  |               |        |        |   |  |       |        |   |  |        |        | 2,110  |  
|                             |                                          |                            |     |          |  |               |        |        |   |  |       |        |   |  |        |       
|Cash dividends               |                                          |                            |    |          |  |               | (1,750 | )      |   |  |      |        |   |  | (1,750 | )     
|                             |                                          |                            |     |          |  |               |        |        |   |  |       |        |   |  |        |       
|Balance at April 30, 1998    |                                          |                            | 664 |          |  |               | 41,162 |        |   |  | (740  | )      |   |  | 41,086 |       
|                            
|                            
|                            
|                            
|Comprehensive income:        |                                          |                            |     |          |  |               |        |        |   |  |       |        |   |  |        |       
|                            
|                            
|                            
|                            
|                             | Net earnings                             |                            |     |         |  |               |        | 206    |   |  |       |       |   |  |        | 206    |       
|                            
|                            
|                            
|                            
|                             | Foreign currency translation adjustments |                            |     |         |  |               |        |       |   |  |       | 3,185  |   |  |        | 3,185  |       
|                            
|                            
|                            
|                            
|                             | Unrealized gains on securities           |                            |     |         |  |               |        |       |   |  |       | 92     |   |  |        | 92     |       
|                             |                                          |                            |     |          |  |               |        |        |   |  |       |        |   |  |        |       
|                             |                                          | Total comprehensive income |     |          |  |               |        |        |   |  |       |        |   |  |        |        | 3,483  |  
|                             |                                          |                            |     |          |  |               |        |        |   |  |       |        |   |  |        |       
|Cash dividends               |                                          |                            |    |          |  |               | (1,042 | )      |   |  |      |        |   |  | (1,042 | )     
|                             |                                          |                            |     |          |  |               |        |        |   |  |       |        |   |  |        |       
|Balance at April 30, 1999    |                                          |                            | 664 |          |  |               | 40,326 |        |   |  | 2,537 |        |   |  | 43,527 |       
|                             |                                          |                            |     |          |  |               |        |        |   |  |       |        |   |  |        |       
|Comprehensive income (loss): |                                          |                            |     |          |  |               |        |        |   |  |       |        |   |  |        |       
|                            
|                            
|                            
|                            
|                             | Net loss                                 |                            |     |         |  |               |        | (7,526 | ) |  |       |       |   |  |        | (7,526 | )     
|                            
|                            
|                            
|                            
|                             | Foreign currency translation adjustments |                            |     |         |  |               |        |       |   |  |       | 3,773  |   |  |        | 3,773  |       
|                            
|                            
|                            
|                            
|                             | Unrealized losses on securities          |                            |     |         |  |               |        |       |   |  |       | (158   | ) |  |        | (158   | )     
|                             |                                          |                            |     |          |  |               |        |        |   |  |       |        |   |  |        |       
|                             |                                          | Total comprehensive loss   |     |          |  |               |        |        |   |  |       |        |   |  |        |        | (3,911 | )
|                             |                                          |                            |     |          |  |               |        |        |   |  |       |        |   |  |        |       
|Balance at April 30, 2000    |                                          | $                          | 664 |          |  |               | 32,800 |        |   |  | 6,152 |        |   |  | 39,616 |       
|                             |                                          |                            |     |          |  |               |        |        |   |  |       |        |   |  |        |       

See accompanying notes to consolidated financial statements.

60



---



SPEEDFAM-IPEC CO., LTD.

CONSOLIDATED STATEMENT OF CASH FLOWS

Years ended April 30, 2000, 1999, and 1998


|                                                |                                                                                                       |                                               |                                                             |                                                      |        |        |        |         |       |         |         |         |        |         |         |  
|----------------------------------------------- | ----------------------------------------------------------------------------------------------------- | --------------------------------------------- | ----------------------------------------------------------- | ---------------------------------------------------- | ------ | ------ | ------ | ------- | ----- | ------- | ------- | ------- | ------ | ------- | ------- | -
|                                                |                                                                                                       | 2000                                          |                                                             | 1999                                                 |        | 1998  
|                                                |                                                                                                       |                                               |                                                             |                                                      |        |       
|                                                |                                                                                                       |                                              
|                                                |                                                                                                       | (dollars in thousands)                       
|                                               
|                                               
|                                               
|                                               
|Cash flows from operating activities:           |                                                                                                       |                                               |                                                             |                                                      |        |        |        |         |       |         |         |        
|                                               
|                                               
|                                               
|                                               
|                                                | Net earnings (loss)                                                                                   |                                               | $                                                           | (7,526                                               | )      |        |        | 206     |       |         |         | 5,863   |       
|                                               
|                                               
|                                               
|                                               
|                                                | Adjustments to reconcile net earnings (loss) to net cash
	provided by (used in) operating activities: |                                               |                                                             |                                                      |        |        |        |         |       |         |         |         |       
|                                               
|                                               
|                                               
|                                               
|                                                |                                                                                                       | Equity in net (earnings) losses of affiliates |                                                             |                                                      | (289   | )      |        |         | 103   |         |         |         | (114   | )      
|                                               
|                                               
|                                               
|                                               
|                                                |                                                                                                       | Depreciation and amortization                 |                                                             |                                                      | 5,888  |        |        |         | 5,122 |         |         |         | 5,338  |        
|                                               
|                                               
|                                               
|                                               
|                                                |                                                                                                       | Deferred income tax expense (benefit)         |                                                             |                                                      | (5,761 | )      |        |         | 5     |         |         |         | (1,211 | )      
|                                               
|                                               
|                                               
|                                               
|                                                |                                                                                                       | Loss (gain) on sales of assets                |                                                             |                                                      | (4     | )      |        |         | (45   | )       |         |         | 956    |        
|                                               
|                                               
|                                               
|                                               
|                                                |                                                                                                       | Restructuring costs                           |                                                             |                                                      | 5,437  |        |        |         |      |         |         |         |       |        
|                                               
|                                               
|                                               
|                                               
|                                                |                                                                                                       | Other, net                                    |                                                             |                                                      | (579   | )      |        |         | 142   |         |         |         | 165    |        
|                                               
|                                               
|                                               
|                                               
|                                                |                                                                                                       | Changes in net assets and liabilities:        |                                                             |                                                      |        |        |        |         |       |         |         |         |        |        
|                                               
|                                               
|                                               
|                                               
|                                                |                                                                                                       |                                               | Trade accounts and notes receivable and due from affiliates |                                                      |        | 8,664  |        |         |       | 40,375  |         |         |        | (16,949 | )      
|                                               
|                                               
|                                               
|                                               
|                                                |                                                                                                       |                                               | Inventories                                                 |                                                      |        | 3,754  |        |         |       | 8,863   |         |         |        | 3,334   |        
|                                               
|                                               
|                                               
|                                               
|                                                |                                                                                                       |                                               | Prepaid expenses and other assets                           |                                                      |        | 996    |        |         |       | 452     |         |         |        | (2,389  | )      
|                                               
|                                               
|                                               
|                                               
|                                                |                                                                                                       |                                               | Accounts payable                                            |                                                      |        | (2,151 | )      |         |       | (36,885 | )       |         |        | (3,597  | )      
|                                               
|                                               
|                                               
|                                               
|                                                |                                                                                                       |                                               | Accrued expenses and other liabilities                      |                                                      |        | 1,077  |        |         |       | (1,817  | )       |         |        | (2,391  | )      
|                                               
|                                               
|                                               
|                                               
|                                                |                                                                                                       |                                               | Income taxes, net                                           |                                                      |        | 3,126  |        |         |       | (3,895  | )       |         |        | (1,585  | )      
|                                                |                                                                                                       |                                               |                                                             |                                                      |        |        |        |         |       |         |         |        
|                                                |                                                                                                       |                                               |                                                             | Net cash provided by (used in) operating activities  |        |        | 12,632 |         |       |         | 12,626  |         |        |         | (12,580 | )
|                                                |                                                                                                       |                                               |                                                             |                                                      |        |        |        |         |       |         |         |        
|Cash flows from investing activities:           |                                                                                                       |                                               |                                                             |                                                      |        |        |        |         |       |         |         |        
|                                               
|                                               
|                                               
|                                               
|                                                | Capital expenditures                                                                                  |                                               |                                                             | (1,887                                               | )      |        |        | (1,642  | )     |         |         | (14,351 | )     
|                                               
|                                               
|                                               
|                                               
|                                                | Proceeds from sales of assets                                                                         |                                               |                                                             | 70                                                   |        |        |        | 74      |       |         |         | 572     |       
|                                               
|                                               
|                                               
|                                               
|                                                | Other investing activities                                                                            |                                               |                                                             | (77                                                  | )      |        |        | (16     | )     |         |         | (2,503  | )     
|                                                |                                                                                                       |                                               |                                                             |                                                      |        |        |        |         |       |         |         |        
|                                                |                                                                                                       |                                               |                                                             | Net cash used in investing activities                |        |        | (1,894 | )       |       |         | (1,584  | )       |        |         | (16,282 | )
|                                                |                                                                                                       |                                               |                                                             |                                                      |        |        |        |         |       |         |         |        
|Cash flows from financing activities:           |                                                                                                       |                                               |                                                             |                                                      |        |        |        |         |       |         |         |        
|                                               
|                                               
|                                               
|                                               
|                                                | Dividends paid                                                                                        |                                               |                                                             |                                                     |        |        |        | (1,042  | )     |         |         | (1,750  | )     
|                                               
|                                               
|                                               
|                                               
|                                                | Short-term borrowings, net                                                                            |                                               |                                                             | (6,766                                               | )      |        |        | (13,793 | )     |         |         | 23,086  |       
|                                               
|                                               
|                                               
|                                               
|                                                | Principal payments under capital lease obligations                                                    |                                               |                                                             | (437                                                 | )      |        |        | (39     | )     |         |         | 546     |       
|                                               
|                                               
|                                               
|                                               
|                                                | Proceeds from long-term debt                                                                          |                                               |                                                             | 6,867                                                |        |        |        | 6,131   |       |         |         | 13,866  |       
|                                               
|                                               
|                                               
|                                               
|                                                | Principal payments on long-term borrowings                                                            |                                               |                                                             | (5,501                                               | )      |        |        | (7,583  | )     |         |         | (3,909  | )     
|                                                |                                                                                                       |                                               |                                                             |                                                      |        |        |        |         |       |         |         |        
|                                                |                                                                                                       |                                               |                                                             | Net cash provided by (used in) financing activities  |        |        | (5,837 | )       |       |         | (16,326 | )       |        |         | 31,839  |  
|                                                |                                                                                                       |                                               |                                                             |                                                      |        |        |        |         |       |         |         |        
|Effect of foreign currency rate changes on cash |                                                                                                       |                                               | 625                                                         |                                                      |        |        | 459    |         |       |         | (1,191  | )      
|                                                |                                                                                                       |                                               |                                                             |                                                      |        |        |        |         |       |         |         |        
|                                                |                                                                                                       |                                               |                                                             | Net increase (decrease) in cash and cash equivalents |        |        | 5,526  |         |       |         | (4,825  | )       |        |         | 1,786   |  
|                                               
|                                               
|                                               
|                                               
|Cash and cash equivalents at beginning of year  |                                                                                                       |                                               | 4,058                                                       |                                                      |        |        | 8,883  |         |       |         | 7,097   |        
|                                                |                                                                                                       |                                               |                                                             |                                                      |        |        |        |         |       |         |         |        
|Cash and cash equivalents at end of year        |                                                                                                       | $                                             | 9,584                                                       |                                                      |        |        | 4,058  |         |       |         | 8,883   |        
|                                                |                                                                                                       |                                               |                                                             |                                                      |        |        |        |         |       |         |         |        
|Supplemental cash flow information:             |                                                                                                       |                                               |                                                             |                                                      |        |        |        |         |       |         |         |        
|                                               
|                                               
|                                               
|                                               
|                                                | Cash paid during the year for:                                                                        |                                               |                                                             |                                                      |        |        |        |         |       |         |         |         |       
|                                               
|                                               
|                                               
|                                               
|                                                |                                                                                                       | Interest                                      |                                                             | $                                                    | 1,052  |        |        |         | 1,003 |         |         |         | 1,135  |        
|                                               
|                                               
|                                               
|                                               
|                                                |                                                                                                       | Income taxes                                  |                                                             | $                                                    | 1,259  |        |        |         | 6,322 |         |         |         | 8,043  |        
|                                               
|                                               
|                                               
|                                               
|                                                | Capital lease obligation increase during the period                                                   |                                               | $                                                           |                                                     |        |        |        | 263     |       |         |         | 528     |       
|                                                |                                                                                                       |                                               |                                                             |                                                      |        |        |        |         |       |         |         |        

See accompanying notes to consolidated financial statements.

61



---



SPEEDFAM-IPEC CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) Summary of Significant Accounting Policies

SpeedFam-IPEC Co., Ltd. (the Company), formerly SpeedFam Co.,
Ltd., was incorporated in 1971 as a joint venture owned equally
by two corporate shareholders, Obara Corporation, a Japanese
company, and SpeedFam-IPEC, Inc., formerly SpeedFam
International, Inc., a U.S. company. The Company changed its name
 after the merger of SpeedFam International, Inc. and Integrated
Process Equipment Corp., Inc. effective in April, 1999.

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:

|                                 |  |            |        |          |  |          |             |  |  |  |          | 
|-------------------------------- |  | ---------- | ------ | -------- |  | -------- | ----------- |  |  |  | -------- | 
|                                 |  | Percentage |        |          |  |         
|                                 |  | of         |        |          |  | Fiscal  
|Subsidiaries                     |  | Ownership  |        | Location |  | Year End
|                                 |  |            |        |          |  |         
|SpeedFam Clean Systems Co., Ltd. |  |            | 71.25  | %(*)     |  |          | Japan       |  |  |  | March 31 | 
|                                
|                                
|                                
|                                
|Saku Seiki Co., Ltd.             |  |            | 74.38  |          |  |          | Japan       |  |  |  | March 31 | 
|                                
|                                
|                                
|                                
|SpeedFam-IPEC Taiwan Ltd.        |  |            | 100.00 |          |  |          | Taiwan      |  |  |  | March 31 | 
|                                
|                                
|                                
|                                
|SpeedFam-IPEC Korea Ltd.         |  |            | 100.00 |          |  |          | South Korea |  |  |  | March 31 | 
|                                
|                                
|                                
|                                
|SpeedFam-IPEC India (Pvt.) Ltd.  |  |            | 95.00  | (**)     |  |          | India       |  |  |  | March 31 | 
|                                
|                                
|                                
|                                
|SpeedFam (Malaysia) SDN BHD      |  |            | 100.00 |          |  |          | Malaysia    |  |  |  | March 31 | 
|                                
|                                
|                                
|                                
|SpeedFam-IPEC (S.E.A.) Pte. Ltd. |  |            | 100.00 |          |  |          | Singapore   |  |  |  | March 31 | 
|                                 |  |            |        |          |  |          |             |  |  |  |          | 




|     |                                
|---- | -------------------------------
|(*)  | 67.50% (1999) and 62.50% (1998)
|    
|(**) | 82.00% (1999)                  

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) and GRT Co. Ltd. (23.08% owned) are
accounted for by the equity method. The investment in Clean
Technology Co. Ltd., a 27.5% owned affiliate of SpeedFam Clean
Systems Co., Ltd., and 22.5% owned directly by the Company, is
also accounted for by the equity method.

62



---



SPEEDFAM-IPEC CO., LTD.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

(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. These highly liquid short-term investments are
carried at cost which approximates market.

(d) Investments

The Company classifies its investments in debt and equity
securities into one of two categories: available-for-sale or
held-to-maturity. 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 held-to-maturity are classified as
available-for-sale.

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 $5.5
million, $5 million and $5.2 million in fiscal years 2000, 1999,
and 1998, respectively. The estimated useful lives of the assets
are as follows:

|                           |  |  |               | 
|-------------------------- |  |  | ------------- | 
|                          
|                          
|                          
|                          
|Buildings and improvements |  |  | 3 to 60 years | 
|                          
|                          
|                          
|                          
|Machinery and equipment    |  |  | 2 to 13 years | 
|                          
|                          
|                          
|                          
|Furniture and fixtures     |  |  | 2 to 20 years | 
|                           |  |  |               | 

(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.

63



---



SPEEDFAM-IPEC CO., LTD.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

(h) Revenue Recognition

Sales of the Companys products are recorded upon shipment.

(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
historical experience factors.

(j)  Foreign Currency Translation

The local currency is the functional currency for all non-Japan
operations. Accordingly, translation gains or losses related to
the non-Japan subsidiaries financial statements are
included as a component of stockholders equity.

(k)  Significant Customer

The Company had sales to a Japanese company that amounted to
approximately 9.6%, 10.3%, and 20.3% of net sales in fiscal years
 2000, 1999, and 1998, respectively.

(l)  Research and Development

Research and development expense amounted to $10.9 million, $7.4
million, and $7.5 million in fiscal years 2000, 1999, and 1998,
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
disclosures of contingent 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 fiscal year 1999 and 1998 financial
statements have been reclassified to conform with the fiscal year
 2000 financial statement presentation.

(o)  Impairment of Long-Lived Assets
and Long-Lived Assets to Be Disposed Of

The Company continually evaluates whether events and
circumstances have occurred that indicate the estimated useful
lives of long-lived assets or intangible assets may warrant
revision or that the remaining balance may not be recoverable.
When factors indicate that an asset should be evaluated for
possible impairment, the Company uses an estimate of the related
undiscounted net cash flows generated by the asset over the
remaining estimated life of the asset in measuring whether the
asset is recoverable. Material factors which may alter the useful
 life of the asset or lead to a determination that the balance
may not be recoverable include effects of new technologies,
obsolescence, demand, competition, and other economic factors. If
 an asset is considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount
 of the asset exceeds its fair value.

An asset to be disposed of is reported at the lower of its
carrying amount or fair value less costs to sell.

64



---



SPEEDFAM-IPEC CO., LTD.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

(p)  Fair Value of Financial
Instruments

The Companys financial instruments at April 30, 2000
and 1999 include cash equivalents, trade receivables, short-term
investments, short-term borrowings, trade payables, noncurrent
receivables, and long-term debt. The carrying amount of cash
equivalents, trade receivables, short-term borrowings, and trade
payables approximate 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 carrying values.

(2)  Inventories

Inventories at the end of fiscal years 2000 and 1999 are
summarized as follows (in thousands):

|                |                   |      |       |       |  |  |       |        | 
|--------------- | ----------------- | ---- | ----- | ----- |  |  | ----- | ------ | 
|                |                   | 2000 |       | 1999 
|                |                   |      |       |      
|Raw materials   |                   | $    | 1,202 |       |  |  | 1,270 |       
|               
|               
|               
|               
|Work-in-process |                   |      | 4,527 |       |  |  | 9,250 |       
|               
|               
|               
|               
|Finished goods  |                   |      | 2,421 |       |  |  | 2,925 |       
|                |                   |      |       |       |  |  |       |       
|                | Total inventories |      | $     | 8,150 |  |  |       | 13,445 | 
|                |                   |      |       |       |  |  |       |       

(3)  Investments

Investments at the end of fiscal years 2000 and 1999 are
summarized as follows (in thousands):

|                                                    |                                             |      |       |       |  |  |       |       | 
|--------------------------------------------------- | ------------------------------------------- | ---- | ----- | ----- |  |  | ----- | ----- | 
|                                                    |                                             | 2000 |       | 1999 
|                                                    |                                             |      |       |      
|Held-to-maturity debt securities, at amortized cost |                                             | $    | 106   |       |  |  | 96    |      
|                                                   
|                                                   
|                                                   
|                                                   
|Time deposits                                       |                                             |      | 5,194 |       |  |  | 4,809 |      
|                                                    |                                             |      |       |       |  |  |       |      
|                                                    | Total short-term investments                |      |       | 5,300 |  |  |       | 4,905 | 
|                                                    |                                             |      |       |       |  |  |       |      
|Available-for-sale equity securities, at fair value |                                             |      | 709   |       |  |  | 864   |      
|                                                   
|                                                   
|                                                   
|                                                   
|Held-to-maturity debt securities, at amortized cost |                                             |      | 26    |       |  |  | 29    |      
|                                                    |                                             |      |       |       |  |  |       |      
|                                                    | Total investments, included in other assets |      |       | 735   |  |  |       | 893   | 
|                                                    |                                             |      |       |       |  |  |       |      
|                                                    | Total investments                           |      | $     | 6,035 |  |  |       | 5,798 | 
|                                                    |                                             |      |       |       |  |  |       |      

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 2000
and 1999 are as follows (in thousands):

|      |                                      |           |   |            |  |            |  |       |  |  |  |     |   |  |  |     | 
|----- | ------------------------------------ | --------- | - | ---------- |  | ---------- |  | ----- |  |  |  | --- | - |  |  | --- | 
|      |                                      |           |   | Gross      |  | Gross      |  |      
|      |                                      |           |   | Unrealized |  | Unrealized |  |      
|      |                                      | Amortized |   | Holding    |  | Holding    |  | Fair 
|      |                                      | Cost      |   | Gains      |  | Losses     |  | Value
|      |                                      |           |   |            |  |            |  |      
|2000: |                                      |           |   |            |  |            |  |       |  |  |  |     |   |  |  |    
|     
|     
|     
|     
|      | Available-for-sale equity securities |           | $ | 610        |  |            |  | 125   |  |  |  | (26 | ) |  |  | 709 | 
|     
|     
|     
|     
|      | Held-to-maturity debt securities     |           |   | 132        |  |            |  |      |  |  |  |    |   |  |  | 132 | 
|      |                                      |           |   |            |  |            |  |       |  |  |  |     |   |  |  |    
|1999: |                                      |           |   |            |  |            |  |       |  |  |  |     |   |  |  |    
|     
|     
|     
|     
|      | Available-for-sale equity securities |           | $ | 526        |  |            |  | 393   |  |  |  | (55 | ) |  |  | 864 | 
|     
|     
|     
|     
|      | Held-to-maturity debt securities     |           |   | 125        |  |            |  |      |  |  |  |    |   |  |  | 125 | 
|      |                                      |           |   |            |  |            |  |       |  |  |  |     |   |  |  |    

65



---



SPEEDFAM-IPEC CO., LTD.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

No investments classified as available-for-sale were sold during
fiscal years 2000 and 1999. The Company does not hold securities
for trading purposes.

(4)  Property, Plant, and Equipment

Property, plant, and equipment at the end of fiscal years 2000
and 1999 are summarized as follows (in thousands):

|                                    |                               |      |        |         |   |  |        |         |  
|----------------------------------- | ----------------------------- | ---- | ------ | ------- | - |  | ------ | ------- | -
|                                    |                               | 2000 |        | 1999   
|                                    |                               |      |        |        
|Land                                |                               | $    | 13,769 |         |   |  | 12,543 |        
|                                   
|                                   
|                                   
|                                   
|Buildings and improvements          |                               |      | 18,512 |         |   |  | 16,807 |        
|                                   
|                                   
|                                   
|                                   
|Machinery and equipment             |                               |      | 29,162 |         |   |  | 27,293 |        
|                                   
|                                   
|                                   
|                                   
|Furniture and fixtures              |                               |      | 4,579  |         |   |  | 4,271  |        
|                                   
|                                   
|                                   
|                                   
|Construction in progress            |                               |      | 149    |         |   |  | 136    |        
|                                    |                               |      |        |         |   |  |        |        
|                                    |                               |      | 66,171 |         |   |  | 61,050 |        
|                                   
|                                   
|                                   
|                                   
|                                    | Less accumulated depreciation |      |        | (32,636 | ) |  |        | (25,047 | )
|                                    |                               |      |        |         |   |  |        |        
|Property, plant, and equipment, net |                               | $    | 33,535 |         |   |  | 36,003 |        
|                                    |                               |      |        |         |   |  |        |        

The Company is obligated under various equipment capital leases
which expire at various dates during the next five years. At the
end of fiscal year 2000, the gross amount of equipment and
related accumulated amortization recorded under capital leases
was $2.2 million and $1.1 million, respectively. Amortization of
assets held under capital leases is included within depreciation
expense.

(5)  Income Taxes

Earnings (loss) before income taxes and minority interest are as
follows (in thousands):

|          |       |      |         |         |   |      |        |     |  |  |       |        | 
|--------- | ----- | ---- | ------- | ------- | - | ---- | ------ | --- |  |  | ----- | ------ | 
|          |       | 2000 |         | 1999    |   | 1998
|          |       |      |         |         |   |     
|Japan     |       | $    | (14,915 | )       |   |      | (2,937 | )   |  |  | 4,429 |       
|         
|         
|         
|         
|Non-Japan |       |      | 3,993   |         |   |      | 3,791  |     |  |  | 6,409 |       
|          |       |      |         |         |   |      |        |     |  |  |       |       
|          | Total |      | $       | (10,922 | ) |      |        | 854 |  |  |       | 10,838 | 
|          |       |      |         |         |   |      |        |     |  |  |       |       

Income tax expense (benefit) is as follows:

|          |           |                              |        |        |        |      |   |       |       |  |        |        |       | 
|--------- | --------- | ---------------------------- | ------ | ------ | ------ | ---- | - | ----- | ----- |  | ------ | ------ | ----- | 
|          |           | 2000                         |        | 1999   |        | 1998
|Current:  |           |                              |        |        |        |     
|          |           |                              |        |        |        |     
|         
|         
|         
|         
|          | Japan     |                              | $      | 14     |        |      |   | 155   |       |  |        | 4,604  |      
|         
|         
|         
|         
|          | Non-Japan |                              |        | 2,401  |        |      |   | 1,172 |       |  |        | 1,648  |      
|          |           |                              |        |        |        |      |   |       |       |  |        |       
|          |           |                              |        |        | 2,415  |      |   |       | 1,327 |  |        |        | 6,252 | 
|          |           |                              |        |        |        |      |   |       |       |  |        |       
|Deferred: |           |                              |        |        |        |      |   |       |       |  |        |       
|         
|         
|         
|         
|          | Japan     |                              |        | (4,902 | )      |      |   | 45    |       |  |        | (1,291 | )    
|         
|         
|         
|         
|          | Non-Japan |                              |        | (859   | )      |      |   | (40   | )     |  |        | 80     |      
|          |           |                              |        |        |        |      |   |       |       |  |        |       
|          |           |                              | (5,761 | )      |        |      | 5 |       |       |  | (1,211 | )     
|          |           |                              |        |        |        |      |   |       |       |  |        |       
|          |           | Income tax expense (benefit) |        | $      | (3,346 | )    |   |       | 1,332 |  |        |        | 5,041 | 
|          |           |                              |        |        |        |      |   |       |       |  |        |       

66



---



SPEEDFAM-IPEC CO., LTD.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

The tax effects of temporary differences that give rise to the
net deferred tax asset at the end of fiscal years 2000 and 1999
are attributable to:

|                                 |                        |      |        |       |  |  |        |       | 
|-------------------------------- | ---------------------- | ---- | ------ | ----- |  |  | ------ | ----- | 
|                                 |                        | 2000 |        | 1999 
|                                 |                        |      |        |      
|Property, plant, and equipment   |                        | $    | 1,071  |       |  |  | (97    | )    
|                                
|                                
|                                
|                                
|Inventory                        |                        |      | 2,122  |       |  |  | 885    |      
|                                
|                                
|                                
|                                
|Allowance for doubtful accounts  |                        |      | 5      |       |  |  | (24    | )    
|                                
|                                
|                                
|                                
|Accrued employee benefits        |                        |      | 2,382  |       |  |  | 2,356  |      
|                                
|                                
|                                
|                                
|Accrued vacation                 |                        |      | 124    |       |  |  | 142    |      
|                                
|                                
|                                
|                                
|Business tax                     |                        |      |       |       |  |  | (142   | )    
|                                
|                                
|                                
|                                
|Long-term prepaid expenses       |                        |      | 791    |       |  |  | 136    |      
|                                
|                                
|                                
|                                
|Net operating loss carryforwards |                        |      | 3,961  |       |  |  | 1,487  |      
|                                
|                                
|                                
|                                
|Valuation allowance              |                        |      | (2,601 | )     |  |  | (1,404 | )    
|                                
|                                
|                                
|                                
|Foreign tax credit               |                        |      | 963    |       |  |  |       |      
|                                
|                                
|                                
|                                
|Warranty reserve                 |                        |      | 829    |       |  |  |       |      
|                                
|                                
|                                
|                                
|Other                            |                        |      | 111    |       |  |  | 181    |      
|                                 |                        |      |        |       |  |  |        |      
|                                 | Net deferred tax asset |      | $      | 9,758 |  |  |        | 3,520 | 
|                                 |                        |      |        |       |  |  |        |      

The Company recorded a valuation allowance of $2.6 million and
$1.4 million for deferred tax assets at the end of fiscal years
2000 and 1999. Net deferred tax assets are considered realizable
due to the expectation of future taxable income. Deferred income
taxes included as a component of stockholders equity
related to unrealized gains on marketable securities aggregated
$0.04 million and $0.1 million at the end of fiscal years 2000
and 1999, respectively.

At April 30, 1999, certain subsidiaries have net operating
loss carryforwards for income tax purposes of $9.8 million which
are available to offset future taxable income, if any, through
fiscal year 2003.

Amendments to Japanese tax regulations were enacted into law on
March 24, 1999 and March 31, 1998. As a result of these
 amendments, the normal income tax rate was reduced from
approximately 47% to 42% effective for the Companys fiscal
year 2000 and from approximately 51% to 47% effective for the
Companys fiscal year 1999. Current income taxes were
calculated at the statutory rate of 42%, 47% and 51% for the
years ended April 30, 2000, 1999 and 1998, respectively.
Deferred income taxes were calculated at the rate of 42% for the
years ended April 30, 2000 and 1999.

A reconciliation between the Companys effective tax rate
and the expected tax rate of 42% in 2000, 47% in 1999, and 51% in
 1998 in Japan on earnings before income taxes and minority
interest is as follows:

|                                                  |  |      |     |      |  |      |     |   |  |  |     |  
|------------------------------------------------- |  | ---- | --- | ---- |  | ---- | --- | - |  |  | --- | -
|                                                  |  | 2000 |     | 1999 |  | 1998
|                                                  |  |      |     |      |  |     
|Expected income tax rate                          |  |      | (42 | )%   |  |      | 47  | % |  |  | 51  | %
|                                                 
|                                                 
|                                                 
|                                                 
|Expenses not deductible for tax purposes          |  |      | 1   |      |  |      | 16  |   |  |  | 5   |  
|                                                 
|                                                 
|                                                 
|                                                 
|Equity in net (earnings) loss of affiliates       |  |      | (1  | )    |  |      | 7   |   |  |  | (1  | )
|                                                 
|                                                 
|                                                 
|                                                 
|Differences of non-Japan and expected tax rates |  |      | (5  | )    |  |      | (78 | ) |  |  | (15 | )
|                                                 
|                                                 
|                                                 
|                                                 
|Tax on dividend from foreign subsidiary           |  |      | 8   |      |  |      |    |   |  |  |    |  
|                                                 
|                                                 
|                                                 
|                                                 
|Effect of the income tax rate reduction           |  |      |    |      |  |      | 46  |   |  |  | 3   |  
|                                                 
|                                                 
|                                                 
|                                                 
|Increase in the valuation allowance               |  |      | 8   |      |  |      | 114 |   |  |  | 4   |  
|                                                 
|                                                 
|                                                 
|                                                 
|Other, net                                        |  |      |    |      |  |      | 4   |   |  |  |    |  
|                                                  |  |      |     |      |  |      |     |   |  |  |     |  
|Effective income tax rate                         |  |      | (31 | )%   |  |      | 156 | % |  |  | 47  | %
|                                                  |  |      |     |      |  |      |     |   |  |  |     |  

67



---



SPEEDFAM-IPEC CO., LTD.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

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 the end of
fiscal year 1997 have been examined by the Japanese tax
authorities.

(6)  Short-term Borrowings

Short-term borrowings are summarized as follows (in thousands):

|                                               |  |      |        |      |  |  |        | 
|---------------------------------------------- |  | ---- | ------ | ---- |  |  | ------ | 
|                                               |  | 2000 |        | 1999
|                                               |  |      |        |     
|Bank borrowings, including overdraft           |  | $    | 17,040 |      |  |  | 16,713 | 
|                                              
|                                              
|                                              
|                                              
|Trade notes discounted at banks, with recourse |  |      | 405    |      |  |  | 5,381  | 
|                                               |  |      |        |      |  |  |        | 
|                                               |  | $    | 17,445 |      |  |  | 22,094 | 
|                                               |  |      |        |      |  |  |        | 

The short-term borrowings had weighted average interest rates of
1.23%, 1.51%, and 1.65% in fiscal years 2000, 1999, and 1998,
respectively.

(7) Long-term Debt

Long-term debt consists of the following (in thousands):

|                                                                                                                                                                   |                                                             |                      |        |       |        |  |        |       |        | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ----------------------------------------------------------- | -------------------- | ------ | ----- | ------ |  | ------ | ----- | ------ | 
|                                                                                                                                                                   |                                                             | 2000                 |        | 1999 
|                                                                                                                                                                   |                                                             |                      |        |      
|Mortgage debentures:                                                                                                                                               |                                                             |                      |        |       |        |  |        |      
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                   | 3rd Series, due December 2000, fixed interest rate of 1.7%  |                      | $      | 919   |        |  |        | 838   |       
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                   | 4th Series, due September 2005, fixed interest rate of 1.8% |                      |        | 2,758 |        |  |        | 2,514 |       
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|Loans from banks and other financial institutions, maturing 2000
	to 2012, with weighted average interest rates of 2.30% and 2.40%
	in 2000 and 1999, respectively |                                                             |                      | 23,478 |       |        |  | 20,151 |      
|                                                                                                                                                                   |                                                             |                      |        |       |        |  |        |      
|                                                                                                                                                                   |                                                             | Total long-term debt |        |       | 27,155 |  |        |       | 23,503 | 
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|Less current portion of long-term debt                                                                                                                             |                                                             |                      | 6,700  |       |        |  | 3,896  |      
|                                                                                                                                                                   |                                                             |                      |        |       |        |  |        |      
|                                                                                                                                                                   |                                                             | Net long-term debt   |        | $     | 20,455 |  |        |       | 19,607 | 
|                                                                                                                                                                   |                                                             |                      |        |       |        |  |        |      

The mortgage debentures are secured by land and buildings with a
carrying value of $6.6 million at the end of fiscal year 2000.

At the end of fiscal year 2000, the Company has provided
guarantees for up to $0.2 million of bank borrowings by
SpeedFam-IPEC India (Pvt.) Ltd., a subsidiary of the Company. The
 Company does not anticipate any loss from these arrangements.

68



---



SPEEDFAM-IPEC CO., LTD.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

Annual maturities of long-term debt are as follows (in
thousands):

|                    |  |        |        | 
|------------------- |  | ------ | ------ | 
|Fiscal Year         |  | Amount
|                    |  |       
|2001                |  | $      | 6,700  | 
|                   
|                   
|                   
|                   
|2002                |  |        | 5,330  | 
|                   
|                   
|                   
|                   
|2003                |  |        | 4,153  | 
|                   
|                   
|                   
|                   
|2004                |  |        | 3,623  | 
|                   
|                   
|                   
|                   
|2005                |  |        | 2,384  | 
|                   
|                   
|                   
|                   
|2006 and thereafter |  |        | 4,965  | 
|                    |  |        |        | 
|                    |  | $      | 27,155 | 
|                    |  |        |        | 

(8)  Leases

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
2004. Rental expense was approximately $1.7 million, $1.7
million, and $1.9 million in fiscal years 2000, 1999, and 1998,
respectively.

Future minimum capital lease payments as of the end of fiscal
year 2000 are as follows (in thousands):

|                                                                |                                                               |                                                      |                              |      |     |     | 
|--------------------------------------------------------------- | ------------------------------------------------------------- | ---------------------------------------------------- | ---------------------------- | ---- | --- | --- | 
|Fiscal Year                                                     |                                                               | Amount                                              
|                                                                |                                                               |                                                     
|2001                                                            |                                                               | $                                                    | 456                          |     
|                                                               
|                                                               
|                                                               
|                                                               
|2002                                                            |                                                               |                                                      | 297                          |     
|                                                               
|                                                               
|                                                               
|                                                               
|2003                                                            |                                                               |                                                      | 100                          |     
|                                                               
|                                                               
|                                                               
|                                                               
|2004                                                            |                                                               |                                                      | 51                           |     
|                                                               
|                                                               
|                                                               
|                                                               
|2005                                                            |                                                               |                                                      | 20                           |     
|                                                                |                                                               |                                                      |                              |     
|                                                                |                                                               |                                                      | Total minimum lease payments |      |     | 924 | 
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                                                               | Less amount representing interest (at rate of 2.79%) |                              |      | (44 | )  
|                                                                |                                                               |                                                      |                              |     
|Present value of net minimum capital lease payments             |                                                               |                                                      | 880                          |     
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Less current installments of obligations under capital leases |                                                      |                              | (441 | )  
|                                                                |                                                               |                                                      |                              |     
|Obligation under capital leases, excluding current installments |                                                               | $                                                    | 439                          |     
|                                                                |                                                               |                                                      |                              |     

Future minimum lease payments for all noncancelable operating
leases having a remaining term in excess of one year at the end
of fiscal year 2000 are as follows (in thousands):

|            |       |        |     |       | 
|----------- | ----- | ------ | --- | ----- | 
|Fiscal Year |       | Amount
|            |       |       
|2001        |       | $      | 525 |      
|           
|           
|           
|           
|2002        |       |        | 334 |      
|           
|           
|           
|           
|2003        |       |        | 176 |      
|           
|           
|           
|           
|2004        |       |        | 56  |      
|           
|           
|           
|           
|2005        |       |        | 23  |      
|            |       |        |     |      
|            | Total |        | $   | 1,114 | 
|            |       |        |     |      

69



---



SPEEDFAM-IPEC CO., LTD.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

(9)  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.

Reconciliations of beginning and ending balances of benefit
obligations and the fair value of the Plan assets are as follows
(in thousands):

|                                                                  |                                                  |                       |       |       |     |   |       |       |    | 
|----------------------------------------------------------------- | ------------------------------------------------ | --------------------- | ----- | ----- | --- | - | ----- | ----- | -- | 
|                                                                  |                                                  |                      
|                                                                  |                                                  | Pension Benefits     
|                                                                  |                                                  |                      
|                                                                  |                                                  | 2000                  |       | 1999 
|                                                                  |                                                  |                       |       |      
|Change in benefit obligation:                                     |                                                  |                       |       |       |     |   |       |      
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Benefit obligation at beginning of period        |                       | $     | 2,084 |     |   |       | 2,217 |   
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Service cost                                     |                       |       | 273   |     |   |       | 199   |   
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Interest cost                                    |                       |       | 78    |     |   |       | 60    |   
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Actuarial gains                                  |                       |       | (117  | )   |   |       | (152  | ) 
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Benefits paid                                    |                       |       | (350  | )   |   |       | (462  | ) 
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Foreign currency translation                     |                       |       | 201   |     |   |       | 222   |   
|                                                                  |                                                  |                       |       |       |     |   |       |      
|Benefit obligation at end of year                                 |                                                  | $                     | 2,169 |       |     |   | 2,084 |      
|                                                                  |                                                  |                       |       |       |     |   |       |      
|Change in plan assets:                                            |                                                  |                       |       |       |     |   |       |      
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Fair value of plan assets at beginning of period |                       | $     | 1,528 |     |   |       | 1,623 |   
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Actual return on plan assets                     |                       |       | 201   |     |   |       | (41   | ) 
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Employer contributions                           |                       |       | 240   |     |   |       | 245   |   
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Benefits paid                                    |                       |       | (350  | )   |   |       | (462  | ) 
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Foreign currency translation                     |                       |       | 149   |     |   |       | 163   |   
|                                                                  |                                                  |                       |       |       |     |   |       |      
|Fair value of plan assets at end of year                          |                                                  | $                     | 1,768 |       |     |   | 1,528 |      
|                                                                  |                                                  |                       |       |       |     |   |       |      
|Funded status                                                     |                                                  | $                     | (401  | )     |     |   | (556  | )    
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Unrecognized net transition obligation                            |                                                  |                       | 121   |       |     |   | 125   |      
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Unrecognized net actuarial loss                                   |                                                  |                       | 214   |       |     |   | 461   |      
|                                                                  |                                                  |                       |       |       |     |   |       |      
|                                                                  |                                                  | Net amount recognized |       | $     | (66 | ) |       |       | 30 | 
|                                                                  |                                                  |                       |       |       |     |   |       |      
|Amounts recognized in the consolidated balance sheets consist of: |                                                  |                       |       |       |     |   |       |      
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Accrued benefit liability                        |                       | $     | (66   | )   |   |       | (35   | ) 
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Intangible assets                                |                       |       |      |     |   |       | 65    |   
|                                                                  |                                                  |                       |       |       |     |   |       |      
|Net amount recognized                                             |                                                  | $                     | (66   | )     |     |   | 30    |      
|                                                                  |                                                  |                       |       |       |     |   |       |      
|Actuarial present value of accumulated benefit obligations        |                                                  | $                     | 1,622 |       |     |   | 1,562 |      
|                                                                  |                                                  |                       |       |       |     |   |       |      

70



---



SPEEDFAM-IPEC CO., LTD.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

The components of net periodic pension cost for the insured
pension plan are shown below (in thousands):

|                                         |                                   |                           |   |      |     |      |  |     |     |  |  |     |     | 
|---------------------------------------- | --------------------------------- | ------------------------- | - | ---- | --- | ---- |  | --- | --- |  |  | --- | --- | 
|                                         |                                   | 2000                      |   | 1999 |     | 1998
|                                         |                                   |                           |   |      |     |     
|Components of net periodic pension cost: |                                   |                           |   |      |     |      |  |     |     |  |  |    
|                                        
|                                        
|                                        
|                                        
|                                         | Service cost                      |                           | $ | 273  |     |      |  | 212 |     |  |  | 166 |    
|                                        
|                                        
|                                        
|                                        
|                                         | Interest cost                     |                           |   | 78   |     |      |  | 63  |     |  |  | 85  |    
|                                        
|                                        
|                                        
|                                        
|                                         | Expected return on plan assets    |                           |   | (49  | )   |      |  | (39 | )   |  |  | (46 | )  
|                                        
|                                        
|                                        
|                                        
|                                         | Amortization of transition assets |                           |   | 15   |     |      |  | 11  |     |  |  | 13  |    
|                                        
|                                        
|                                        
|                                        
|                                         | Recognized actuarial loss         |                           |   | 22   |     |      |  | 26  |     |  |  |    |    
|                                         |                                   |                           |   |      |     |      |  |     |     |  |  |    
|                                         |                                   | Net periodic pension cost |   | $    | 339 |      |  |     | 273 |  |  |     | 218 | 
|                                         |                                   |                           |   |      |     |      |  |     |     |  |  |    
|Actuarial assumptions:                   |                                   |                           |   |      |     |      |  |     |     |  |  |    
|                                        
|                                        
|                                        
|                                        
|                                         | Weighted average discount rate    |                           |   | 3.5  | %   |      |  | 3.5 | %   |  |  | 5.5 | %  
|                                        
|                                        
|                                        
|                                        
|                                         | Expected return on plan assets    |                           |   | 2.8  | %   |      |  | 2.8 | %   |  |  | 3.0 | %  
|                                        
|                                        
|                                        
|                                        
|                                         | Rate of compensation increase     |                           |   | 2.8  | %   |      |  | 2.8 | %   |  |  | 3.0 | %  
|                                         |                                   |                           |   |      |     |      |  |     |     |  |  |    

The measurement date of the benefit obligations and the plan
assets has been changed from April 30 to January 31.
The period of calculation in fiscal year 1999 was for the nine
months ended January 31, 1999. The effect of the change of
the measurement date is not material to the financial condition
or results of operations of the Company.

Plan assets represent the Companys shares 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 length of service.
Directors and statutory auditors may also be granted, at the
discretion of the Company, additional lump-sum payments for
meritorious service. However, the Company decided not to grant
such additional portions to directors and statutory auditors and
respective reserves of $0.9 million were reversed and credited to
 retirement benefit expense during the year. 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 2000 and
1999 amounted to $5.6 million and $5.8 million, respectively. The
 plan was amended during fiscal year 1996 and the resulting past
service costs of $1.0 million are being amortized over a period
of five years. Unamortized past service cost at the end of fiscal
 years 2000 and 1999 amounting to $0 and $0.2 million,
respectively, is classified as other assets in the accompanying
consolidated balance sheets. The retirement benefit expense
(income) amounted to ($0.5 million), $0.5 million, and $1.5
million, in fiscal years 2000, 1999, and 1998, 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 2000 and 1999 of $0.4
million and $0.4 million, respectively. The estimated liabilities
 are 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 estimated liabilities
approximate vested benefits. The expense related to these
employee retirement and severance plans amounted to $0.1 million,
 $0.1 million, and $0.03 million, in fiscal years 2000, 1999, and
 1998, respectively. The Company believes that the effect of not
adopting SFAS No. 87,

71



---



SPEEDFAM-IPEC CO., LTD.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

Employers Accounting for Pensions, for these
plans is not material to the financial condition or results of
operations of the Company.

(10)  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 in which they operate. The legal
reserve included as a component of retained earnings at the end
of fiscal years 2000 and 1999 amounted to $1.8 million and $1.5
million, respectively.

(11)  Other Comprehensive Income

Changes in accumulated other comprehensive income (loss) are
 as follows (in thousands):

|                                                     |                              |      |   |       |   |      |  |       |   |  |  |        |  
|---------------------------------------------------- | ---------------------------- | ---- | - | ----- | - | ---- |  | ----- | - |  |  | ------ | -
|                                                     |                              | 2000 |   | 1999  |   | 1998
|                                                     |                              |      |   |       |   |     
|Foreign currency translation adjustments:            |                              |      |   |       |   |      |  |       |   |  |  |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Balance at beginning of year |      | $ | 2,341 |   |      |  | (844  | ) |  |  | 2,817  |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Adjustments for year         |      |   | 3,773 |   |      |  | 3,185 |   |  |  | (3,661 | )
|                                                     |                              |      |   |       |   |      |  |       |   |  |  |       
|                                                     | Balance at end of year       |      | $ | 6,114 |   |      |  | 2,341 |   |  |  | (844   | )
|                                                     |                              |      |   |       |   |      |  |       |   |  |  |       
|Unrealized holding gains (losses) on securities:     |                              |      |   |       |   |      |  |       |   |  |  |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Balance at beginning of year |      | $ | 196   |   |      |  | 104   |   |  |  | 196    |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Adjustments for year         |      |   | (158  | ) |      |  | 92    |   |  |  | (92    | )
|                                                     |                              |      |   |       |   |      |  |       |   |  |  |       
|                                                     | Balance at end of year       |      | $ | 38    |   |      |  | 196   |   |  |  | 104    |  
|                                                     |                              |      |   |       |   |      |  |       |   |  |  |       
|Total accumulated other comprehensive income (loss): |                              |      |   |       |   |      |  |       |   |  |  |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Balance at beginning of year |      | $ | 2,537 |   |      |  | (740  | ) |  |  | 3,013  |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Adjustments for year         |      |   | 3,615 |   |      |  | 3,277 |   |  |  | (3,753 | )
|                                                     |                              |      |   |       |   |      |  |       |   |  |  |       
|                                                     | Balance at end of year       |      | $ | 6,152 |   |      |  | 2,537 |   |  |  | (740   | )
|                                                     |                              |      |   |       |   |      |  |       |   |  |  |       

72



---



SPEEDFAM-IPEC CO., LTD.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

|      |                                          |                                   |   |            |        |         |  |      |      |   |  |        |        |  
|----- | ---------------------------------------- | --------------------------------- | - | ---------- | ------ | ------- |  | ---- | ---- | - |  | ------ | ------ | -
|      |                                          | Before                            |   | Tax        |        | Net-of-
|      |                                          | Tax                               |   | (Expense)  |        | tax    
|      |                                          | Amount                            |   | or Benefit |        | Amount 
|      |                                          |                                   |   |            |        |        
|1998: |                                          |                                   |   |            |        |         |  |      |      |   |  |       
|     
|     
|     
|     
|      | Foreign currency translation adjustments |                                   | $ | (3,661     | )      |         |  |     |      |   |  | (3,661 | )     
|     
|     
|     
|     
|      | Net unrealized losses                    |                                   |   | (201       | )      |         |  | 109  |      |   |  | (92    | )     
|      |                                          |                                   |   |            |        |         |  |      |      |   |  |       
|      |                                          | Other comprehensive income (loss) |   | $          | (3,862 | )       |  |      | 109  |   |  |        | (3,753 | )
|      |                                          |                                   |   |            |        |         |  |      |      |   |  |       
|1999: |                                          |                                   |   |            |        |         |  |      |      |   |  |       
|     
|     
|     
|     
|      | Foreign currency translation adjustments |                                   | $ | 3,185      |        |         |  |     |      |   |  | 3,185  |       
|     
|     
|     
|     
|      | Net unrealized gains                     |                                   |   | 201        |        |         |  | (109 | )    |   |  | 92     |       
|      |                                          |                                   |   |            |        |         |  |      |      |   |  |       
|      |                                          | Other comprehensive income (loss) |   | $          | 3,386  |         |  |      | (109 | ) |  |        | 3,277  |  
|      |                                          |                                   |   |            |        |         |  |      |      |   |  |       
|2000: |                                          |                                   |   |            |        |         |  |      |      |   |  |       
|     
|     
|     
|     
|      | Foreign currency translation adjustments |                                   | $ | 3,773      |        |         |  |     |      |   |  | 3,773  |       
|     
|     
|     
|     
|      | Net unrealized losses                    |                                   |   | (272       | )      |         |  | 114  |      |   |  | (158   | )     
|      |                                          |                                   |   |            |        |         |  |      |      |   |  |       
|      |                                          | Other comprehensive income (loss) |   | $          | 3,501  |         |  |      | 114  |   |  |        | 3,615  |  
|      |                                          |                                   |   |            |        |         |  |      |      |   |  |       

(12)  Related Party Transactions

The following is a summary of SpeedFam-IPEC Co., Ltd. and
consolidated subsidiaries transactions with SpeedFam-IPEC,
Inc. and its consolidated subsidiaries (in thousands):

|                                   |  |      |        |      |  |      |        |  |  |  |        | 
|---------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ |  |  |  | ------ | 
|                                   |  | 2000 |        | 1999 |  | 1998
|                                   |  |      |        |      |  |     
|Sales to SpeedFam-IPEC, Inc.       |  | $    | 10,437 |      |  |      | 12,985 |  |  |  | 30,239 | 
|                                  
|                                  
|                                  
|                                  
|Purchases from SpeedFam-IPEC, Inc. |  |      | 3,568  |      |  |      | 1,246  |  |  |  | 1,279  | 
|                                  
|                                  
|                                  
|                                  
|Commission income                  |  |      | 8,369  |      |  |      | 3,191  |  |  |  | 4,316  | 
|                                  
|                                  
|                                  
|                                  
|Commission expense                 |  |      | 1,986  |      |  |      | 298    |  |  |  | 426    | 

Included in sales to SpeedFam-IPEC, Inc. are transactions for
which commissions are paid to SpeedFam-IPEC, Inc. on sales to
third party customers in the U.S.

The following is summary of SpeedFam-IPEC Co., Ltd. transactions
with Met-Coil Ltd., a 50% owned affiliate, accounted for by the
equity method (in thousands):

|                             |  |      |   |      |  |      |    |  |  |  |       | 
|---------------------------- |  | ---- | - | ---- |  | ---- | -- |  |  |  | ----- | 
|                             |  | 2000 |   | 1999 |  | 1998
|                             |  |      |   |      |  |     
|Sales to Met-Coil Ltd.       |  | $    |  |      |  |      | 92 |  |  |  | 597   | 
|                            
|                            
|                            
|                            
|Purchases from Met-Coil Ltd. |  |      |  |      |  |      | 15 |  |  |  | 1,944 | 

(13)  Restructuring Costs

Following the merger of SpeedFam International, Inc. with
Integrated Process Equipment Corp., the Company (SpeedFam-IPEC
Co., Ltd.) ceased manufacturing and developing chemical
mechanical planarization (CMP) systems and recorded write-offs of
 inventory, manufacturing equipment and demonstration equipment
related to the CMP systems. In addition, the rapid change in
technology resulted in a significant reduction of the
Companys thin film memory disk media business except for
maintenance services. Thus, the Company recorded additional
write-offs of inventory, patent, manufacturing equipment and
demonstration equipment related to the thin film memory disk
business. Severance costs were recorded for the reduction of
approximately 40 employees resulting from the withdrawal from
these product lines. Cash outlays related to the restructuring
costs are limited to the severance costs of $386,000.

73



---



SPEEDFAM-IPEC CO., LTD.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

The following table summarizes the components of the
restructuring costs for fiscal year 2000 (in thousands):

|                        |  |   |       | 
|----------------------- |  | - | ----- | 
|                       
|                       
|                       
|                       
|Inventory               |  | $ | 2,756 | 
|                       
|                       
|                       
|                       
|Equipment               |  |   | 354   | 
|                       
|                       
|                       
|                       
|Demonstration equipment |  |   | 793   | 
|                       
|                       
|                       
|                       
|Severance costs         |  |   | 386   | 
|                       
|                       
|                       
|                       
|Patent                  |  |   | 1,534 | 
|                        |  |   |       | 
|                        |  | $ | 5,823 | 
|                        |  |   |       | 

The restructuring costs were classified in the consolidated
statement of earnings for the year ended April 30, 2000 in
cost of sales and restructuring costs. The following table
summarizes the classification of the restructuring costs (in
thousands):

|                    |  |   |       | 
|------------------- |  | - | ----- | 
|                   
|                   
|                   
|                   
|Cost of sales       |  | $ | 2,756 | 
|                   
|                   
|                   
|                   
|Restructuring costs |  |   | 3,067 | 
|                    |  |   |       | 
|                    |  | $ | 5,823 | 
|                    |  |   |       | 

(14)  Subsequent Event (unaudited)

SpeedFam-IPEC, Inc. and Obara Corporation, each 50% owners in the
 Company, signed a Memorandum of Understanding dated
June 27, 2000 that will transfer full ownership of CMP sales
 and service operations as well as all related assets and
liabilities to SpeedFam-IPEC, Inc., leaving the Company with all
non-CMP activities and related assets and liabilities. It is
expected that the terms contained therein will be carried out
during the first seven months of the Companys 2001 fiscal
year.

74



---





|        |                                                                                        
|------- | ---------------------------------------------------------------------------------------
|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 within 120
days of the end of the Companys fiscal year ended
June 3, 2000. 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:

|                             |  |      |     | 
|---------------------------- |  | ---- | --- | 
|                             |  | Page
|                             |  |     
|Independent Auditors Report |  |      | S-1 | 
|                            
|                            
|                            
|                            
|Schedule II                  |  |      | S-2 | 

(3)  Exhibits filed:

See Exhibit Index.

(b)  Reports filed on Form 8-K:

None



| |     |                
| | --- | ---------------
| | (c) | Exhibits filed:

See Exhibit Index.

(d)  Financial Statements Omitted from Annual Report to
Security Holders:

Financial Statements of SpeedFam-IPEC Co., Ltd. are filed
herewith. See Part II, Item 8.

75



---



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-IPEC, INC.                  
|
| | /s/ J. MICHAEL DODSON                
| |                                      
| | J. Michael Dodson                    
| | Secretary and Chief Financial Officer
| | (Principal Financial Officer)        
|
| | /s/ G. MICHAEL LATTA                 
| | G. Michael Latta                     
| | Corporate Controller                 
| | (Principal Accounting Officer)       

POWER OF ATTORNEY

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

Pursuant to the requirements of the Securities Exchange Act of
 1934, this report signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates
indicated.

|                                         |  |                                                                      |  |        
|---------------------------------------- |  | -------------------------------------------------------------------- |  | -------
|Name                                     |  | Title                                                                |  | Date   
|                                         |  |                                                                      |  |        
|/s/ JAMES N. FARLEYJames N. Farley       |  | Co-Chairman                                                          |  | 8/10/00
|                                        
|/s/ SANJEEV CHITRESanjeev Chitre         |  | Co-Chairman                                                          |  | 8/10/00
|                                        
|/s/ RICHARD J. FAUBERTRichard J. Faubert |  | President, Chief Executive Officer and Director                      |  | 8/10/00
|                                        
|/s/ J. MICHAEL DODSONJ. Michael Dodson   |  | Secretary and Chief Financial Officer (Principal Financial
	Officer) |  | 8/10/00
|                                        
|/s/ NEIL R. BONKENeil R. Bonke           |  | Director                                                             |  | 8/10/00

76



---



|                                   |  |          |  |        
|---------------------------------- |  | -------- |  | -------
|Name                               |  | Title    |  | Date   
|                                   |  |          |  |        
|/s/ WILLIAM FRESCHIWilliam Freschi |  | Director |  | 8/10/00
|                                  
|/s/ RICHARD S. HILLRichard S. Hill |  | Director |  | 8/10/00
|                                  
|/s/ MAKOTO KOUZUMAMakoto Kouzuma   |  | Director |  | 8/10/00
|                                  
|/s/ KENNETH LEVYKenneth Levy       |  | Director |  | 8/10/00
|                                  
|/s/ ROGER MCDANIELRoger McDaniel   |  | Director |  | 8/10/00

77



---



INDEPENDENT AUDITORS REPORT

The Board of Directors



Under date of June 27, 2000, we reported on the consolidated
 balance sheets of SpeedFam-IPEC, Inc. and consolidated
subsidiaries as of June 3, 2000 and May 31, 1999, and
the related consolidated statements of operations,
stockholders equity and comprehensive income, and cash
flows for each of the three fiscal years in the period from
June 1, 1997 through June 3, 2000, which are included
in this Form 10-K. In connection with our audits of the
aforementioned consolidated financial statements, we also audited
 the related consolidated financial statement schedule as listed
in Item 14(a)(2) of this Form 10-K. This financial
statement schedule is the responsibility of the Companys
management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits.

In our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.

KPMG LLP

Chicago, Illinois



S-1



---



Schedule II

SPEEDFAM-IPEC, INC.

VALUATION AND QUALIFYING ACCOUNTS

For each of the years in the three-year period ended
June 3, 2000


|                                 |      |                |   |          |  |                |  |              |  |         |  |    |   |  |  |       |  |  |   |       | 
|-------------------------------- | ---- | -------------- | - | -------- |  | -------------- |  | ------------ |  | ------- |  | -- | - |  |  | ----- |  |  | - | ----- | 
|                                 |      |                |   |          |  | Charged to     |  |              |  |        
|                                 |      |                |   |          |  | Other Accounts |  |              |  |        
|                                 |      |                |   | Charged  |  | (Translation   |  | Deductions   |  |        
|                                 |      | Balance at     |   | to Costs |  | Adjustments    |  | (Write-offs  |  | Balance
|                                 |      | Beginning      |   | and      |  | and            |  | and          |  | at End 
|Description                      |      | of Year        |   | Expense  |  | Recoveries)    |  | Adjustments) |  | of Year
|                                 |      |                |   |          |  |                |  |              |  |        
|                                 |      |               
|                                 |      | (in thousands)
|                                
|                                
|                                
|                                
|Allowance for doubtful accounts: |      |                |   |          |  |                |  |              |  |         |  |    |   |  |  |       |  |  |   |      
|                                
|                                
|                                
|                                
|                                 | 1998 |                | $ | 3,332    |  |                |  | 3,402        |  |         |  |   |   |  |  | 2,247 |  |  | $ | 4,487 | 
|                                
|                                
|                                
|                                
|                                 | 1999 |                | $ | 4,487    |  |                |  | 3,598        |  |         |  | (1 | ) |  |  | 2,484 |  |  | $ | 5,600 | 
|                                
|                                
|                                
|                                
|                                 | 2000 |                | $ | 5,600    |  |                |  | 82           |  |         |  |   |   |  |  | 3,133 |  |  | $ | 2,549 | 

S-2



---



EXHIBIT INDEX

|        |        |             |  |                                                                                                                                                                                                                                                                                                                          
|------- | ------ | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |        |            
|Number  |        | Description
|        |        |            
|        | *2.1   |             |  | Agreement and Plan of Merger dated November 19, 1998.
	(Incorporated by reference to Exhibit 2.1 to the
	Registrants Form S-4 filed on February 5, 1999
	(Registration No. 333-71897)).                                                                                                                                 
|        | *3.1   |             |  | Articles of Incorporation of SpeedFam International, Inc.
	(incorporated by reference to Exhibit 3 to the
	Registrants Form 10-Q for the quarter ended
	November 30, 1997 (Exchange Act File No. 0-26784)).                                                                                                             
|        | *3.1a  |             |  | Amendment to the Articles of Incorporation.                                                                                                                                                                                                                                                                              
|        | *3.2   |             |  | By-laws of SpeedFam International, Inc. (incorporated by
	reference to Exhibit 3.2 to the Registrants
	Form 10-K for the fiscal year ended May 31, 1996
	(Exchange Act File No.  0-26784)).                                                                                                                             
|        | *4.1   |             |  | Security and Pledge Agreement dated December 29, 1995
	between IPEC Precision and Integrated Process Equipment Corp.
	(IPEC) in favor of HDOS. (Incorporated by reference
	to Exhibit 2.5 to IPECs Current Report on Form 
	8-K for reporting date December 29, 1995 and filed
	January  13, 1996 (File No. 0-20470)).
|        | *4.2   |             |  | Warrant Certificate, dated as of December 16, 1996, issued
	by IPEC to Fletcher. (Incorporated by reference to Exhibit 
	99.1 to IPECs Current Report on Form 8-K for reporting
	 date December 16, 1996 and filed on December 30, 1996
	(File No. 0-20470)).                                                           
|        | *4.5   |             |  | Indenture between IPEC and State Street Bank and Trust Company of
	 California, N.A., dated as of September 15, 1997.
	(Incorporated by reference to Exhibit 10.2 to IPECs
	Quarterly Report on Form 10-Q filed on November 13,
	1997 for the Quarter ended September 30, 1997 (File
	No.  0-20470)).                   
|        | *4.6   |             |  | First Supplemental Indenture by and among the Registrant, IPEC
	and State Street Bank and Trust Company of California, N.A., as
	Trustee, dated April 6, 1999.                                                                                                                                                           
|        | *4.7   |             |  | Registration Rights Agreement between IPEC and the Initial
	Purchasers, dated September 15, 1997. (Incorporated by
	reference to Exhibit 4.12 to IPECs Registration
	Statement on Form S-3 filed on December 16, 1997 (File
	No.  333-42369)).                                                                          
|        | *10.1  |             |  | Employment Agreement between the Registrant and Richard J.
	Faubert.                                                                                                                                                                                                                                                     
|        | *10.2  |             |  | Employment Agreement between the Registrant and J. Michael
	Dodson.                                                                                                                                                                                                                                                      
|        | *10.3  |             |  | Mutual Separation and Consulting Agreement between the Registrant
	 and James N. Farley.                                                                                                                                                                                                                                 
|        | *10.4  |             |  | Mutual Separation and Consulting Agreement between the Registrant
	 and Sanjeev Chitre.                                                                                                                                                                                                                                  
|        | *10.5  |             |  | Employment Agreement between the Registrant and James N.
	Farley.                                                                                                                                                                                                                                                        
|        | *10.6  |             |  | Employment Agreement between the Registrant and Makoto Kouzuma.                                                                                                                                                                                                                                                          
|        | *10.7  |             |  | Employment Agreement between the Registrant and Roger K.
	Marach.                                                                                                                                                                                                                                                        
|        | *10.8  |             |  | Employment Agreement between the Registrant and Robert R.
	Smith.                                                                                                                                                                                                                                                        
|        | *10.9  |             |  | Form of Agreement between Registrant and SpeedFam Co., Ltd. with
	respect to services provided by Makoto Kouzuma.                                                                                                                                                                                                        
|        | *10.13 |             |  | 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).                                                                                                  
|        | *10.14 |             |  | 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).                                                                               
|        | *10.15 |             |  | 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).                                                                      
|        | *10.16 |             |  | 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).                                                                                                
|        | *10.17 |             |  | 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).                                                                                                



---



|        |        |             |  |                                                                                                                                                                                                                                                                                                            
|------- | ------ | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |        |            
|Number  |        | Description
|        |        |            
|        | *10.18 |             |  | 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).                                                                   
|        | *10.19 |             |  | 1991 Employee Incentive Stock Option Plan as amended and restated
	 July 27, 1995 and as further amended as of May  22,
	restated July 27, 1995 and as further amended as of
	May 22, 1997 (incorporated by reference to
	Exhibit 10.10 to the Registrants Form 10-K for
	fiscal 1997, File No.  0-26784).
|        | *10.20 |             |  | 1995 Stock Plan for Employees and Director of SpeedFam
	International, Inc. as amended as of May 22, 1997
	(incorporated by reference to Exhibit 10.11 to the
	Registrants Form 10-K for fiscal 1997, File
	No. 0-26784).                                                                                 
|        | *10.21 |             |  | 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).                                                                                                                                            
|        | *10.22 |             |  | 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).                                                                            
|        | *10.23 |             |  | Lease Agreement, dated March 8, 1996 relating to IPEC
	Precisions Facility in Bethel, Connecticut. (Incorporated
	by reference to Exhibit 10.9 to IPECs Annual Report on
	 Form 10-K for the year ended June 30, 1996 (File
	No.  0-20470) (1996 Form 10-K)).                                          
|        | *10.24 |             |  | Lease Agreement between Seldin Properties and IPEC, dated
	December 26, 1996. (Incorporated by reference to
	Exhibit  10.1 to IPECs Quarterly Report on
	Form 10-Q filed on February 14, 1997 for the quarter
	ended December 31, 1996).                                                                  
|        | *10.25 |             |  | Specimen of 6 1/4% Convertible Subordinated Note due 2004
	issued by IPEC on September 17, 1997 in the amount of
	$115,000,000. (Incorporated by reference to Exhibit 10.4 to
	IPECs September 30, 1997 Form 10-Q).                                                                                       
|        | *10.26 |             |  | Amendment to the IPEC 1992 Stock Option Plan.                                                                                                                                                                                                                                                              
|        | *10.27 |             |  | IPEC 1992 Stock Option Plan (as amended December 12, 1995).
	Incorporated by reference to Exhibit 10.1 to IPECs
	Quarterly Report on Form 10-Q for the quarter ended
	December 31, 1995 (File No. 0-20470).                                                                                               
|        | *10.28 |             |  | Second Amendment to the 1995 Stock Plan for Employees and
	Directors of SpeedFam International, Inc.                                                                                                                                                                                                       
|        | *10.29 |             |  | First Amendment to the 1995 Stock Plan for Employees and
	Directors of SpeedFam International, Inc. (filed as Exhibit 
	 4.1 to the Companys Form S-8 (Registration No. 
	333-67847).                                                                                                                     
|        | *10.30 |             |  | 1995 Stock Plan for Employees and Directors of SpeedFam
	International, Inc. as amended as of May 22, 1997 (filed as
	Exhibit 10.11 to the Companys Form 10-K for
	fiscal year 1997 (File No. 0-26784)).                                                                                                  
|        | *10.31 |             |  | Stock Purchase Agreement, dated November 23, 1999, between
	the Company and Fujimi Incorporated.                                                                                                                                                                                                           
|        | *10.32 |             |  | Confidentiality Agreement, dated November 23, 1999, between
	the Company and Fujimi Incorporated.                                                                                                                                                                                                          
|        | *10.33 |             |  | No-Hire Agreement, dated November 23, 1999, between the
	Company and Fujimi Incorporated.                                                                                                                                                                                                                  
|        | *10.34 |             |  | No-Hire Agreement, dated November 23, 1999, between the
	Company and Fujimi Incorporated.                                                                                                                                                                                                                  
|        | *10.35 |             |  | Escrow Agreement, dated November 23, 1999, between the
	Company and Fujimi Incorporated.                                                                                                                                                                                                                   
|        | 10.36  |             |  | Employment Agreement between the Registrant and Giovanni Nocerio.                                                                                                                                                                                                                                          
|        | 21.1   |             |  | Subsidiaries of the Registrant (incorporated by reference to
	Exhibit 21.1 to Registrants Registration Statement on Form
	S-1, File No. 33-95628).                                                                                                                                                        
|        | 23.1   |             |  | Consent of KPMG LLP.                                                                                                                                                                                                                                                                                       
|        | *24.1  |             |  | Power of Attorney.                                                                                                                                                                                                                                                                                         
|        | 27.1   |             |  | Financial Data Schedule                                                                                                                                                                                                                                                                                    
|        | *99    |             |  | Audit Committee of the Board of Directors Charter                                                                                                                                                                                                                                                         




|  |                  
|- | -----------------
|* | Previously filed.