##### 



UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549
    FORM 20-F ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004  PFEIFFER VACUUM TECHNOLOGY AG  FEDERAL REPUBLIC OF GERMANY
(Jurisdiction of Incorporation or Organization) BERLINER STRASSE 43, D-35614 ASSLAR, GERMANY
(Address of Principal Executive Offices) Securities registered or to be registered pursuant to Section 12(b) of the Act. Title of each class
    
    Name of each exchange
on which registered
 American Depositary Shares, each representing one
Ordinary Share
    
    New York Stock ExchangeOrdinary Shares, without nominal value
    
    Frankfurt Stock Exchange
 Securities registered or to be registered pursuant to Section 12(g) of the Act.
NONE
(Title of Class)   Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
NONE
(Title of Class)   Indicate the number of outstanding shares of each of the issuers classes of capital or common
stock as of the close of the period covered by the annual report: Ordinary shares, without nominal value                    8,690,524  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 þ                    No o Indicate by check mark which financial statement item the registrant has elected to follow. Item 17 o                    Item 18 þ




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TABLE OF CONTENTS PagePreliminary Remarks
    
    
    6Forward-Looking Statements
    
    
    6PART IItem 1.
    
    Identity of Directors, Senior Management and Advisers
    
    
    7Item 2.
    
    Offer Statistics and Expected Timetable
    
    
    7Item 3.
    
    Key Information
    
    
    7A.
    
    Selected Financial Data
    
    
    7Statement of Income Data
    
    
    7Balance Sheet Data
    
    
    8Other Data
    
    
    8Exchange Rate Information
    
    
    8B.
    
    Capitalization and Indebtedness
    
    
    9C.
    
    Reasons for the Offer and Use of Proceeds
    
    
    9D.
    
    Risk Factors
    
    
    10General Economic Conditions
    
    
    10Industry and Business
    
    
    10Technological Changes and Introduction of New Products
    
    
    10Highly Competitive Industry
    
    
    11Manufacturing Facility
    
    
    11Procurement Risk
    
    
    11Human Resources Management
    
    
    11Information Technology
    
    
    11Risks Associated with International Operations
    
    
    11Financial
    
    
    12Currency Risk
    
    
    12Item 4.
    
    Information on the Company
    
    
    12A.
    
    History and Development of the Company
    
    
    12Organization and History
    
    
    12Business and Capital Expenditures
    
    
    12B.
    
    Business Overview
    
    
    13Introduction
    
    
    13Nature of the Companys Operations and Principal Activities
    
    
    13Principal Markets
    
    
    14Seasonality
    
    
    14Raw Materials and Suppliers
    
    
    14Marketing Channels
    
    
    15Dependence
of the Company on Intellectual Property, Contracts and New Manufacturing Processes
    
    
    15Material Effects of Government Regulations
    
    
    15C.
    
    Organizational Structure
    
    
    15D.
    
    Property, Plant and Equipment
    
    
    16Item 5.
    
    Operating and Financial Review and Prospects
    
    
    17Introduction
    
    
    17Inflation
    
    
    17Critical Accounting Policies
    
    
    17Revenue Recognition and Accounts Receivable
    
    
    17Inventory Valuation
    
    
    18
 2




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TABLE OF CONTENTS PageEmployment Related Benefits
    
    
    18New Accounting Rules and Accounting Standards
    
    
    18A.
    
    Operating Results
    
    
    19Managements Discussion and Analyses of Financial Conditions and Results of Operations
    
    
    192004 Compared to 2003
    
    
    192003 Compared to 2002
    
    
    25B.
    
    Liquidity and Capital Resources
    
    
    30Foreign Currency Exchange Hedging
    
    
    31C.
    
    Research and Development, Patents and Licenses, etc.
    
    
    31D.
    
    Trend Information
    
    
    32World Economy
    
    
    32United States
    
    
    32Europe
    
    
    32Asia
    
    
    33Vacuum Industry
    
    
    33Purchasing
    
    
    33E.
    
    Off-Balance Sheet Arrangements
    
    
    33F.
    
    Tabular Disclosure of Contractual Obligations
    
    
    33Contractual Obligations
    
    
    33Item 6.
    
    Directors, Senior Management and Employees
    
    
    34A.
    
    Directors and Senior Management
    
    
    34General
    
    
    34Management Board (Vorstand)
    
    
    35Supervisory Board (Aufsichtsrat)
    
    
    36Committees of the Supervisory Board
    
    
    37Audit Committee
    
    
    37Administration Committee
    
    
    38Management Board Committee
    
    
    38B.
    
    Compensation
    
    
    38C.
    
    Board Practices
    
    
    39D.
    
    Employees
    
    
    39E.
    
    Share Ownership
    
    
    40Stock-based Compensation Plans
    
    
    40Employee Participation Program, Term: 2000 through 2005
    
    
    40Employee Participation Program, Term: 2002 through 2007
    
    
    41Item 7.
    
    Major Shareholders and Related Party Transactions
    
    
    41A.
    
    Major Shareholders
    
    
    41B.
    
    Related Party Transactions
    
    
    42C.
    
    Interest of Experts and Counsel
    
    
    42Item 8.
    
    Financial Information
    
    
    42A.
    
    Consolidated Statements and Other Financial Information
    
    
    42Export Sales
    
    
    42Legal Proceedings
    
    
    42Policy on Dividend Distributions
    
    
    43B.
    
    Significant Changes
    
    
    43
 3




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TABLE OF CONTENTS PageItem 9.
    
    The Offer and Listing
    
    
    43A.
    
    Offer and Listing Details
    
    
    434. Market Price Information
    
    
    43Trading of ADRs on the New York Stock Exchange
    
    
    43Trading of Ordinary Shares on the Frankfurt Stock Exchange
    
    
    44C.
    
    Markets
    
    
    45General
    
    
    45Item 10.
    
    Additional Information
    
    
    46A.
    
    Share Capital
    
    
    46B.
    
    Memorandum and Articles of Association
    
    
    46Registration, Objects and Purposes of the Company
    
    
    46General
    
    
    46The Annual General Meeting of Shareholders
    
    
    46The Supervisory Board
    
    
    46The Management Board
    
    
    47Directors
    
    
    47Ordinary Shares
    
    
    47Dividends
    
    
    48Voting Rights
    
    
    49Change of Shareholders Rights
    
    
    50Notification Requirements and Disclosure of Shareholdings
    
    
    50General Shareholders Meeting
    
    
    50Limitation on the Right to own Securities
    
    
    51Provisions that would delay a Change in Control
    
    
    51Provisions
of German Law that are significantly different from Provisions of U.S. Law
    
    
    51Provisions governing changes in the capital that are more
stringent than required by law
    
    
    51German Corporate Governance Code Declaration
    
    
    51NYSE Corporate Governance
    
    
    52C.
    
    Material Contracts
    
    
    52D.
    
    Exchange Control
    
    
    52E.
    
    Taxation
    
    
    53Taxation
    
    
    53Withholding Tax on Dividends
    
    
    53Withholding Tax Refund Procedures
    
    
    54Reduced United States Tax Rate for Certain Dividends
    
    
    55Taxation of Capital Gains
    
    
    55German Capital Tax (Vermögensteuer)
    
    
    55Other German Taxes
    
    
    56F.
    
    Dividends and Paying Agents
    
    
    56G.
    
    Statement by Experts
    
    
    56H.
    
    Documents on Display
    
    
    56I.
    
    Subsidiary information
    
    
    56Item 11.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    56Exchange Rate Risk
    
    
    57Transaction Risk and Currency Risk Management
    
    
    57Effects of Currency Translation
    
    
    57Foreign Currency Exchange Risk
    
    
    57Interest Rate Risk
    
    
    58Commodity Price Risk
    
    
    59
 4




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TABLE OF CONTENTS PageItem 12.
    
    Description of Securities other than Equity Securities
    
    
    59A.
    
    Debt Securities
    
    
    59B.
    
    Warrants and Rights
    
    
    59C.
    
    Other Securities
    
    
    59D.
    
    American Depositary Shares
    
    
    59PART IIItem 13.
    
    Defaults, Dividend Arrearages and Delinquencies
    
    
    59Item 14.
    
    Material Modifications to the Rights of Security Holders and Use of Proceeds
    
    
    60Changes with Respect to Ordinary Shares
    
    
    60Treasury Stock
    
    
    60Item 15.
    
    Controls and Procedures
    
    
    60New U.S. Legislation
    
    
    60Item 16A.
    
    Audit Committee Financial Expert
    
    
    61Audit Committee/Financial Expert
    
    
    61Item 16B.
    
    Code of Ethics
    
    
    61Item 16C.
    
    Principal Accountant Fees and Services
    
    
    61Audit Committees pre-approval policies and procedures
    
    
    61Item 16D.
    
    Exemptions from the Listing Standards for Audit Committees
    
    
    62Item 16E.
    
    Purchases of Equity Securities by the Issuer and Affiliated Purchasers
    
    
    62Treasury Stock
    
    
    62PART IIIItem 17.
    
    Financial Statements
    
    
    62Item 18.
    
    Financial Statements
    
    
    62Item 19.
    
    Exhibits
    
    
    63Signature
    
    
    65
 5




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Preliminary Remarks These Consolidated Financial Statements have been prepared in accordance with United
States Generally Accepted Accounting Principles (U.S. GAAP) and the regulations of the United
States Securities and Exchange Commission (SEC), Washington D.C., U.S.A. Unless the context otherwise requires, the terms Pfeiffer Vacuum and the Company are used
synonymously for Pfeiffer Vacuum Technology AG and the subsidiaries included in the Consolidated
Financial Statements. Unless express reference is made to a differing presentation, all amounts in the Companys
corporate reports are expressed in euros (). The selected financial data for the year 2000 were
prepared in Deutsche Marks (DM), and have been translated into euros at the officially stipulated
conversion rate (selected financial date). Forward-Looking Statements This report contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended by Section 21E of the Securities Exchange Act of 1934. Such
forward-looking statements are based predominantly upon the Companys current expectations and are
subject to certain risks and uncertainties. The accuracy of such
forward-looking statements is  among other things  dependent upon:  

changes in general political, economic or business conditions, especially an economic downturn or slow economic growth
in Europe or the United States;

changes in currency rates and interest rates;

changes in laws, regulations and government policies, environmental protections;

introduction of competing products and lack of acceptance of new products or services;

increased competitive pressures which limit the Companys ability to reduce sales incentives and raise prices;

supply shortages or interruptions of production materials or labor strikes;

other risks and uncertainties, some of which are described in item 3. Key information under the heading Risk
Factors. 6




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Part I Item 1.    Identity of Directors, Senior Management and Advisers Not applicable. Item 2.    Offer Statistics and Expected Timetable Not applicable. Item 3.    Key Information A.    Selected Financial Data Selected Financial Data The following selected financial data should be read in conjunction with, and are qualified in
their entirety by reference to the Companys Consolidated Financial Statements and Operating and
Financial Review and Prospects included elsewhere in this Report. The consolidated statement of income data and balance sheet data have been derived from the
Companys Audited Consolidated Financial Statements, prepared in accordance with accounting
principles generally accepted in the United States. 2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000
    
    
    
    
    
    
    
    
    
    
    
    (in thousands, except per share amount)Statement of Income DataNet sales
    
    
    156,222
    
    
    
    144,018
    
    
    
    150,942
    
    
    
    170,140
    
    
    
    184,678Gross profit
    
    
    62,316
    
    
    
    62,297
    
    
    
    68,417
    
    
    
    74,913
    
    
    
    79,523Selling and marketing expenses
    
    
    20,021
    
    
    
    20,941
    
    
    
    24,162
    
    
    
    25,650
    
    
    
    24,999General and administrative expenses
    
    
    13,960
    
    
    
    12,950
    
    
    
    12,241
    
    
    
    12,585
    
    
    
    11,404Research and development expenses
    
    
    10,250
    
    
    
    8,928
    
    
    
    10,845
    
    
    
    8,503
    
    
    
    7,631Operating profit
    
    
    18,085
    
    
    
    19,478
    
    
    
    21,169
    
    
    
    28,175
    
    
    
    35,489Income before taxes
    
    
    19,626
    
    
    
    23,177
    
    
    
    24,818
    
    
    
    29,400
    
    
    
    34,062Income taxes:Current
    
    
    6,868
    
    
    
    11,544
    
    
    
    7,513
    
    
    
    10,510
    
    
    
    15,917Deferred
    
    
    1,132
    
    
    
    (1,113
    )
    
    
    (230
    )
    
    
    19
    
    
    
    (937
    )Net income
    
    
    11,626
    
    
    
    12,746
    
    
    
    17,535
    
    
    
    18,871
    
    
    
    19,082Net Income per Ordinary Share:Basic
    
    
    1.34
    
    
    
    1.46
    
    
    
    1.99
    
    
    
    2.16
    
    
    
    2.24Diluted
    
    
    1.34
    
    
    
    1.46
    
    
    
    1.99
    
    
    
    2.16
    
    
    
    2.21
 7




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2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000
    
    
    
    
    
    
    
    
    
    
    
    Statement of Income Data (continued)Dividends declared and paid
perOrdinary Share (1)
    
    
    0.90
    
    
    
    0.70
    
    
    
    0.56
    
    
    
    0.56
    
    
    
    0.51Dividends declared and paid
perOrdinary Share in U.S. dollars (1)
    
    $
    1.23
    
    
    $
    0.88
    
    
    $
    0.59
    
    
    $
    0.50
    
    
    $
    0.47
   (1)
    
    2004: proposed The Company has translated the euro dividend proposed for 2004 into dollars solely for the
shareholders convenience at an exchange rate of  1 = $1.364, the noon buying rate for euros on
December 31, 2004. The U.S. dollar amounts for prior years reflect the dollar amounts translated at
the noon-buying rate of December 31, of the respective years. Pfeiffer
Vacuum succeeded in increasing its earnings in its core business of vacuum pumps during
the past fiscal year and additionally possesses a high level of cash and cash equivalents. The
management and the supervisory board will propose to the annual shareholders meeting that the
shareholders participate in the Companys success in the form of a base dividend of  0.40 and a
bonus of  0.50. The dividend will thus be significant higher than the years before (2003:  0.40
base dividend plus  0.30 bonus). In conformity with the tax reform that has been in effect in Germany since January 1, 2001, and to
assure comparability of the data, the presentation of the dividend payment per share has been
changed from a gross-dividend to a cash-dividend basis. 2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000
    
    
    
    
    
    
    
    
    
    
    
    (in thousands, except per share amount)Balance Sheet DataCurrent assets
    
    
    93,759
    
    
    
    76,670
    
    
    
    121,818
    
    
    
    115,650
    
    
    
    111,150Total assets
    
    
    125,233
    
    
    
    119,780
    
    
    
    155,496
    
    
    
    150,604
    
    
    
    141,501Current liabilities
    
    
    23,629
    
    
    
    22,857
    
    
    
    20,486
    
    
    
    26,589
    
    
    
    37,677Long term debt
    
    
    
    
    
    
    
    
    
    
    7,746
    
    
    
    9,037
    
    
    
    6,136Share capital
    
    
    22,504
    
    
    
    22,504
    
    
    
    22,504
    
    
    
    22,504
    
    
    
    22,065Shareholders equity
    
    
    99,355
    
    
    
    95,037
    
    
    
    92,508
    
    
    
    83,402
    
    
    
    67,107
 2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000Other DataAdjusted weighted average number of
shares outstanding basic
    
    
    8,690,524
    
    
    
    8,750,201
    
    
    
    8,790,600
    
    
    
    8,719,507
    
    
    
    8,526,312 diluted
    
    
    8,690,524
    
    
    
    8,750,201
    
    
    
    8,790,600
    
    
    
    8,719,507
    
    
    
    8,630,605
 Exchange Rate Information Fluctuations in the exchange rate between the euro () and the U.S. dollar will affect the
U.S. dollar amounts received by holders of ADRs on the conversion by the Depositary into U.S.
dollars of cash dividends paid in euros on the Ordinary Shares represented by the ADRs. 8




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The table below sets forth, for periods after January 1, 2000, the high, low, average and
period-end noon buying rates for the euro expressed as U.S. dollars per  1. Year Ended December 31,
    
    High
    
    
    Low
    
    

Average Rate (1)
    
    
    End of Period2004
    
    $
    1.3640
    
    
    $
    1.1798
    
    
    $
    1.2434
    
    
    $
    1.36402003
    
    
    1.2610
    
    
    
    1.0371
    
    
    
    1.1309
    
    
    
    1.26102002
    
    
    1.0477
    
    
    
    0.8600
    
    
    
    0.9449
    
    
    
    1.04772001
    
    
    0.9548
    
    
    
    0.8388
    
    
    
    0.8958
    
    
    
    0.88202000
    
    
    1.0394
    
    
    
    0.8286
    
    
    
    0.9212
    
    
    
    0.93052004July
    
    $
    1.2416
    
    
    $
    1.2020
    
    
    $
    1.2266
    
    
    $
    1.2058August
    
    
    1.2360
    
    
    
    1.2012
    
    
    
    1.2179
    
    
    
    1.2114September
    
    
    1.2338
    
    
    
    1.2054
    
    
    
    1.2214
    
    
    
    1.2338October
    
    
    1.2799
    
    
    
    1.2278
    
    
    
    1.2489
    
    
    
    1.2757November
    
    
    1.3301
    
    
    
    1.2702
    
    
    
    1.2990
    
    
    
    1.3301December
    
    
    1.3640
    
    
    
    1.3181
    
    
    
    1.3404
    
    
    
    1.36402005January
(through January 31, 2005)
    
    
    1.3514
    
    
    
    1.2938
    
    
    
    1.3128
    
    
    
    1.3033
   (1)
    
    The average of the Noon Buying Rates on the last business day of each full month during the
relevant period. Fluctuations in exchange rate between the euro and the U.S. dollar will affect the U.S. dollar
equivalent of the euro price of Pfeiffer Vacuums ordinary shares on the German Stock Exchange.
Accordingly, exchange rate fluctuations are likely to affect the market price of the Companys
ordinary shares on the New York Stock Exchange. Exchange rate fluctuations may also affect the amount of any cash dividend Pfeiffer Vacuum pays if
a shareholder receives the dividend in U.S. dollars rather than in euros. B.    Capitalization and Indebtedness Not applicable. C.    Reasons for the Offer and Use of Proceeds Not applicable. 9




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D.    Risk Factors Within the context of its global operations, the Company is naturally subject to various
risks, which are intrinsically linked with its entrepreneurial activities. In order to be able to
specifically deal with these risks, Pfeiffer Vacuum utilizes suitable instruments for
identification, analysis and action in its risk management system and evolves these instruments in
the individual departments. The Company has defined the risk areas of risk management within the
individual departments and put in place the necessary procedures, early warning and monitoring
systems. It takes the defined risk factors into consideration in its annual budgeting process and
its multiple-year strategic planning. The planning processes are accompanied by comments from the
planning and supervising bodies. Moreover, the strategic planning, budget and current business
position are comprehensively deliberated with the supervisory board. The supervisory board receives detailed monthly overviews of the Companys financial results, as
well as reports from the management board that could be of particular importance with respect to
profitability or liquidity. The supervisory board is involved in the entire risk management
process. General Economic Conditions A substantial portion of the Companys sales are generated in Europe and the United States. As
a result, an economic weakness or a decline in growth in these markets can have a negative impact
on Pfeiffer Vacuums profitability. A substantial slow-down or decline in demand for the Companys
products could have serious effects on its economic and financial positions. In addition, the
strong competition that prevails in the Companys market poses the risk of loss of market share and
name recognition. In order to limit these market risks, Pfeiffer Vacuum constantly analyzes its
environment and its competitive situation. It relativizes negative economic changes through
measures aimed at adjusting capacities and swift cost reduction. Ongoing contact and the market
intimacy that this brings supplies the Company with important information about the needs of its
customers. Pfeiffer Vacuum utilizes the information about technology needs that it gains from the marketplace
to enhance its competitive position and name recognition. Industry and Business Technological Changes and Introduction of New Products The vacuum industry is characterized by ongoing technological change, as well as by
enhancements and new developments to its products. A substantial portion of the Companys economic
success is dependent upon its ability to continue to market enhanced or new products on a timely
basis and at competitive prices. The failure of the Company to preserve its technological lead and
manufacture adequate new products in the event of substantial technological change or the
superiority of a competitors product could lead to serious changes with respect to the Companys
business operations, financial condition and profitability. In fiscal 2004, the Company spent a total of  10.3 million on research and development, to combat
the risk of technology losses and to satisfy the quality standard. Strict quality controls reduce
the risk of quality shortcomings. 10




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Highly Competitive Industry The Company is one of the leading full-line suppliers of vacuum technology and operates in a
highly competitive market. Significant factors that affect competition include product performance,
applications support, post-sales service and training, a network of sales and service
organizations, pricing and product availability, as well as brand name recognition. Certain of
Pfeiffers competitors have greater resources and a broader product line. There can be no absolute
assurance that the Company will be able to continue to increase or maintain its market share or
that stronger competition might not have a negative effect on its business operations, financial
condition and profitability. Manufacturing Facility All of the manufacturing activities performed by the Company take place in a the facility
located at the Companys Headquarters in Asslar, Germany. Any extended interruption or impairment
of the Companys production capabilities at its Asslar facility would have a material adverse
effect on the Companys business, financial condition and results of operations. A business
interruption insurance provides cover against stoppage primarily due to natural disasters like e.g.
thunderstorm and flood. Procurement Risk The procurement market contains the risk of delivery bottlenecks and the dependence of single
suppliers. The Company examines continuously alternative suppliers and prefers reliable vendors.
Expected scarce resources in raw material like steel and aluminum Pfeiffer Vacuum guards against
with long-term supply agreements. Human Resources Management The Company manufactures high tech products and depends on its highly qualified staff. Losing
a main part of its key personal may lead to serious problems in the factory. Information Technology General and individual risks can evolve from malfunction of the hard- or software and computer
crimes like hacker or virus attacks aligned with loss of data. The Companys internal support team
manages this security-sensitive problems with daily backups of all datas and implementation of
regularly updated virus scanners and firewalls. Risks Associated with International Operations As in the case of all internationally operating enterprises, the Company is subject to general
risks with respect to regional economic conditions, differing taxation and legislation, unexpected
changes in national regulatory requirements, compliance with import and export conditions, as well
as foreign legislation. Furthermore, Pfeiffer Vacuum has to observe foreign import and export
licensing requirements, trade restrictions and changes in tariff and freight rates, etc., which can
involve risks. 11




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Financial Currency Risk The Company prepares its financial reports in euros (). Approximately 38% of its sales are
invoiced in foreign currencies, primarily in U.S. dollars. The Companys sales, operating profit
and cash flow are significantly exposed to changes in exchange rates between the euro and foreign
currencies. The Company utilizes foreign currency forward transactions and options to hedge anticipated
receipts in foreign currencies against foreign currency exchange fluctuations. Such hedging
transactions are restricted to currencies in which the Company generates substantial sales
(primarily U.S. dollars) and are conducted exclusively with well established financial
institutions. The Company does not engage in speculative foreign currency forward transactions for
investment purposes. Item 4:    Information on the Company A.    History and Development of the Company Organization and History Pfeiffer Vacuum Technology AG is domiciled at Berliner Strasse 43, D-35614 Asslar, Germany;
telephone: +49-(0)6441-802-0, fax: +49-(0)6441-802-202, http://www.pfeiffer-vacuum.net. The Company is a stock corporation (Aktiengesellschaft) organized under the laws of the Federal
Republic of Germany. It develops, manufactures, sells and services a broad range of vacuum
technology products for various applications. Pfeiffer Vacuum was founded in 1890. The Company had
already been active in the vacuum technology industry since the early 20th century, and developed
into a leader in vacuum technology with such developments as the turbomolecular pump in 1958. In
1996, the Company was converted from a limited liability company (Gesellschaft mit beschränkter
Haftung) into a stock corporation (Aktiengesellschaft) and listed on the New York Stock Exchange
(NYSE). A second listing of the Companys common shares on the Frankfurt Stock Exchange has been
in effect since April 15, 1998. Business and Capital Expenditures In May 1999, the Company purchased 100% of the assets and liabilities of Catalano Associates,
Inc. (Semivac), which is domiciled in the United States, for a purchase price of U.S. dollar 3.3
million. Semivac distributes and services vacuum components. In June 2000, Pfeiffer Vacuum acquired
75% of the shares of Pfeiffer Vacuum Systems (International) AG (formerly Memex Optical Media
Solutions AG), Zuzwil/Switzerland, in consideration for payment of a purchase price of 2.5 million
Swiss francs ( 1.6 million). At July 31, 2003 the Company acquired the remaining 250 registered
shares of Pfeiffer Vacuum Systems (International) AG, Zuzwil/Switzerland. The purchase price was 1
Swiss franc. The subsidiary sells and services production systems for Digital Versatile Discs
(DVDs). Effective January 1, 2004, Pfeiffer Vacuum Systems (International) AG in Zuzwil/Switzerland
merged with the Companys sales subsidiary Pfeiffer Vacuum (Schweiz) AG in Zurich, Switzerland
(absorbing company). In January 2002, the Company acquired fixed assets, intangible assets and
inventories from the bankruptcy trustee of Multimedia Machinery GmbH for a purchase price of  2.4
million. Pfeiffer Vacuum also hired 45 former employees of Multimedia Machinery GmbH. This
acquisition enabled the Company to expand its activities relating to the development, manufacture
and marketing of complete manufacturing lines for the production of prerecorded and rewritable
DVDs. 12




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##### 



In the third quarter 2004 the Company decided to restructure the unprofitable DVD-business.
Registered office was relocated from Aschaffenburg/Germany to the Headquarters in Asslar/Germany.
The manufacturing in Aschaffenburg will be ceased in the first quarter of 2005. All activities of
the plant are bundled in the Headquarters in Asslar. B.    Business Overview Introduction The Company develops, manufactures, sells and services a broad range of turbomolecular pumps,
backing pumps, such as rotary vane, Roots and dry pumps, complete pumping stations, as well as
customized vacuum systems. Its product portfolio also includes digital pressure gauges,
complementary vacuum components and vacuum instruments. Pfeiffer Vacuum possesses a global sales and service network, comprised of its own sales offices,
subsidiaries and exclusive marketing agents. Moreover, there are service support points in all
major industrial locations throughout the world. The Companys primary markets are in Europe, the
United States of America and Asia. Nature of the Companys Operations and Principal Activities The Companys products are employed in a broad range of commercial and analytical
applications. Many products used in daily life can only be manufactured with the aid of a vacuum
process. Materials having differing melting points, e.g. metal and plastic or metal and glass, can
only be bonded to one another in a vacuum chamber. Through utilization of vacuum technology, it is
possible to reproduce pressure conditions similar to those that exist in space, which are required
for the production of numerous high-tech products, e.g. the fabrication of semiconductors, computer
hard disks, optical lenses, architectural glass, coated eyeglass lenses, television tubes, computer
monitors, mobile phone displays, CDs and DVDs, incandescent lamps, automotive electronics,
automotive headlamps, surface-treated replacement and machine parts, as well as electron
microscopes. Moreover, vacuum technology is employed in scientific research and space simulation. Pfeiffer possesses decades of research and development experience relating to vacuum systems and
the manufacture of efficient, dependable vacuum pumps. The Company maintains close contact with its
customers, primarily during the product development phase, to assure the manufacture of products
that satisfy market requirements. In addition to highly precise engineering, the manufacture of
vacuum pumps also necessitates differentiated quality controls. Pfeiffer possesses a highly
developed CAD/CAM system that assures a high degree of precision engineering of its products. The Companys customers include manufacturers of analytical instruments and manufacturers of vacuum
process equipment, research and development institutions, as well as companies that employ vacuum
processes in their production operations. Pfeiffer Vacuums customer base also assures that income
can be generated from the sale of replacement parts and the provision of customer service. In the
years 2004, 2003 and 2002, no single customer accounted for more than 10% of the Companys total
sales. The Companys sophisticated environmental management system has been certified under ISO 14001
since 1996. Compliance with the requirements contained in ISO 14001 was confirmed without
restriction in 2004. 13




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Principal Markets The Company serves the
following
Market Segments Percentage ofRevenues in2004
    
    
    2003
    
    
    2002%
    
    
    %
    
    
    %Industrial
    
    
    22
    
    
    
    18
    
    
    
    12Analytical Industry
    
    
    21
    
    
    
    22
    
    
    
    25Research and Development
    
    
    20
    
    
    
    21
    
    
    
    22Optical and Glass Coating
    
    
    13
    
    
    
    14
    
    
    
    20Semiconductor Industry
    
    
    13
    
    
    
    13
    
    
    
    12Storage Media
    
    
    7
    
    
    
    8
    
    
    
    4Chemical and Process Technology
    
    
    4
    
    
    
    4
    
    
    
    5Total
    
    
    100
    
    
    
    100
    
    
    
    100
 The Companys sales by geographical area are as follows: 2004
    
    
    2003
    
    
    2002T
    
    
    %
    
    
    T
    
    
    %
    
    
    T
    
    
    %Germany
    
    
    46,962
    
    
    
    30.1
    
    
    
    40,368
    
    
    
    28.0
    
    
    
    40,530
    
    
    
    26.9Europe (excluding Germany)
    
    
    49,349
    
    
    
    31.6
    
    
    
    48,314
    
    
    
    33.5
    
    
    
    50,868
    
    
    
    33.7United States
    
    
    33,140
    
    
    
    21.2
    
    
    
    32,797
    
    
    
    22.8
    
    
    
    35,786
    
    
    
    23.7Asia
    
    
    25,643
    
    
    
    16.4
    
    
    
    21,659
    
    
    
    15.0
    
    
    
    22,484
    
    
    
    14.9Rest of world
    
    
    1,128
    
    
    
    0.7
    
    
    
    880
    
    
    
    0.7
    
    
    
    1,274
    
    
    
    0.8Total
    
    
    156,222
    
    
    
    100.0
    
    
    
    144,018
    
    
    
    100.0
    
    
    
    150,942
    
    
    
    100.0
 Seasonality The Companys business is subject to neither seasonal nor cyclical fluctuations. Raw Materials and Suppliers Developments on the international energy market impacted the Company in the field of
purchasing in 2004. Prices for energy, for example, continued to rise having a negative impact on
Pfeiffer Vacuums profitability. The same also applies with respect to the development of steel and
aluminum prices. However, by entering into long-term framework agreements, the Company succeeds in
largely containing the price rises and assuring a supply of raw material required for manufacturing
operations. Pfeiffer Vacuum satisfies its requirements for raw materials, auxiliaries, supplies and finished
products from various suppliers in Germany and other countries. The Companys sole major supplier,
accounting for approximately 28% of its total purchasing volume in 2004, is Inficon AG in Balzers,
Liechtenstein (approximately 27% in 2003, and 26% in 2002). The Company has been purchasing from
Inficon for more than twenty years. The Company presently purchases from Inficon primarily vacuum
gauges and mass spectrometers, as well as leak detectors. Other sources are available for these
products. 14




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Marketing Channels The Company is represented through its own sales and service subsidiaries in all major
industrialized nations throughout the world. In addition more than 20 exclusive agencies offer
Pfeiffer Vacuums customers competent advice and on-site service. Dependence of the Company on Intellectual Property, Contracts and New Manufacturing Processes The Company holds numerous patents and has certain patent applications pending. It is
convinced that it is not substantially dependent upon any one particular patent or license. Nor is
the Company dependent upon special manufacturing contracts, marketing contracts, financing
contracts or new manufacturing processes. Material Effects of Government Regulations Manufacturing operations in Germany are subject to numerous laws and regulations. Such laws
and regulations impose strict limitations upon permissible environmental impact through pollutants
and contain stringent requirements relating to the treatment and disposal of wastes. Through its
certification under ISO 14001, the Company subjects itself to a corresponding environmental
management system, which involves internal and external monitoring at differing intervals. Although
Pfeiffer Vacuum believes that it is in compliance with all environmental requirements and codes,
there can be no assurance that the Company will not be subject to environmentally related
liabilities in the future and/or that expenses will not be incurred in order to cover
environmentally related liabilities or to assure compliance with environmental requirements. C.    Organizational Structure The Company has 14 subsidiaries in Europe, the United States and Asia, more than 20
exclusively operating marketing agents in other countries, as well as service support points in all
major industrial locations throughout the world. The Companys subsidiaries are: Identity
and Location of Company
    
    Percent OwnedPfeiffer Vacuum Austria GmbH, Vienna/Austria
    
    
    100.0
    %Pfeiffer Vacuum Belgium N.V., Temse/Belgium
    
    
    100.0
    %Pfeiffer Vacuum France SAS, Buc/France
    
    
    100.0
    %Pfeiffer Vacuum GmbH, Asslar/Germany
    
    
    100.0
    %Pfeiffer Vacuum Holding B.V., De Meern/Netherlands
    
    
    100.0
    %Pfeiffer Vacuum Inc., Nashua/United States
    
    
    100.0
    %Pfeiffer Vacuum Italia S.p.A., Rho (Milano)/Italy
    
    
    100.0
    %Pfeiffer Vacuum Ltd., Newport/Great Britain
    
    
    100.0
    %Pfeiffer Vacuum Nederland B.V., De Meern/Netherlands
    
    
    100.0
    %Pfeiffer Vacuum Scandinavia AB, Upplands Väsby (Stockholm)/Sweden
    
    
    100.0
    %Pfeiffer Vacuum Systems GmbH, Asslar/Germany
    
    
    100.0
    %Pfeiffer Vacuum (Schweiz) AG, Zurich/Switzerland
    
    
    99.4
    %Pfeiffer Vacuum Korea Ltd., Yoinin City, Kyungki-Do/South-Korea
    
    
    75.5
    %Pfeiffer Vacuum India Ltd., Secunderabad/India
    
    
    73.0
    %
 15




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In the year 2004, Pfeiffer Vacuum Systems (International) AG, Zuzwil, Switzerland, was merged with
Pfeiffer Vacuum (Schweiz) AG, Zurich, Switzerland. Pfeiffer Vacuum Asia Ltd., Hong Kong, China,
ceased all business activities and was closed. D.    Property, Plant and Equipment The Company is the owner of an approximately 80,000 m2 (861,000 ft2) site in Asslar,
Germany. The buildings in which the corporate Headquarters, main sales and marketing office and
manufacturing operations are housed consist of approximately 41,000 m2 (441,000 ft2) of floor
space. The main part thereof is owned by the Company, only approximately 7,000 m2 (75,000 ft2) are
leased from a charitable foundation. Pfeiffer leases approximately 13,000 m2 (140,000 ft2) of its
own real property to third parties. During fiscal year 2004, approximately 6,000 m2 (65,000 ft2) of leased floor space were available
for the manufacturing, sales and marketing and administrative operations of the Companys
subsidiary Pfeiffer Vacuum Systems GmbH in Aschaffenburg, Germany. The subsidiarys place of
business relocated in November 2004 from Aschaffenburg to Headquarters premises in Asslar. Lease
contracts of the Aschaffenburg facility are terminated. In addition, the Company leases premises
for sales and service subsidiaries in various countries. The Company manufactures vacuum pumps, vacuum equipment and vacuum systems at the production
location in Asslar, Germany. The Companys production capacity at its manufacturing facility in Asslar enables Pfeiffer Vacuum
to complete all its orders in adequate time attend to its delivery promises. The Alliance for
Work that was mutually agreed with the Employee Council in 2003 and the flexibilization of working
hours permitted the Company to conform the rate of capacity utilization to the order situation. The
employees negative time account balances were able to be used during months in which there was
increased demand for Pfeiffer Vacuums products. A further effect was the ability to retain
qualified, well-trained employees. All capital investments are financed through the Companys cash assets. Pfeiffer Vacuum regularly monitors and assesses all relevant environmental factors. Its
environmental management system was reviewed by an independent certifier in connection with a
follow-up audit in September 2004. The Company passed the audit without any complaints. A new
certificate under ISO 14001:1996 was issued for further three years. The items that were audited
included handling of hazardous materials and water pollutants (coolant-lubricants, oils, cleaning
agents, paints, solvents). Proper storage of hazardous materials was also monitored. No material
variances from legal requirements and the criteria defined in the quality handbook were identified. The Companys risk potential was again reviewed and assessed with respect to required preventive
measures, in connection with which an improved concept was developed for flood protection. All
relevant environmental factors are regularly monitored and assessed. Ten environmental audits were
conducted during the course of the year. The items that were audited included compliance with legal
requirements in handling and storing hazardous materials. No material variances were identified. In 2004, a total of 32 job safety audits were conducted, 14 of them together with the plant medical
service and the employee council. In addition, three audits were conducted together with the
environmental protection and fire protection coordinators. The job safety committees held a total
of six meetings. All employees are familiarized with the requirements relating to job safety, noise
abatement, handling of hazardous materials, accident and fire prevention. Every employee has access
to the required EU safety data sheets and standard operating procedures in the quality handbook. 16




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The Companys job safety organization and job safety measures were reviewed in September 2004 in
connection with the audits under ISO 9001:2000 and ISO 14001:1996 and certified without
restriction. The number of reportable on-the-job accidents in 2004 increased marginally from the previous years
level, from eleven to twelve. No on-the-job accident was found to have been caused by a technical
shortcoming or by the lack of safety equipment. Item 5.    Operating and Financial Review and Prospects Introduction The Companys Consolidated Financial Statements have been prepared in accordance with
accounting principles generally accepted in the United States of America (U.S. GAAP). The comparability of the financial statements for different periods may be affected by the effects
of currency translation resulting from Pfeiffer Vacuums international operations, most notably as
a result of changes in the exchange rate between the euro and the U.S. dollar. Inflation The rates of inflation in Germany during 2004, 2003, 2002, 2001 and 2000 were 1.9%, 1.1%,
1.3%, 2.5% and 2.3%, respectively. The effects of inflation on the Companys operations have not
been significant in recent years. Critical Accounting Policies The process of preparing financial statements requires the use of estimates on the part of
management. The estimates used by management are based on the companys historical experiences
combined with managements understanding of current facts and circumstances. Certain of the
companys accounting policies are considered critical as they are both important to the portrayal
of the companys financial condition and results and require significant or complex judgment on the
part of management. The following is a summary of certain accounting policies considered critical
by management of the company. Revenue Recognition and Accounts Receivable The Company recognizes revenue when title and risk of ownership have passed to the buyer.
Allowances for doubtful accounts are estimated at the individual operating companies based on
estimates of losses related to customer receivable balances. Estimates are developed by using
standard quantitative measures based on historical losses, adjusting for current economic
conditions and, in some cases, evaluating specific customer accounts for risk of loss. The determination of reserves requires the use of judgment and assumptions regarding the potential
for losses on receivable balances. Though the Company considers these balances adequate and proper,
changes in economic conditions in specific markets in which the Company operates could have a
material effect on reserve balances required. 17




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Inventory Valuation Management reviews its inventory balances to determine if inventories can be sold at amounts
equal to or greater than their carrying amounts. The review includes identification of slow moving
inventories, obsolete inventories, and discontinued products. The identification process includes
historical performance of the inventory, current operational plans for the inventory, as well as
industry and customer specific trends. Employment Related Benefits The Company incurs certain employment-related expenses associated with pensions. In order to
measure the expense associated with these employment-related benefits, management must make a
variety of estimates including discount rates used to present the value of certain liabilities,
assumed rates of return on assets set aside to fund these expenses, compensation increases,
employee turnover rates, and anticipated mortality rates. The estimates used by management are
based on the Companys historical experience as well as current facts and circumstances. The
Company uses third-party specialists to assist management in appropriately measuring the expense
associated with these employment-related benefits. Different estimates used by management could
result in the Company recognizing different amounts of expense over different periods of time (See
notes to the Consolidated Financial Statements 13. Pension Benefits and Similar Obligations). New Accounting Rules and Accounting Standards For detailed explanation please see Notes to the Consolidated Financial Statements Adoption
of New Accounting Rules and Accounting Standards. 18




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##### 



A.    Operating Results Managements Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the Financial Statements and notes
thereto included elsewhere herein. 2004 Compared to 2003
(Variances and percentages calculated based on amounts in thousands ) Net Sales The following table summarizes the Companys net sales by geographical area: December 31,2004
    
    
    2003(
in thousands)
    
    
    %
    
    

(in thousands)
    
    
    %Net
SalesGermany
    
    
    46,962
    
    
    
    30.1
    
    
    
    40,368
    
    
    
    28.0Europe (excluding Germany)
    
    
    49,349
    
    
    
    31.6
    
    
    
    48,314
    
    
    
    33.5United States
    
    
    33,140
    
    
    
    21.2
    
    
    
    32,797
    
    
    
    22.8Asia
    
    
    25,643
    
    
    
    16.4
    
    
    
    21,659
    
    
    
    15.0Rest of World
    
    
    1,128
    
    
    
    0.7
    
    
    
    880
    
    
    
    0.7156,222
    
    
    
    100.0
    
    
    
    144,018
    
    
    
    100.0
 The Companys net sales increased by  12.2 million or 8.5% from  144.0 million for the year ended
December 31, 2003 to  156.2 million in 2004. This sales increase is primarily attributable to
higher volume. Additionally, a modest growth in Pfeiffer Vacuums major markets and the
introduction of new products led to a positive effect. The major increase of the Companys sales was recorded in Germany by  6.6 million from  40.4
million in 2003 to  47.0 million in 2004. Germany continues to be the largest market within
Europe. Sales in Europe (excluding Germany) increased by  1.0 million. The major factor that
contributed to this development was a sales increase in Switzerland, which rose from  6.5 million
to  8.7 million and in Austria, which rose from  6.4 million to  8.1 million, respectively. In
France, sales declined from  6.4 million in 2003 to  4.8 million. The sales increase in the U.S.
accounted for  0.3 million, only. The sales recorded in U.S. dollar increased by approximately
11.5%, but due to the weakness of the U.S. dollar against the euro the Companys net sales were
adversely impacted by exchange rate differences amounting to approximately  3.3 million. In Asia
the Company was able, to realize a sales increase by  4.0 million or 18.4%. The Companys Products For more than 100 years, Pfeiffer Vacuum has been setting milestones in vacuum technology with
its products. The extensive line of products and services ranges from individual components right
through to complex vacuum systems. 19




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Any number of high-tech products and articles that are used in daily life can only be manufactured
in chambers in which a vacuum prevails that is comparable to the pressure conditions that exist in
outer space. True to the motto Vacuum is nothing, but everything to us Pfeiffer Vacuum takes
pride in finding the right vacuum technology solution for every customer and every application.
The Companys sales by product accounted for: December 31,2004
    
    
    2003(in
thousands)
    
    
    %
    
    

(in thousands)
    
    
    %Sales by product:Turbo pumps
    
    
    59,447
    
    
    
    38.1
    
    
    
    53,571
    
    
    
    37.2Backing pumps
    
    
    19,732
    
    
    
    12.6
    
    
    
    18,040
    
    
    
    12.5Measurement and Analyses Equipment, Components
    
    
    42,529
    
    
    
    27.2
    
    
    
    35,218
    
    
    
    24.5Service
    
    
    25,011
    
    
    
    16.0
    
    
    
    25,931
    
    
    
    18.0Systems
    
    
    9,503
    
    
    
    6.1
    
    
    
    11,258
    
    
    
    7.8Total
    
    
    156,222
    
    
    
    100.0
    
    
    
    144,018
    
    
    
    100.0
 Vacuum generation pumps Different types of pumps are required for different pressure ranges. In the case of the low
and medium vacuum ranges, these are primarily rotary vane and Roots pumps, as well as dry pumps.
Turbomolecular pumps, or turbopumps for short, are needed for the high and ultra-high vacuum
ranges. Accounting for 38.1% of total sales in 2004 (2003: 37.2%), the Companys most important product is
the turbomolecular pump. This class of pumps was invented at the Company nearly 50 years ago, and
has since been steadily evolved. Pfeiffer Vacuum has since sold over 250,000 turbopumps worldwide. Turbopumps are available in a
wide range of sizes  from the worlds smallest, the TPD 011 for the
analytical industry, right through to large 3,000-liter pumps, which are primarily employed in the
coating and semiconductor industries. Responding to market needs, Pfeiffer Vacuum has developed
small, compact turbopumps and have further optimized performance and reliability specifications. Turbopumps always require so-called backing pumpsin order to compress the advanced gas against the
atmosphere and expel it. Proven rotary vane or diaphragm pumps are employed as backing pumps. They
cover the vacuum range from atmospheric pressure to a maximum of 10-3 mbar. The Companys single- and two-stage rotary vane pumpsoffer volume flow rates of from 2.5 to 630
m3/h. They are suitable for all applications in the low and medium vacuum ranges and can
be employed as backing pumps for turbomolecular and Roots pumps. The Roots pumpsare characterized by an optimum ratio between volume flow rate and size. The effect
of these pumps is produced by the synchronized counter-rotation of two octagon-shaped rotors. The
volume flow rates of the various pump sizes range from 250 to 25,000 m3/h. The standard Roots pumps in the so-called A-Series can be employed for a wide variety of
applications, such as in the coating industry, space simulation chambers, vacuum metallurgy or
freeze-drying plants and in the packaging industry. During the year covered by this report, Pfeiffer Vacuum brought the worlds first series of
magnetically coupled Roots pumps to market. Their volume flow rates range from 250 to 6,000
m3/h. These hermetically sealed pumps make oil leakage a thing of the past, and their
operating costs are significantly lower. Because of their very low leakage rates, magnetically
coupled Roots pumps are employed in both thin-layer technology as well as in industrial processes
that involve toxic and aggressive gases. 20




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##### 



The ADEx Series was brought to market this year specifically for processes in explosion-hazard
environments or to evacuate explosive gases. These Roots pumps satisfy the explosion-hazard
requirements of EU Directive 94/9 and are especially interesting for customers in the chemicals and
pharmaceuticals industries. To complement the standalone pumps, Pfeiffer Vacuum also offers a broad range of Roots pumping
stations. In addition to its proven standard pumping stations, in which various sizes of Roots
pumps are combined with rotary vane backing pumps, the Company also offers process-adapted pumping
stations as customer-specific solutions. The backing pump line is rounded out by a number of dry pumps. A dry pump does not require
lubricants in the pump chamber, thus making it especially suitable for applications in the
semiconductor industry, for example, in which oil residues could endanger the process. Dry pumps
also include small diaphragm pumps, whose volume flow rates of from 1 to 10 m3/h make
them especially suitable as backing pumps for small turbopumps. They are predominantly employed in
analytical equipment. The Companys sales in backing pumps increased from  18.0 million to  19.7 million by  1.7
million or 9.4%. Vacuum measurement and analysis equipment Pfeiffer Vacuum not only offers its customers products for generating vacuum. Vacuum
measurement and analysis equipment is just as necessary. In vacuum technology processes, it is not
only important to generate a vacuum, it is equally important to be able to identify and control the
quality of this vacuum. There is no one single instrument that can measure the entire vacuum range
of the vacuum that has been generated. This is why Pfeiffer Vacuum offers three different series of
total pressure measurement instruments: The ActiveLine, a cost-effective solution for total
pressure measurement in a vacuum; the DigiLine, consisting of digitally controlled gauge heads for
industrial applications in which robustness and reliability are key; and the ModulLine for
radiation-resistant total pressure measurement in ultra-high vacuum environments in research &
development. In production processes, it is often not only important to know how much is in something, but
also what it is. A mass spectrometercan be used to analyze the composition of a gas mixture in a
production system. One of the applications for portable mass spectrometers is in environmental
analysis. Pfeiffer Vacuum supplies a broad portfolio of mass spectrometers, ranging all the way to
high-performance mass spectrometers for plasma analysis in coating processes and semiconductor
fabrication. Leaks can occur in even the best systems. These leaks are detrimental to the process and result in
quality shortcomings. Leak detectorsare employed to identify these kinds of effects that are
harmful to the production process. The helium leak detectors offered by Pfeiffer Vacuum are
characterized by high accuracy combined with robustness and industrial suitability. Typical
applications include leak detection in refrigerators, air conditioning systems, piping systems and
pressure vessels. The Companys product portfolio is rounded out by a broad selection of installation instruments and
components; these might be valves, gaskets, seals, flanges and fasteners. Its customers require
these components whenever they build a vacuum system themselves. The sales in vacuum measurement and analysis equipment increased from  35.2 million in 2003 to 
42.5 million in 2004. The percentage of total product sales accounted for 27.2%, as opposed to
24.4% in 2003. 21




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##### 



Vacuum systems In addition to individual vacuum components, such as pumps, measurement equipment and
components, Pfeiffer Vacuum also develops and manufactures complete vacuum systems for
customer-specified processes. Such systems comprise the following assembles: Recipient (vacuum
chamber), vacuum pump or vacuum pumping station, measurement and regulating equipment, as well as
electrical/electronic control. Products in the systems segment also include helium leak testing systems, or leak detection systems
for short. Environmental protection, quality assurance and cost optimization are placing very high
demands on the leak-free integrity of numerous components, such as vehicle fuel tanks, aluminum
wheel rims, chilled water piping and compressors or air conditioning systems, as well as food
packaging and pressure vessels. On the one hand, it is necessary to satisfy increasingly strict
legal limits and quality requirements, while minimizing testing times and operating costs on the
other. Pfeiffer Vacuum employs innovative measurement technology and process-adapted automation
technology to satisfy these requirements. Its custom-designed helium leak testing systems thus
satisfy the highest demands with respect to efficient quality assurance. Products in the vacuum systems segment also include Type Classic coating systems. These are
single-chamber systems that are predominantly employed in the fields of optics, sensor technology
and semiconductor fabrication. A Classic system can be used to produce coatings by means of
vapor-deposition, plasma or sputtering processes. One interesting activity with potential for the future is to retrofit existing vapor-deposition
systems. Over a thousand of these systems for such optical systems as binocular lenses, night
vision goggles and eyeglasses are out in the market. Although fully functional, they are
technologically outmoded. In many cases, for example, no replacement parts are any longer available
for the control system. However since many customers shy away from the costs of a new acquisition,
Pfeiffer Vacuum offers a modular retrofit concept for these systems, in which the vacuum technology
is made state of the art and the control system is equipped with cutting-edge computer technology.
Four of these systems were modernized in 2004. In 2004, the percentage of total sales accounted for by all vacuum systems (included DVD) amounted
to 6.1%, as opposed to 7.9% in 2003. Service Service for its products is a line of business in its own right within the Companys product
portfolio. A close-knit worldwide service network assures that prompt assistance can be provided to
its customers. Service includes maintenance, repair or replacement of products at the factory or on
the customers premises and supply of replacement parts. In contrast to most of Pfeiffer Vacuums
competitors, it guarantees on-site service and a 24-hour response time for replacement or repair of
its pumps in all major industrialized nations. Service sales decreased in 2004 by  0.9 million or 3.5% and accounted for 16.0% of total sales
revenue, as opposed to 18.0% in 2003. Order-intake and Order-backlog The Companys order intake increased by  5.1 million or 3.4%, from  150.2 million for the
year ended December 31, 2003 to  155.3 million for the year ended December 31, 2004. Order intake
in turbo pumps increased by  3.1 million, in backing pumps by  2.2 million and vacuum components
and instruments by  9.3 million, partly offset by decreased orders received in systems by  8.0
million, and service by  1.0 million. 22




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##### 



The backlog decreased slightly by  0.9 million or 3.3%, from  27.2 million as of December 31,
2003 to  26.3 million as of December 31, 2004. The majority of the decrease was related to systems
which declined by  3.5 million, partly offset by increased orders in vacuum components and
instruments by  2.4 million. Contracts are included in backlog only if they represent firm orders and include firm shipping
schedules. The backlog position at any particular time generally should not be construed to
represent future levels of sales and orders. Gross Profit The Companys gross profit amounts to  62.3 million in both, the years ended December 31,
2004 and 2003. Gross margin, which is gross profit expressed as a percentage of net sales,
decreased from 43.3% in 2003 to 39.9% in 2004. The gross profit is adversely impacted by effects
due to Pfeiffer Vacuums withdrawal from the DVD business amounting to approximately  6.1 million,
thereof  5.3 million in the valuation adjustment of inventories,  0.5 million termination
benefits and  0.3 million impairment charges on fixed assets. Through the higher percentage of
sales accounted for in products with higher gross margins, the
Company succeeded in largely
compensating for the  6.1 million negative effect stemming from its DVD business. As a result, the
Companys gross margin would have been 43.8% in 2004. Selling and Marketing Expenses Selling and marketing expenses decreased by  0.9 million or 4.4% from  20.9 million in 2003
to  20.0 million in 2004. Permanent worldwide cost management led to decreased selling and
marketing expenses. Continuing education measures to assure that the Companys sales peoples
knowledge is always up to date are offered by both, the in-house staff and external lecturers. This
included training in the subject of customer-driven advisory services and price negotiations for
staff from customer service, as well as on modern techniques of moderation for sales and marketing
staff. The service staff is trained in how to effectively plan and conduct on-site technical
training. Two dedicated in-house employees provide technical training for employees and customers.
Further employees from Marketing, Development and Service can be called in on an as-needed basis to
lecture at training courses. A broad course curriculum offers training in German and English on new and existing products to all
sales and service staff. As a percentage of sales, selling and marketing expenses decreased from
14.5% in 2003 to 12.8% in 2004. Additionally, higher net sales revenue of the Company led to a
decrease in the percentage of its selling and marketing expenses. Additionally, the selling and
marketing expenses were burdened with approximately  0.3 million termination benefits due to its
withdrawal from DVD business. Advertising expenses accounted for  1.7 million for the period ended December 31, 2004. General and Administrative Expenses The general and administrative expenses increased by  1.0 million, or 7.8%, from  13.0
million in the year ended December 31, 2003 to  14.0 million in 2004. As a percentage of sales,
general and administrative expenses decreased slightly from 9.0% in 2003 to 8.9% in 2004. In 2004, the special item due to the withdrawal from DVD business adversely impacted the general
and administration expenses by approximately  1.2 million, thereof  1.0 million losses in
goodwill impairment and  0.2 million due to termination benefits. 23




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##### 



Nevertheless, the Companys ability to administer all needs of administration with a small staff at
Headquarters as well as at the subsidiaries led to flat general and administration expenses in the
years 2004 and 2003. Additionally, the increased revenues in 2004 had a positive effect on the
percentage of sales. Research and Development Expenses With the objective of continuing to satisfy its customers needs in the future, the Company
continuously invests in the development of new and innovative products. Nearly 50 years ago, the
turbomolecular pump was invented at Pfeiffer Vacuum. Today, it is a generic name for an ideal
vacuum pump for generating high and ultra-high vacuum in an extremely varied range of potential
applications. Pfeiffer Vacuum has steadily broadened its technology leadership in this class of
pumps, bringing a number of evolved models to market during the period ended December 31, 2004.
Through its research and development expenses Pfeiffer Vacuum will combat the risk of insufficient
innovation. In addition, maintaining high standards of quality is a top priority of the Company as
a manufacturer of high-tech quality products. The Companys research and development expenses increased by  1.3 million, or 14.8%, from  8.9
million in the year ended December 31, 2003 to  10.3 million in 2004. An amount of approximately 
1.1 million is attributable to revaluations in the fixed assets and  0.2 million termination
benefits that were necessary in connection with the withdrawal from DVD business. The percentage of research and development expenses related to Pfeiffer Vacuums net sales revenue
accounted for 6.6% in 2004 and 6.2% in 2003. The Company expenses all research and development
costs as they are incurred and anticipates that future spending on research and development will be
comparable to current levels. Operating Profit Operating profit for the year ended December 31, 2004 amounted to  18.1 million, and
decreased by  1.4 million from  19.5 million in 2003. The Companys decision to withdraw from the
DVD business impacted the gross profit adversely by approximately  8.9 million (thereof  6.1
million in cost of sales,  0.3 million in selling and marketing expenses,  1.2 million in general
and administration expenses and  1.3 million in research and development expenses). Interest Income and Interest Expense Net amount of interest income decreased by  0.4 million from  1.6 million in the year ended
December 31, 2003 to  1.2 million in 2004. Foreign Exchange Gain/Loss The Company recorded foreign exchange gains amounting to  0.4 million and  2.1 million in
the periods ended December 31, 2004 and 2003, respectively. Income Tax Expense The Companys effective tax rate was 40.8% and 45.0% in the years ended December 31, 2004 and
2003, respectively. 24




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##### 



In 2004, the Company generated taxable income of  12.3 million in Germany and  7.3 million
outside Germany. The Companys current tax expense decreased from  11.5 million in 2003 to  6.9
million in 2004. The German statutory tax rate decreased from 39.5% in 2003 to 37.9% in 2004 and
led to lower tax expenses in 2004 amounting to approximately K 200. Additionally, in the year 2003
the German Tax Authorities passed a resolution (effective April 12, 2003) regarding the refund of
corporation tax credits resulting from distributed earnings to the shareholders. The Companys
dividend payments for the year 2002, paid in 2003, were no longer eligible for tax credit.
Accordingly, the Companys tax credit for the year 2003 amounting to approximately  0.9 million
was retroactively uncollectible and had to be added to the current tax expenses of the year 2003. For further information see Note 11 to the Notes to Consolidated Financial Statements. Net Income Net income decreased from  12.7 million in 2003 to  11.6 million in 2004, primarily as a
result of the factors discussed above. 2003 Compared to 2002
(Variances and percentages calculated based on amounts in thousands ) Net Sales The following table summarizes the Companys net sales by geographical area: December 31,2003
    
    
    2002(
in thousands)
    
    
    %
    
    
    ( in thousands)
    
    
    %Net
SalesGermany
    
    
    40,368
    
    
    
    28.0
    
    
    
    40,530
    
    
    
    26.9Europe (excluding Germany)
    
    
    48,314
    
    
    
    33.5
    
    
    
    50,868
    
    
    
    33.7United States
    
    
    32,797
    
    
    
    22.8
    
    
    
    35,786
    
    
    
    23.7Rest of World
    
    
    22,539
    
    
    
    15.7
    
    
    
    23,758
    
    
    
    15.7144,018
    
    
    
    100.0
    
    
    
    150,942
    
    
    
    100.0
 The Companys total net sales decreased by  6.9 million or 4.6% from  150.9 million for the year
ended December 31, 2002 to  144.0 million in 2003. Germany In Germany net sales decreased slightly from  40.5 million in 2002 to  40.4 million in 2003.
The market in Germany was characterized by a hesitancy to invest. There was a significant decline
in new orders from customers in the research & development, consisting primarily of universities
and major research institutions. The reasons for this consisted of both cutbacks in government
funding as well as an aggressive price war on the part of the Companys competitors involving
dumping prices. Pfeiffer Vacuum was primarily successful when the need was for technically
demanding vacuum technology, such as in European-sponsored nuclear fusion research or in the fields
of plasma research and nanotechnology. 25




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##### 



In the semiconductor industry, the Company was able to qualify itself at major German production
facilities with its turbopumps for ion implanters, in both retrofit and new product business. All
major German manufacturers in the field of mechanically resistant coating  which is defined as the
application of anti-wear coatings on drills and cutting tools  employ the Companys vacuum
products because of their engineering superiority. Stagnation among end-customers in Europe and the
United States was able to be partially offset through strong growth in China. There were new and innovative application examples at various industrial customers, such as
electron beam welding systems for the aerospace industry, or in conjunction with recycling of
galvanized steel by means of VOD (vacuum oxygen degassing) processes. Europe (excluding Germany) The sales in Europe decreased by  2.6 million from  50.9 million in fiscal 2002 to  48.3
million in fiscal 2003. The new European Union member countries are expected to bring sales growth
in Europe over the medium term. In most of the countries of Europe, the Company suffers  just as
its competitors  from a hesitancy to invest on the part of industry due to the unsettled state of
economic development and a lack of government research grants. Several highlights from various countries in Europe:  >

Delivery of a solar cell production system from a prominent Dutch manufacturer to a customer
in Germany; completely equipped with vacuum products from Pfeiffer Vacuum>

Delivery of vacuum pumps to a Dutch manufacturer of storage media production systems>

Displacing a competitor at an Italian manufacturer of thin layer systems that are used, among
other things, for coating mobile phone displays (turbopumps and vacuum gauges)>

Delivery of four large leak detection systems for an automotive supplier in the Czech
Republic. These systems are used for testing air conditioning refrigerant lines in automobiles>

Growth shortfalls in Austria were able to be all but offset through growth in the Czech
Republic, Hungary and Slovenia; expansion into Russia and Romania is planned for the future>

Displacement of the competition in Denmark at a manufacturer of ion implanters that are fully
equipped with our vacuum products>

In Great Britain, mass spectrometers were able to be sold to a major manufacturer of
metallurgy furnaces>

Four complete lines for the production of writable DVDs were delivered to France in late
summer. United States The Companys sales in the United States decreased in the period ended December 31, 2003 to 
32.8 million from  35.8 million in the previous year. In fact, the U.S. subsidiary recorded in
U.S. dollars increased sales, but due to the weakness of the U.S. dollar against the euro the
Companys sales were adversely impacted by the effect of changes in this exchange rates. The
exchange rate accounted for  6.5 million or 93.4% of the total sales decrease in the year ended
December 31, 2003. Demand rose sharply in the United States during the second half of the year. The Companys sales
organization in the U.S. can be satisfied with the past years results. For the first time in three
years, sales in U.S. dollars rose moderately year on year from U.S. dollars 33.9 million in 2002 to
U.S. dollars 37.2 million in 2003. Totaling U.S. dollars 39.5 million, new orders in fact were up
significantly from the previous years level (U.S. dollars 29.2 million). Beginning in the third
quarter of 2003, demand for the Companys products rose sharply, especially from the semiconductor
market, as well as from various industrial customers. The largest American customer this year was
again Novellus Systems, a major manufacturer of tools for the semiconductor industry. 26




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##### 



The Company anticipates a further increase in business in the United States for the year 2004.
However since the U.S. dollar is expected to continue to remain weak, this will have a negative
impact on the consolidated numbers. Several success stories from the United States:  >

Employment of Pfeiffer Vacuum pumps in the coating systems of a major manufacturer of
architectural glass; replacement of competition pumps in an existing system, equipping a new system
exclusively with Pfeiffer Vacuum pumps>

Replacement of existing turbopumps by higher-performance models at several semiconductor
manufacturers>

Replacement of outmoded competitor pumps in CD coating systems at a major American CD/DVD
manufacturer by Pfeiffer Vacuums turbopumps>

Supply of all vacuum products for a manufacturer of semiconductor components after it had
relocated its manufacturing operations from Germany to the United States>

Winning over 250 new customers during the year 2003 (2002: 120) Asia and the Rest of the World The Company recorded in the Rest of World (including Asia) sales decreases amounting to 1.2
million. Economic growth differed significantly in the countries of Asia. The Chinese market offers huge
growth opportunities. The most important growth market for Pfeiffer Vacuum in Asia is China.
However, the Company will additionally be further expanding its existing presence in Japan, Taiwan,
India, Korea and the other countries of Asia. In China, the Company further expanded its presence with the assistance of its agency. A new
service center was established in Shanghai. The greatest success this year in China was the
breakthrough in the glass coating segment. The countrys largest production system, as well as a
further system, is being equipped with Pfeiffer pumps. In Korea, Pfeiffer Vacuum succeeded in displacing competition products with the turbopumps on all
tools at one of the largest manufacturers of semiconductor storage devices. The most important countries outside Asia in which Pfeiffer Vacuum is represented through agencies
and service points include Australia, Israel, South Africa and Brazil. The crucial factors for this customer were the better performance specifications and reliability of
the Companys pumps, as well as its better service. In India, Pfeiffer Vacuum succeeded in
displacing competition products at two OEM manufacturers. In Japan, the Company is the most
important supplier of vacuum pumps for manufacturers of analytical equipment and for research &
development facilities. The analytical market again suffered from economic stagnation this year.
Even though sales declined, Pfeiffer Vacuum was able to retain its market share. For the first
time, it also succeeded in gaining a foothold in the Japanese semiconductor industry, which had
previously been difficult to enter. 25 large turbopumps from competitors in existing tools were
replaced by higher-performance Pfeiffer Vacuum pumps. The Company views growth potential in the coming year first and foremost in China, especially in
the glass coating, flat panel display and semiconductor segments. In Japan, there are several
projects in the analytical market that are up for decision in 2004, and the agencies in Japan,
Taiwan and China are expected to benefit from the recovery of the semiconductor market. 27




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##### 



The Companys sales by productaccounted for: December 31,2003
    
    
    2002( in thousands)
    
    
    %
    
    
    ( in thousands)
    
    
    %Sales by product:Turbo pumps
    
    
    53,571
    
    
    
    37.2
    
    
    
    56,698
    
    
    
    37.6Backing pumps
    
    
    18,040
    
    
    
    12.5
    
    
    
    19,312
    
    
    
    12.8Measurement and Analyses Equipment, Components
    
    
    35,218
    
    
    
    24.5
    
    
    
    41,728
    
    
    
    27.6Service
    
    
    25,931
    
    
    
    18.0
    
    
    
    26,145
    
    
    
    17.3Systems
    
    
    11,258
    
    
    
    7.8
    
    
    
    7,059
    
    
    
    4.7Total
    
    
    144,018
    
    
    
    100.0
    
    
    
    150,942
    
    
    
    100.0
 Order-intake and Order-backlog Orders received by the Company increased by  4.7 million or 3.2%, from  145.5 million for
the year ended December 31, 2002 to  150.2 million for the year ended December 31, 2003. The
majority of this increase was attributable to an increase in orders of turbo pumps. The Companys backlog increased by  6.3 million or 30.1%, from  20.9 million as of December 31,
2002 to  27.2 million as of December 31, 2003. The majority of the increase was related to turbo
pumps. Contracts are included in backlog only if they represent firm orders and include firm
shipping schedules. The backlog position at any particular time generally should not be construed
to represent future levels of sales and orders. Gross Profit The Companys gross profit decreased by  6.1 million or 8.9%, from  68.4 million in the
twelve months ended December 31, 2002 to  62.3 million in the twelve months ended December 31,
2003. Gross margin, which is gross profit expressed as a percentage of net sales, decreased from 45.3% in
2002 to 43.3% in 2003. Declining sales and rising cost of sales led to the lower margin. An
essential part of this decrease is due to negative exchange rate differences between the strong
euro against the U.S. dollar which accounted for approximately  5.5 million. Additionally the
slight decline in the plant utilization rate due to the weakening economy led to a lower gross
profit. Saving on external services and postponing capital investments produced further cost reductions.
Another measure that was instituted, although it will not translate into cost savings until the
economy revives, was to expand the flexible work time hours-worked accumulation total to minus 150
hours per employee. These paid but unworked hours will then be available at no cost when the
economy recovers. Selling and Marketing Expenses Selling and marketing expenses decreased  3.2 million or 13.3% from  24.2 million in 2002 to
 20.9 million in 2003. The worldwide reorganization and streamlining of the Companys sales
organization led to cost reductions. As a percentage of sales, selling and marketing expenses
decreased from 16.0% in 2002 to 14.5% in 2003. The manpower of the sales and marketing force
dropped by approximately 11.6% and led to the decrease in selling and marketing expenses. 28




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##### 



General and Administrative Expenses General and administrative expenses increased by  0.7 million, from  12.2 million in the
year ended December 31, 2002 to  13.0 million in 2003. As a percentage of sales, general and administrative expenses increased from 8.1% in 2002 to 9.0%
in 2003. The general and administrative expenses in 2003 turned back to the normal level. The
Company paid within 2002 employees profit sharings/benefits which were lower than the estimated and
accrued amounts, due to its economic situation. The retransfer of the provisions resulted to a
positive effect in 2002. Additionally, lower net sales revenue of the Company in 2003 led to an
increase in the percentage of its general and administrative expenses. Research and Development Expenses The Companys research and development expenses decreased by  1.9 million, or 17.7%, from 
10.8 million in the year ended December 31, 2002 to  8.9 million in 2003. As a percentage of
sales, research and development expenses decreased from 7.2% in 2002 to 6.2% in 2003. Developing
new products and evolving its successful existing product portfolio enjoy high priority at Pfeiffer
Vacuum. In addition to its own specialists in the engineering and development departments, it also
collaborates closely with universities and with companies in Germany and other countries who
possess key technologies. The Company expenses all research and development costs as they are incurred and anticipates that
future spending on research and development will be comparable to current levels. Operating profit Operating profit for the year ended December 31, 2003 was  19.5 million and decreased by 
1.7 million from  21.2 million in 2002. The weak U.S. dollar affected the operating profit
adversely by approximately  4.2 million. Nevertheless, the Company reduced personnel-costs, in the production, in sales and administration
departments, by implementing a variety of cost reduction measures. The workforce was lowered from
811 to 761 in a socially compatible manner by not renewing temporary employment contracts and not
re-staffing the jobs of retiring employees, primarily in Germany and the United States. For the
production facility in Asslar, the 35-hour workweek under the collective bargaining agreement was
reduced for a stipulated period of time to 32.5 hours per week, with a corresponding reduction in
pay. Those staff members to whom the regular pay scale does not apply accepted weekly 2.5 hours
overtime without compensation. Interest Income and Interest Expense Interest expense amounting to  0.2 million for the period ended December 31, 2003 decreased
by  0.3 million, and are primarily due to interest expense entitled of the loan of Kreditanstalt
für Wiederaufbau, repaid in 2003. Interest income decreased by  0.4 million from  2.2 million in
the year ended December 31, 2002 to  1.8 million in 2003 as a result of lower interest rates and
the repayment of the loan (using cash). 29




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##### 



Foreign Exchange Gain/Loss The Companys foreign exchange gain in the year 2002 amounted to approximately  1.9 million;
in 2003 was it approximately  2.1 million, primarily a consequence of to the weakness of the U.S.
dollar against the euro. Income Tax Expense Under current German corporate tax law, taxes on income are composed of corporate taxes, trade
taxes and an additional surtax and amount to a combined tax rate of 39.5% for the German companies
for the year 2003, and 38.9% for 2002 and 2001, respectively. For the year 2003 the corporation tax including the additional surtax rate was 28.0% (26.4% for the
years 2002 and 2001), the effective rate for trade tax was 11.5% (12.5% for the years 2002 and
2001). Effective January 1, 2002, a corporation and trade tax entity with corresponding profit and loss
transfer agreements was established for the consolidated German companies. Additionally, the
Company had a claim to a tax credit on distributed earnings in 2003 for the fiscal year 2002. In
conformity to the German Tax Legislation this claim reduced the income tax expense and the income
tax rate for the year 2002. Consequently, the effective calculated tax rate in the year ended
December 31, 2002 was 29.3%. On April 11, 2003 the
German Tax Authorities passed a resolution  effective
April 12, 2003  regarding the refund of corporation tax credits resulting from distributed earnings to the
shareholders. The Companys dividend payments for the year 2002, paid in 2003, are no longer
eligible for tax credit. Accordingly, the Companys tax credit for the year 2003 was retroactively
uncollectible. Beginning December 31, 2005 it is possible, to claim a partial utilisation of the
corporation tax credit in light of the circumstances of the case. As a result of this new
legislation and among other things the effective tax rate of the Company increased to 45.0% for the
fiscal year 2003. Net Income Net income decreased from  17.5 million in 2002 to  12.7 million in 2003, primarily as a
result of the factors discussed above.  B.
    
    Liquidity and Capital Resources The Companys business has historically generated sufficient cash to fund the Companys
operations, including its working capital requirements, capital expenditures and debt repayments. Net cash providedby operating activities was in the period ended December 31, 2004  26.3 million,
as at December 31, 2003 the Companys cash flow usedin operating activities was  13.4 million. In
particular, this significant improvement was attributable to the fact that the cash flow the year
before had been negatively impacted by the transfer of cash and cash equivalents to the pension
trust that was formed in 2003 ( 36.0 million). Additionally, the cash flow provided by operating
activities was influenced by the lower net income, overpayments for income taxes through the year
2004 and VAT claims. Net cash provided by operating activities at December 31, 2002 was  19.6
million. The main reasons for the usage within the year 2003 are explained above. Additionally, the
usage of cash flow by operating activities in the year 2003 was influenced by the lower net income
and the increased tax liabilities due to new legislation, and decreased inventories in the year
ended December 31, 2003 in relation to 2002 by  2.0 million, primarily in the production plant in
Asslar. 30




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##### 



The cash flow used in investing activities decreased by  6.5 million, due to the purchase of
investment securities amounting to  1.0 million through 2004 and  9.0 million in 2003 and by the
higher capital expenditures amounting to  3.4 million in 2004 and  1.9 million in 2003. Cash flow used in financing activities decreased by  10.3 million, primarily due to the repayment
of the Companys loan from Kreditanstalt für Wiederaufbau in 2003 amounting to  9.0 million, and
the purchase of treasury stock in 2003 using  2.4 million, offset by higher dividend payments to
the shareholders amounting to  6.1 million in 2004 (2003:  4.9 million). The Companys working capital is sufficient for its present requirements. For seven years in a row, Pfeiffer Vacuum has been enabling its shareholders to participate in the
Companys success in the form of a dividend. Because of its high level of cash and cash
equivalents, the management and supervisory board will propose to the annual shareholders meeting
that, in addition to a dividend of  0.40, a bonus dividend in the amount of  0.50, totaling 
0.90 per share will be paid (2003:  0.70). An aggregate dividend of approximately  6.1 million
was approved and paid in 2004. The Company and its subsidiaries have various lines of credit available for operating purposes of
approximately  11.8 million (2003:  12.3 million),  0.9 million and  0.8 million were used on
these lines during 2004 and 2003, respectively. Substantially all of the credit facilities are
denominated in euros. These lines of credit are indefinitely and do not include any restriction on
use. The Companys borrowing requirements are not seasonal. Because of its high cash position
Pfeiffer Vacuums actual usage is solely limited to advance payment guarantees or performance bonds
to single customers. Other than solvency requirements, there are no legal restrictions on the transfer of funds by the
Companys subsidiaries. The subsidiaries are legally independent enterprises, financing their cash
obligations through their business activities. Foreign Currency Exchange Hedging The Company enters into foreign currency forward contracts and options to hedge the exposure
of its forecasted sales to fluctuations in foreign currency exchange rates. Approximately 38% of
the Companys net sales are denominated in currencies other than the euro. These forward contracts
are limited to currencies in which the Company has significant sales, primarily U.S. dollars, and
are designed to protect against the impact of changes in exchange rates on these sales. Internal
controls assure the effectiveness of all hedging activities. For further Information see item 17 of
the Notes to the Consolidated Financial Statements Financial
Instruments  Foreign Currency
Exchange Hedging.  C.
    
    Research and Development, Patents and Licenses, etc. The Company operates in a market with high-tech vacuum products. As the inventor of the
turbopump, Pfeiffer Vacuum views it as its commitment to drive the development of vacuum technology
with innovative work through its own research projects as well as by rigorously fostering teaching
and science in technical disciplines. Developing new products and evolving the successful existing
product portfolio enjoy high priority at Pfeiffer Vacuum. In addition to its own specialists in the
engineering and development departments, it also collaborates closely with universities and with
companies in Germany and other countries who possess key technologies. The Company regularly
sponsors postgraduate thesis work in the field of R&D and offers internships for physics or
engineering students. 31




---



##### 



Nearly 50 years ago, the turbomolecular pump was invented at Pfeiffer Vacuum. Today, it is still
the vacuum pump of choice for high and ultra-high vacuum, offering an extremely varied range of
potential applications. Pfeiffer Vacuum has steadily broadened its technology leadership in this
class of pumps. The Company spent  10.3 million in 2004,  8.9 million in 2003 and  10.8 million in 2002 in
expenditures for research and development projects.  D.
    
    Trend Information The 2004 fiscal year was characterized first and foremost by two factors: A significant
improvement in operating profit from the Companys core business and an impact on profitability
stemming from the withdrawal from DVD business. With the Companys highly profitable core business, it succeeded in increasing sales by  12.2
million from  144.0 million to  156.2 million in a business environment that was characterized by
a weakness of the dollar and a lack of impetus from the development of the global economy. In spite
of the cost-reduction measures that were initiated the year before and developed their full effect
in 2004, as well as the higher percentage of sales accounted for by products with high gross
margins, Pfeiffer Vacuum succeeded in largely compensation for the  8.9 million negative effect
stemming from its withdrawal from DVD business. As a result, operating profit declined only by 
1.4 million from  19.5 million in 2003 to  18.1 million in 2004. Developments in the DVD market as well as the poor track record of payments in this market
ultimately necessitated this move. Revaluations of assets in connection with the sale have already
been incorporated in the Consolidated Financial Statements for the year ended December 31, 2004.
Overall, this special effect impacted adversely Pfeiffer Vacuums statement of income by  8.9
million. Without this special effect, the operating profit would have risen by 38.5% from the year
before, to  27.0 million. New orders and orders on hand stood at an encouraging level. World Economy Following years of stagnation, it is now fair to speak of a moderate upswing. In 2004, the
world economy grew by 4.8 %, stemming in particular from the economic development of the threshold
and developing countries. The relatively poor development of the industrialized nations is
primarily attributable to the high price of oil and the weak U.S. dollar. United States At 4.4 %, economic growth in the United States in 2004 lagged slightly behind the growth rate
of the world economy overall. Aside from the continued low level of interest rates, this growth was
fueled primarily by government demand in the armaments sector. Europe Economic development in Europe tended to be sluggish by comparison with the development of the
world economy. While the two major economies, France and Germany, saw only modest economic
improvement, the countries of Eastern Europe, in particular, posted strong growth rates. Europe saw
a 2.4% change in gross domestic product for 2004. 32




---



##### 



The noticeable upswing in Germany during the initial months of 2004 flattened in the third quarter.
Moreover, the strong euro curtailed the upward trend of export business to countries outside the
Euro Zone. Overall, there was a 1.7% change in gross domestic product. Asia The growth of the world economy in 2004 resulted in particular from the development of the
Asian economic region. Leaving out of consideration the Japanese economy, which grew at 2.9%, gross
domestic product rose by 7.5% here. The market with the strongest growth continues to be the
Peoples Republic of China with growth of 9.1%. Vacuum Industry As in the year 2003, the vacuum industry was dominated by the influence of the world economy
in 2004. Overall, the industry posted modest growth year on year. Purchasing Developments on the international energy market again impacted the Company in the field of
purchasing in 2004. Prices for natural gas and electricity continued to rise, for example, having a
negative impact on its profitability. The same also applies with respect to the development of
steel and aluminum prices. However by entering into long-term framework agreements, Pfeiffer Vacuum
succeeded in largely containing the price rises and assuring a supply of the raw materials required
for manufacturing operations. Building upon the rigorous utilization
of electronic aids  like the
Internet, for example  that was begun last year, it was possible to achieve further cost savings
in connection with sourcing processes. For further trend information, please see item A. Operating Results, Managements Discussion and
Analyses of Financial Condition and Results of Operations.  E.
    
    Off-Balance Sheet Arrangements Not applicable.  F.
    
    Tabular Disclosure of Contractual Obligations Contractual Obligations The Company has entered into rental-, leasing- or maintenance-agreements which expire at
various dates. 33




---



##### 



The table below presents the maximum amount of the off-balance sheet contractual commitments (apart
from convertible bonds payable, which are recorded on the balance sheet) as of December 31, 2004,
classified by periods in which the contingent liabilities or commitments expire: Payments due by periodLess than
    
    
    
    
    
    
    
    
    
    
    More thanTotal
    
    
    1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 years in thousandsOperating Leases
    
    
    4,491
    
    
    
    1,680
    
    
    
    1,806
    
    
    
    620
    
    
    
    385Purchase Obligations
    
    
    2,581
    
    
    
    583
    
    
    
    379
    
    
    
    1,619
    
    
    
    Maintenance Contracts
    
    
    50
    
    
    
    34
    
    
    
    16
    
    
    
    
    
    
    
    Convertible bonds payable
    
    
    794
    
    
    
    307
    
    
    
    487
    
    
    
    
    
    
    
    Total Contractual Obligations
    
    
    7,916
    
    
    
    2,604
    
    
    
    2,688
    
    
    
    2,239
    
    
    
    385
 The Company did not have capital lease obligations at December 31, 2004.  Item 6.
    
    Directors, Senior Management
and Employees  A.
    
    Directors and Senior
Management General In accordance with the German Stock Corporation Law (Aktiengesetz), the Company has a
supervisory board (Aufsichtsrat) and a management board (Vorstand). The two boards are separate,
and no individual may simultaneously be a member of both boards. In March 2003 the Company established an audit committee. All its individuals are members of the
supervisory board. The management board is responsible for managing the day-to-day business of the Company in
accordance with applicable laws, the Articles of Association (Satzung) of the Company and the
Internal Rules of Procedure (Geschäftsordnung) of the Company. The principal function of the supervisory board is to supervise the management board. It is also
responsible for appointing and removing the members of the management board. In addition to the
requirements of the German Stock Corporation Law, the Articles of Association or the supervisory
board may provide that certain major or unusual transactions, for example, those involving large
capital expenditures or decisions regarding the strategy of the Company, require the prior consent
of the supervisory board. The supervisory board is not, however, involved in the day-to-day
business of the Company. The audit committee supervises the management board and installed controls and procedures to
examine the Companys reporting and book-keeping system. In carrying out their duties, the members of the supervisory board, the audit committee and the
management board must exercise the standard of care of a diligent and prudent businessperson. In
complying with this standard of care, the members of the supervisory board, the audit committee and
the management board must take into account a broad range of considerations, including the
interests of the Company and its shareholders, employees and creditors. 34




---



##### 



Management Board (Vorstand) The management board of the Company presently consists of two members who are appointed by the
supervisory board in accordance with the German Stock Corporation Law. Pursuant to the Articles of
Association of the Company, any two members of the management board, or one member of the
management board and the holder of a special power of attorney (Prokura), may legally bind the
Company. The management board must report regularly to the supervisory board and the audit committee, in
particular, on proposed business policy, budgets and strategy, profitability and on the current
business of the Company as well as on any exceptional matters that arise periodically. Initially in 1996, the members of the management board were appointed by the supervisory board for
a term of five years. Later on the members of management board were appointed for terms of up to
five years. The normal retirement age for members of the management board is sixty-five, though it
is possible for a member of the management board to continue in office beyond this age with the
approval of the supervisory board. Under certain circumstances, such as a serious breach of duty or a bona fide vote of no confidence
by the shareholders, a member of the management board may be removed by the supervisory board prior
to the expiration of such term. A member of the management board may not deal with, or vote on,
matters relating to proposals, arrangements or contracts between himself and the Company. According to the articles of association of the Company, decisions of the management board are
approved by a simple majority of the votes. In the event of a tie, the chairman of the management
board (Vorstandsvorsitzender) or, in his absence, the Deputy Chairman, has the deciding vote.
Currently, no deputy chairman of the management board has been appointed. The present members of the management board of the Company are as follows: Wolfgang Dondorf Wolfgang Dondorf (age 61), Chairman of the management board, responsible for Development,
Manufacturing, Sales & Marketing and Public Relations, was appointed Managing Director of the
Company in July 1994 and has been a member of the management board since 1996 for a five-year term,
renewed in 2001. From 1989 to 1994, Mr. Dondorf served as Managing Director of King Plastic GmbH, a
plastic components manufacturing company. He has also served as Managing Director of Pulsotronic
GmbH from 1982 to 1989, Starkstrom Gummersbach GmbH from 1979 to 1982, and Sprague Electric Inc.
from 1971 to 1979. Mr. Dondorf received a masters degree in electrical engineering
(Dipl.-Ingenieur) from RWTH Aachen. Manfred Bender since April 1, 2004 Manfred Bender (age 39), was appointed at April 1, 2004 as Chief Financial Officer and
responsible for Finance/Controlling, Information Technology, Customer Service, Logistics and Human
Resources. He graduated with a degree in business economics (Dipl.-Betriebswirt) from
Fachhochschule Giessen-Friedberg, joint the Company in 1998 and was responsible for the Finance and
Controlling Department through March 31, 2004. From August 2001 through March 2004 the management
board granted Mr. Bender a special power of attorney (Prokura), which grants him the authority to
bind the Company with any other member of the management board. Prior to 1998, he served as
Controller, Internal Auditor and IT-Manager for Schunk GmbH, a multinational industrial group. 35




---



##### 



Amandus Waterkamp through March 9, 2004 Amandus Waterkamp (age 52), joined the Company in January 2003 and was appointed in April 2003
as Chief Financial Officer (member of the management board). From July 1, 2003 through his
dismissal at March 9, 2004 Mr. Waterkamp assumed the duties as Chief Financial Officer of Pfeiffer
Vacuum Technology AG. He holds a master degree in Telecommunication Engineering from Fachhochschule
Köln and a further master degree in Business Administration and Finance from University of Köln.
Prior to 2003 Mr. Waterkamp served with international responsibility at various German companies
(Siemens AG, Moeller GmbH) most recently as member of the management board responsible for finance,
controlling and IT at an internationally operating corporate group (Harting). Supervisory Board (Aufsichtsrat) In accordance with the Companys articles of association, the supervisory board consists of
six members, four of whom are elected by the shareholders at a general meeting in accordance with
the provisions of the German Stock Corporation Law, and two of whom are elected by the employees in
accordance with the Labor Management Relations Act (Betriebsverfassungsgesetz 1952). A member of the supervisory board elected by the shareholders may be removed by the shareholders by
a majority of the votes cast at a general meeting of shareholders or for cause by court order of
the municipal court (Amtsgericht) upon motion by a simple majority of the members of the
supervisory board. Upon request of the works council or at least twenty percent of the employees
entitled to elect members of the supervisory board, a member of the supervisory board elected by
the employees may be removed by at least three-quarters of the votes cast by the employees entitled
to vote. In addition, such member may be removed for cause by a court order of the municipal court
upon motion by a simple majority of the members of the supervisory board. The supervisory board
appoints a chairman and a deputy chairman from among its members. At least half the members of the
supervisory board must be present to constitute a quorum. Resolutions are passed by a simple
majority of the supervisory board. The members of the supervisory board are each elected for a term of five years (the term expires at
the end of the general meeting of shareholders in which the shareholders discharge the supervisory
board member for the fourth fiscal year following the year in which such member was elected). The
terms of the current members of the supervisory board will end as of the date of the general
shareholders meeting to be held within the first eight months of the year 2006. 36




---



##### 



The following individuals are members of the supervisory board: Name
    
    Age
    
    Principal OccupationDr. Michael Oltmanns
(Chairman)
    
    
    48
    
    
    Attorney at Law and Tax Consultant
Law Offices of Menold & Partner,
Stuttgart, Germany
First elected: 1996
Chairman since 2001Further supervisory board posts:HPC AG, Weinheim (Chairman)
Merkur Bank KGaA, Munich/Germany (Vice Chairman)
Jetter AG, Ludwigsburg (Chairman)
Scholz AG, Essingen (Chairman)Prof. Dr. Klaus-Jürgen Kügler
(Vice Chairman)
    
    
    54
    
    
    Professor
at Giessen-Friedberg Technical University,
Giessen, Germany
First elected: 2001Michael J. Anderson
    
    
    47
    
    
    Managing Director of Bank of America Securities,
New York, United States
First elected: 1996Götz Timmerbeil
    
    
    37
    
    
    Certified Public Accountant and Tax Consultant,
Gummersbach, Germany
First elected: 2001Günter Schneider
    
    
    61
    
    
    Chairman of the Pfeiffer Vacuum Works Council,
elected by the employees
First elected: 1996Edgar Keller
    
    
    49
    
    
    Member of the Pfeiffer Vacuum Works Council,
elected by the employees
First elected: 2001
 Committees of the Supervisory Board: The supervisory board has established and maintains the following committees responsible for
audit and compensation matters: Audit Committee: In accordance with the Sarbanes-Oxley-Act the Company installed in March 2003 an audit committee.
The following individuals are members of the audit committee: Name
    
    Age
    
    Principal OccupationGötz Timmerbeil
(Chairman and Financial Expert)
    
    
    37
    
    
    Certified Public Accountant and Tax ConsultantDr. Michael Oltmanns
    
    
    48
    
    
    Attorney at Law and Tax ConsultantMichael J. Anderson
    
    
    47
    
    
    Managing Director of Bank of America Securities
 37




---



##### 



The audit committee recommends the appointment of independent auditors to be elected by the
Companys shareholders at the annual general meeting. The audit committee also engages the
independent auditors, determines their compensation and reviews the scope of the external audit.
The audit committee reviews the Companys quarterly and annual reports and financial statements,
taking into account the results of the audits and/or reviews performed by the independent auditors. Administration Committee: The administration committee deals for example such issues as consent to contracts with members of
the supervisory board. Name
    
    Age
    
    Principal OccupationDr. Michael Oltmanns
(Chairman)
    
    
    48
    
    
    Attorney at Law and Tax ConsultantProf. Dr. Klaus-Jürgen Kügler
    
    
    54
    
    
    Professor
at Giessen-Friedberg Technical UniversityMichael J. Anderson
    
    
    47
    
    
    Managing Director of Bank of America Securities
 Management Board Committee: The management board committee is responsible for personnel matters relating to the members of the
management board. It decides totally independently and without influence as to whether the members
of the management board receive a variable compensation element in addition to the fixed element.
The management board committee currently uses the following procedure in stipulating the variable
salary element (which is closely linked to the management board members performance and the
Companys success): The percentage change in sales and income before and after taxes relative to the year before is
determined. The variable element from the previous year is then multiplied by this combined factor. Name
    
    Age
    
    Principal OccupationDr. Michael Oltmanns
(Chairman)
    
    
    48
    
    
    Attorney at Law and Tax ConsultantProf. Dr. Klaus-Jürgen Kügler
    
    
    54
    
    
    Professor
at Giessen-Friedberg Technical UniversityGötz Timmerbeil
    
    
    37
    
    
    Certified Public Accountant and Tax Consultant
  B.
    
    Compensation The aggregate amount of compensation paid by the Company during the year ended December
31, 2004 to all members of the management board of the Company, as a group, for services in all
capacities, was  1.3 million, including a fixed component amounting to  0.8 million and a
variable component amounting to  0.5 million. Benefits upon termination of employment of the
management board members do not exist. 38




---



##### 



The fixed compensation paid to the members of the supervisory board (including the audit
committee), as a group, during the year ended December 31, 2004, amounted to K 75 (without any
variable component). The aggregate amount set aside or accrued by the Company during the year ended December 31, 2004 to
provide pension, retirement or similar benefits for all members of the supervisory board and the
management board of the Company, as a group, was  0.3 million.  C.
    
    Board Practices The Company has entered into service agreements with both members of the management
board. Base salaries are established based on a comparative analysis of base salaries, paid by
similarly situated industrial companies. Additional annual bonuses are determined in relation to
the profitability of the Company. They are expressed as a percentage of base salary and may be
adjusted, upward or downward, based on the profitability of the Company. Mr. Günter Schneider and Mr. Edgar Keller, two members of the supervisory board, also have
employment contracts with the Company, in their capacity as employees. Mr. Schneider and Mr. Keller
were elected by the Companys employees to the supervisory board in accordance with the Labor
Management Relations Act (Betriebsverfassungsgesetz1952). Their employment contracts are
standard-form contracts governed by the terms of a collective wage agreement between the labor
union representing certain of the Companys employees and an employers association representing
the Company and other companies in the industry. As stipulated in the collective wage agreement,
there are no benefits payable to Mr. Schneider or Mr. Keller upon termination of their employment
contracts. Please see Item 6. D below for more information about the collective wage agreement. The
Company has not entered into any other service contracts with this two members of its supervisory
board. See also Item 6. A. Directors, Senior Management and Employees.  D.
    
    Employees December 31,2004
    
    
    2003
    
    
    2002
    
    
    2004
    
    
    2003
    
    
    2002Germany
    
    
    Foreign CountriesProduction
    
    
    300
    
    
    
    297
    
    
    
    311
    
    
    
    57
    
    
    
    58
    
    
    
    58Research and Development
    
    
    95
    
    
    
    91
    
    
    
    102
    
    
    
    
    
    
    
    2
    
    
    
    3Selling and Marketing
    
    
    103
    
    
    
    108
    
    
    
    124
    
    
    
    92
    
    
    
    91
    
    
    
    101Administration
    
    
    65
    
    
    
    80
    
    
    
    78
    
    
    
    33
    
    
    
    34
    
    
    
    34Total
    
    
    563
    
    
    
    576
    
    
    
    615
    
    
    
    182
    
    
    
    185
    
    
    
    196
 As of December 31, 2004, the Company employed 745 people, 563 of which are in Germany and 182
of which are in other countries. In Germany, employment agreements for employees below management
level are generally collectively negotiated between the regional association of the companies
within a particular industry and the respective unions. The agreement for metal workers, which
covers most of the Companys employees, went into effect on January 1, 2004. Beginning March 1,
2004 the salaries of the Companys employees increased by 2.2% for 12 months; beginning March 1,
2005 an additional increase by 2.7% for further 12 months was stipulated. Employees at the Asslar
facility are represented by a works council. The Company has not experienced any work stoppages
during the last ten years. The Company considers its labor relations to be good. 39




---



##### 



E.
    
    Share Ownership The following table includes certain information known to the Company with respect to
beneficial ownership of the Companys Ordinary Shares as of December 31, 2004 by all members of the
supervisory board and the management board: Identity of
    
    Numbers
    
    Percent ofTitle of Class
    
    Person or Group
    
    Owned
    
    ClassSupervisory BoardOrdinary Shares
    
    Dr. Michael Oltmanns
    
    
    100
    
    
    
    0.0
    %Ordinary Shares
    
    Michael J. Anderson
    
    
    0
    
    
    
    0.0
    %Ordinary Shares
    
    Prof. Dr. Klaus-Jürgen Kügler
    
    
    0
    
    
    
    0.0
    %Ordinary Shares
    
    Götz Timmerbeil
    
    
    0
    
    
    
    0.0
    %Ordinary Shares
    
    Edgar Keller
    
    
    0
    
    
    
    0.0
    %Ordinary Shares
    
    Günter Schneider
    
    
    80
    
    
    
    0.0
    %
 Identity of
    
    Numbers
    
    Percent ofTitle of Class
    
    Person or Group
    
    Owned
    
    ClassManagement BoardOrdinary Shares
    
    Wolfgang Dondorf
    
    
    54,100
    
    
    
    0.6
    %ADRs
    
    Wolfgang Dondorf
    
    
    200
    
    
    
    0.0
    %Ordinary Shares
    
    Manfred Bender
    
    
    260
    
    
    
    0.0
    %Convertible Bonds
    
    Manfred Bender
    
    
    750
    
    
    
    0.0
    %
 Stock-based Compensation Plans Employee Participation Program, Term: 2000 through 2005 On July 10, 2000, the Company issued  0.6 million in convertible bonds to members of
management and key employees of the Company and its subsidiaries at a purchase price equal to 100%
of their principal amount. Each convertible bond with a par value of  128 is convertible into 50
no-par value ordinary shares upon payment of a conversion price. Each holder of convertible bonds
may convert up to 30% two years after issuance beginning July 2002, up to 60% three years after
issuance beginning July 2003 and up to 100% four years after issuance beginning July 2004, subject
to certain closed periods. The last date of conversion is December 9, 2005. The convertible bonds bear interest at 6% per annum and will be redeemed at 100% of their principal
amount on December 10, 2005 unless previously converted. The bonds must be repurchased in the case
of termination of employment. The Company financed the employees purchase of such convertible bonds with an interest bearing
loan. The loans must be repaid at the execution of conversion rights and are classified as other
long-term assets on the balance sheet. Through December 31, 2004, 2,000 convertible bonds totaling par value approximately  256,000 were
repurchased from employees voluntarily exiting the plan. 40




---



##### 



Employee Participation Program, Term: 2002 through 2007 On July 7, 2002, the Company issued  0.6 million in convertible bonds to members of
management and key employees of the Company and its subsidiaries at a purchase price equal to 100%
of their principal amount. Each convertible bond with a par value of  128 is convertible into 50
no-par value ordinary shares upon payment of a conversion price. Each holder of convertible bonds
may convert up to 30% after the annual general meeting of the shareholders in 2004, up to 60% after
the annual general meeting of the shareholders in 2005 and up to 100% after the annual general
meeting of the shareholders in 2006, subject to certain closed periods. The last date of conversion
is December 9, 2007. The convertible bonds bear interest at 6% per annum and will be redeemed at 100% of their principal
amount on December 10, 2007 unless previously converted. The bonds must be repurchased in the case
of termination of employment. The Company financed the employees purchase of such convertible
bonds with an interest bearing loan. The loans must be repaid at the execution of conversion rights
and are classified as other long-term assets on the balance sheet. Through December 31, 2004, 800 convertible bonds totaling par value approximately  102,400 were
repurchased from employees voluntarily exiting the plan.  Item 7.
    
    Major Shareholders and Related Party Transactions  A.
    
    Major Shareholders To the best knowledge of the Company, it is not directly or indirectly owned or
controlled by another corporation, by any foreign government, or by any natural or legal persons,
severally or jointly. The following table includes certain information known to the Company with respect to beneficial
ownership of 5% or more of the Companys Ordinary Shares: Title of
    
    Identity of
    
    Amount
    
    Percent ofClass
    
    Person or Group
    
    Owned
    
    ClassDecember 31,
2004Ordinary Shares
    
    Harris Associates L.P., Chicago/U.S.A.
    
    
    893,320
    
    
    
    10.28
    %Ordinary Shares
    
    Arnhold and S. Bleichroeder Advisors, LLC, New York/U.S.A.
    
    
    450,002
    
    
    
    5.18
    %December 31,
2003Ordinary Shares
    
    Harris Associates L.P., Chicago/U.S.A.
    
    
    901,373
    
    
    
    10.37
    %Ordinary Shares
    
    Arnhold and S. Bleichroeder Advisors, LLC,
New York/U.S.A.
    
    
    450,002
    
    
    
    5.18
    %
 41




---



##### 



Title of
    
    Identity of
    
    Amount
    
    Percent ofClass
    
    Person or Group
    
    Owned
    
    ClassDecember 31,
2002Ordinary Shares
    
    Harris Associates L.P., Chicago/U.S.A.
    
    
    443,200
    
    
    
    5.04
    %Ordinary Shares
    
    Janus Capital Management LLC,
Denver/U.S.A.
    
    
    452.477
    
    
    
    5.15
    %
 These shareholders have the same voting rights as any other holder of the Companys ordinary
shares.  B.
    
    Related Party Transactions The Company did not enter into transactions with related parties in the year ended
December 31, 2004, and is not presently proposing to enter into transactions with related parties,
that are material either to the Company or any related party, or that are unusual in their nature
of conditions. In addition, there are no related party loans outstanding at December 31, 2004.  C.
    
    Interests of Experts and Counsel Not applicable.  Item 8.
    
    Financial Information  A.
    
    Consolidated Statements and Other Financial Information See Item 18 Financial Statements. Export Sales In 2004, the Company exported approximately  33.1 million or 21.2% of its products
manufactured in Germany to the United States and  76.1 million or 48.7% to other countries. For
detailed information please see Item 5. A. Operating Results
 Management Discussions and Analyses
of Financial Condition and Result of Operations  Net sales. Legal Proceedings In the normal course of business, the Company is subject to various legal proceedings and
claims. The Company believes that the matters the Company is aware of will not have a material
effect on its financial condition or results of operations. The Company it not aware of any
unasserted claims that may have an adverse effect on its financial condition or results of
operation. 42




---



##### 



Policy on Dividend Distributions The management board proposes dividends based on Pfeiffer Vacuum Technology AGs year-end
unconsolidated financial statements. Aggregate cash dividend of  0.40 per ordinary share and an
additional bonus dividend of  0.30 per ordinary share was approved and paid in 2004. In 2003 an
aggregate cash dividend of  0.56 per ordinary share was approved and paid. A similar cash dividend
of  0.40 per ordinary share and an additional bonus dividend of  0.50 per ordinary share has been
proposed and is expected, upon final approval by the shareholders of the Company, to be paid in
2005. The Company has declared an annual dividend since 1998.  B.
    
    Significant Changes Not applicable.  Item 9.
    
    The Offer and Listing Items 9.A.1-3, and 5-7, B, D, E, and F are not applicable.  A.
    
    Offer and Listing Details  4.
    
    Market Price Information Trading of ADRs on the New York Stock Exchange since July 1996
(International Securities Identification Number: ISIN US7170671025
 Stock Symbol: PV) The table below sets forth, for the periods indicated, the high and low closing sales prices
in U.S. dollars for the ADRs on the NYSE, as reported on the NYSE Composite Tape. Price
per ADRHigh
    
    

Low($)2000
    
    
    48.38
    
    
    
    25.252001
    
    
    48.00
    
    
    
    22.502002
    
    
    37.53
    
    
    
    16.502003First Quarter
    
    
    22.69
    
    
    
    18.75Second Quarter
    
    
    30.80
    
    
    
    19.15Third Quarter
    
    
    34.00
    
    
    
    26.15Fourth Quarter
    
    
    36.33
    
    
    
    30.332004First Quarter
    
    
    43.50
    
    
    
    31.75Second Quarter
    
    
    41.00
    
    
    
    35.99Third Quarter
    
    
    41.99
    
    
    
    36.03Fourth Quarter
    
    
    45.79
    
    
    
    38.00
 43




---



##### 



Price per ADRHigh
    
    
    Low($)2004Month of July
    
    
    41.99
    
    
    
    37.62Month of August
    
    
    41.24
    
    
    
    36.03Month of September
    
    
    40.02
    
    
    
    38.15Month of October
    
    
    40.82
    
    
    
    38.80Month of November
    
    
    45.51
    
    
    
    38.00Month of December
    
    
    45.79
    
    
    
    43.022005Month of January through 31
    
    
    48.32
    
    
    
    41.62
 On January 31, 2005, the closing sales price per ADR was $ 47.00 as reported on the NYSE Composite
Tape. This price was equivalent to  36.06 per ADR, translated at the noon buying rate for euros on
that date. For additional information regarding rates of exchange between the U.S. dollar and the
euro, please refer to Exchange Rate Information in Item 3. Key Information. Trading of Ordinary Shares on the Frankfurt Stock Exchange since April 1998
(International Securities Identification Number: ISIN DE0006916604
 Stock Symbol: PFV) The Ordinary Shares are listed and principally traded outside the United States on the
Frankfurt Stock Exchange, where high and low closing sales prices have been expressed in euros
since January 1, 1999. The table below presents, for the periods indicated, the high and low closing sales prices in euros
for the Ordinary Shares on the Frankfurt Stock Exchange, based on the exchange from euros to U.S.
dollars at the Noon (Buying) Rate, in each case as in effect on the last trading day of the periods
presented. Price per Ordinary ShareHigh
    
    
    Low
    
    
    High
    
    
    Low
    
    
    
    
    
    $
    
    
    $2000:
    
    
    50.40
    
    
    
    24.68
    
    
    
    45.03
    
    
    
    23.532001:
    
    
    51.36
    
    
    
    24.40
    
    
    
    45.28
    
    
    
    22.372002:
    
    
    41.80
    
    
    
    15.80
    
    
    
    36.42
    
    
    
    15.562003:First Quarter
    
    
    21.70
    
    
    
    16.60
    
    
    
    23.47
    
    
    
    18.10Second Quarter
    
    
    27.15
    
    
    
    17.50
    
    
    
    31.01
    
    
    
    19.47Third Quarter
    
    
    30.65
    
    
    
    22.55
    
    
    
    35.83
    
    
    
    25.28Fourth Quarter
    
    
    29.88
    
    
    
    24.77
    
    
    
    37.68
    
    
    
    28.832004:First Quarter
    
    
    35.01
    
    
    
    25.40
    
    
    
    42.81
    
    
    
    31.06Second Quarter
    
    
    34.85
    
    
    
    29.15
    
    
    
    42.36
    
    
    
    35.43Third Quarter
    
    
    34.84
    
    
    
    28.66
    
    
    
    42.99
    
    
    
    35.36Fourth Quarter
    
    
    35.15
    
    
    
    29.17
    
    
    
    47.94
    
    
    
    39.79
 44




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Price per Ordinary ShareHigh
    
    
    Low
    
    
    High
    
    
    Low
    
    
    
    
    
    $
    
    
    $2004
Month of July
    
    
    34.84
    
    
    
    30.50
    
    
    
    42.01
    
    
    
    36.78Month of August
    
    
    34.12
    
    
    
    28.66
    
    
    
    41.33
    
    
    
    34.72Month of September
    
    
    33.00
    
    
    
    31.00
    
    
    
    40.72
    
    
    
    38.25Month of October
    
    
    33.00
    
    
    
    30.49
    
    
    
    42.10
    
    
    
    38.90Month of November
    
    
    35.15
    
    
    
    29.17
    
    
    
    46.75
    
    
    
    38.80Month of December
    
    
    34.50
    
    
    
    32.05
    
    
    
    47.06
    
    
    
    43.722005:Month of January
    
    
    37.05
    
    
    
    31.60
    
    
    
    48.29
    
    
    
    41.18
 On January 31, 2004, the closing sales price per Ordinary Share on the Frankfurt Stock Exchange, as
reported by Deutsche Börse was  36.05. The average daily volume of Ordinary Shares traded at the Frankfurt Stock Exchange during 2004 was
17,591. Such number is based on monthly turnover statistics supplied by the Frankfurt Stock
Exchange.  C.
    
    Markets General Since July 16, 1996 the Companys American Depositary Receipts, each representing one Ordinary
Share, are listed on the New York Stock Exchange and trade under the symbol PV. The depositary for
the ADRs was until March 12, 2002 the Bank of New York, since March 13, 2002 it is the Deutsche
Bank Trust Company Americas in New York. The Companys Ordinary Shares have been listed and principally traded on the Neuer Markt of the
Frankfurt Stock Exchange since April 15, 1998. The Neuer Markt was a segment of Deutsche Börse AG.
Deutsche Börse reorganized the stock exchange segments in 2003 and differentiated it by a General
Standard and a Prime Standard. The General Standard is subject to the requirements prescribed
under German law; the Prime Standard additionally includes internationally customary transparency
requirements (quarterly reporting, IAS/IFRS or U.S. GAAP accounting standards, presentation of a
corporate calendar, at least one analyst conference per year, as well as ad-hoc press releases in
German and English). Pfeiffer is already in conformity with all inclusion criteria. The Deutsche
Börse AG confirmed the Companys inclusion in the Prime Standard beginning January 1, 2003. In June
2003, all previously at Neuer Markt listed companies were integrated in the new segments Prime
Standard or General Standard of Deutsche Börse AG. Consequently, Neuer Markt was closed on June
5, 2003. In 2003, Deutsche Börse introduced a new index system that was specifically tailored to the needs
of investors. Since March 24, 2003 the Company belongs to the newly created TecDax Index, which
includes the 30 most important technology companies. All Ordinary Shares have been issued in bearer form. 45




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Item 10.    Additional Information  A.
    
    Share Capital Not applicable.  B.
    
    Memorandum and Articles of Association Registration, Objects and Purposes of the Company Pfeiffer Vacuum Technology AG is a stock corporation (Aktiengesellschaft) organized under the
Stock Corporation Law (Aktiengesetz) of the Federal Republic of Germany. The Companys registered
office is in Asslar and it is registered in the commercial register of the local court of Wetzlar
under the number HR B 44. According to §2 of its Articles of Association, the objects and purposes of the Company are the
development, planning, design, manufacture, application, sale and distribution of technical
apparatuses and equipment, especially those incorporating the Pfeiffer Vacuum Technology and
marketed under the Pfeiffer trademark, as well as the participation in domestic and foreign
enterprises. General German stock corporations are principally governed by three separate bodies: The annual
general meeting of shareholders, the supervisory board and the management board. Their roles are
defined by German law and by the Companys articles of association (Satzung), and may be described
generally as follows: The Annual General Meeting of Shareholders The shareholders ratify at the annual general meeting the actions of the Companys supervisory
board and management board. Additionally, shareholders approve the amount of the annual dividend,
the appointment of an independent auditor, and certain significant corporate transactions. As
required by the German Stock Corporation Act (Aktiengesetz), the German Co-determination Law
(Mitbestimmungsgesetz) and the Companys articles of association Pfeiffer Vacuums supervisory
board consists six members. Four members are elected by the shareholders at the annual general
meeting and two members are elected by the Companys employees. The annual general meeting must be
held within the first eight months of each fiscal year. The Supervisory Board The supervisory board appoints and removes the members of the board of management and oversees
the management of the Company. German law requires that a corporations articles of association or
its supervisory board specify categories of transactions which will require the approval of the
supervisory board, though German law prohibits the supervisory board from making management
decisions. 46




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The Management Board The management board is responsible for managing the day-to-day business in accordance with
the German Stock Corporation Act (Aktiengesetz) and the articles of association. The management
board is authorized to represent and to enter into binding agreements with third parties to the
Companys behalf. The management board submits regular reports to the supervisory board about
Pfeiffer Vacuums operations, business strategies, financial condition and other important matters
affecting its performance and profitability. It also prepares special reports upon request. A
person may not serve on the management board and the supervisory board at the same time. Directors Under German law, the supervisory board and the management board members owe a duty of loyalty
and care to the Company. They must exercise the standard of care of a prudent and diligent
businessman and bear the burden of proving they did so if their actions are contested. Both boards
must consider the Companys interest, interests of its shareholders, its workers and, to some
extent the common interests. Those who violate their duties may be held jointly and severally
liable for any resulting damages, unless their actions were validly approved by resolution at a
shareholders meeting. According to German law, the supervisory board and management board members may not receive a loan
from the Company unless approved by the supervisory board, and may not vote on a matter that
concerns ratification of his own acts or in which he has a material interest. Separate from the
limitations on loans imposed by German law, the Sarbanes-Oxley Act, which was enacted in the United
States in July 2002 and which is also applicable to foreign private issuers such as Pfeiffer
Vacuum, now prohibits almost all loans to directors and executive officers. This prohibition
applies to both, the members of the supervisory board and the management board. The compensation of members of the management board is determined by the supervisory board (§87 (1)
of the German Stock Corporation Law). According to §11 of the Companys articles of association,
the general shareholders meeting determines the compensation of the members of the supervisory
board. Members of the supervisory board are not reelected at staggered intervals. They are elected by the
general shareholders meeting for periods not exceeding five years and may be replaced during a
term only for the remainder of that term. Members of the management board are appointed by the
supervisory board for periods not exceeding five years and a staggered reelection is possible, but
cumulative voting does not take place. The normal retirement age of members of the management board is sixty-five, though it is possible
for a member of the management board to continue in office beyond this age with the approval of the
supervisory board. Membership ends at the end of the period for which a member was appointed. Management board, supervisory board and audit committee members are not required to hold any shares
in the Company while in office. For further information please refer to Item 6. Directors, Senior Management and Employees. Ordinary Shares The Company has issued a single class of ordinary shares without par value, all of which have
been issued in the form of bearer shares. The form and content of share certificates as well as
that of dividend and renewal coupons are determined by the management board with the consent of the
supervisory board. 47




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The Company may combine several individual shares into one or more share certificates, which
document or documents then represent several shares (global-share certificates). Shareholders are
not entitled to the issuance of individual share certificates subject to the requirements of any
stock exchange on which shares may be listed. Under the German Stock Corporation Law (§186 (1), an existing shareholder in a stock corporation
has a preferential right to subscribe for issues by such corporation of shares, debt instruments
convertible into shares, debt instruments with warrants attached and participating debt instruments
in proportion to the shares held by such shareholder in the existing share capital of such
corporation. The German Stock Corporation Law provides that this preferential right can only be
excluded in certain limited circumstances and in the same shareholder resolution authorizing the
capital increase (§186 (3)). A majority of at least three-quarters of the share capital represented
at the meeting is required for the exclusion. The exclusion of pre-emptive rights is permitted with
a majority of three-quarters of the share capital present if the capital increase against cash
contribution (Barkapitalerhöhung) does not exceed an amount of 10% of the Companys share capital
(Grundkapital) and the issue price does not significantly fall below the exchange price.
Pre-emptive rights may be transferred by agreement and delivery of the coupon evidencing such
rights. If the shares to which the pre-emptive rights relate are held in a clearing system, the
rights may be transferred in accordance with the rules of such clearing system. The management board is authorized to increase, subject to the consent of the supervisory board,
the Companys share capital on or prior to June 5, 2005 by issuing no-par value shares against cash
contributions, in one or several tranches, for an amount up to K 8,640. The shareholders will be
granted a pre-emptive right. The management board is authorized to exclude, subject to the consent
of the supervisory board, fractional shares from the pre-emptive right. The management board is
authorized to increase, subject to the consent of the supervisory board, the Companys share
capital on or prior to June 5, 2005 by issuing new no-par value shares against cash contributions,
in one or several tranches, for an amount up to K 2,160. With the consent of the supervisory board, the management board may exclude the pre-emptive rights
of the shareholders in order to be able to issue the new shares in an overall nominal amount of up
to K 1,660 at an issue price that is not substantially below the stock exchange price or to be
able to issue the new shares in a nominal amount of up to K 500 to employees. If the management
board does not exercise its authority to exclude the pre-emptive rights, the pre-emptive rights of
the shareholders may be excluded, with the consent of the supervisory board, for fractional shares
only. The share capital has been conditionally increased by up to K 1,152 through the issuance of up to
450,000 no-par value bearer shares, to be issued based on the authorization of the shareholders,
dated June 6, 2000. The conditional capital increase will be implemented only insofar as the
holders of the convertible bonds actually convert them. The new shares will participate in the
profits for the entire fiscal year in which the right to convert is exercised. Dividends Shareholders share in the Companys profits pro rata in accordance with their holding of
Ordinary Shares in the Company (§ 60 German Stock Corporation Law). However, the Company may decide
on a different profit participation of new shares issued following a capital increase (§5 (4) of
the Articles of Association of the Company). Shareholders participate in the Companys profits in
the form of dividends. Dividends are paid following approval by shareholders at the annual general meeting of
shareholders. Dividends are paid upon presentation of the relevant dividend coupon
(Dividendenschein) to the Company or the paying agent or agents appointed from time to time by the
Company. If the Ordinary Shares which are entitled to dividend payments are held in a clearing
system, the dividends will be paid in accordance with the rules of such clearing system. 48




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Notice of the dividends paid and appointment of the paying agent or agents for this purpose will be
published by the Company in the German Federal Gazette (Bundesanzeiger). Voting Rights The shareholders vote on a recommendation made by the management board and supervisory board
as to the amount of dividend which should be paid. Under German law, dividends are payable from
balance sheet profits (Bilanzgewinn). In determining the annual financial statements (including the
balance sheet profit), the management board and the supervisory board are, in accordance with
German law, required to appropriate a certain portion of the Companys annual surplus
(Jahresüberschuss) to reserves until such statutory reserves amount in the aggregate to 10% of
the Companys share capital. In addition, the management board and the supervisory board may
appropriate up to 50% of the Companys annual surplus (after deduction of any loss carried forward
and after appropriation to statutory reserves) to voluntary reserves. Further, pursuant to §16 of
the Companys Articles of Association, the remaining 50% of the Companys annual surplus may also
be appropriated to voluntary reserves, unless the voluntary reserves exceed or would exceed (after
appropriation) 50% of the Companys share capital. Thus, the balance sheet profit available for
payment as a dividend is reduced by the aggregate amount of any such appropriation. Each Ordinary Share entitles the holder thereof to one vote at general meetings of the shareholders
of the Company. Resolutions are passed at general meetings of the shareholders of the Company by a
majority of the votes cast, unless a higher vote is required by mandatory law. The German Stock
Corporation Law requires that, among others, the following significant resolutions be passed by a
majority of the votes cast and at least 75% of the capital represented in connection with the vote
taken on such resolution: change of corporate purpose, issues of preferred non-voting shares,
certain capital increases, capital decreases, a dissolution of the Company, a merger of the Company
into or a consolidation of the Company with another stock corporation, a split off or spin off, a
transfer of all of the Companys assets, conclusion of enterprise agreements
(Unternehmensverträge), in particular the inclusion of subsidiaries under contractual domination
(Beherrschungsverträge) and profit and loss pooling (Gewinnabführungsverträge), change of the
Companys corporate form and the elimination of pre-emptive rights. In accordance with the German Stock Corporation Law (§271), upon a liquidation of the Company,
liquidation proceeds remaining after paying off all of the Companys liabilities would be
distributed among holders of Ordinary Shares in proportion to the total nominal value of the shares
held by each holder. Distribution of liquidation proceeds may not occur until the first anniversary
of the third publication of the liquidation in the Federal Gazette. The Articles of Association of the Company do not permit the redemption of shares. However, the
Company may redeem shares in lieu of an ordinary capital decrease pursuant to the German Stock
Corporation Law (§§237-239). The Articles of Association of the Company do not include sinking fund provisions. Shareholders are not liable to further capital calls by the Company in the form of capital
increases or otherwise. Pursuant to the German Stock Corporation Law (§53a) discrimination of shareholders is prohibited
and the Articles of Association of the Company do not contain provisions that discriminate against
shareholders with substantial shareholdings. 49




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##### 



Change of Shareholders Rights Amendments of the articles of association may be proposed either jointly by the supervisory
board and the management board or by a shareholder or group of shareholders holding a number of
ordinary shares having, in the aggregate, a minimum nominal value of  0.5 million. A resolution
amending the articles of association must be passed by a majority of the votes cast and at least a
majority of the nominal capital represented at the meeting of shareholders at which the resolution
is considered, unless the German Stock Corporation Law requires that the resolution be passed by at
least three-quarters of the nominal capital represented at the meeting as described earlier in this
Item 10.B. Notification Requirements and Disclosure of Shareholdings Under the German Stock Corporation Law, any enterprise (Unternehmen) owning shares in the
Company must notify the Company without delay, inter alia, if the aggregate number of shares held
by it (or any enterprise connected with it) exceeds or falls below a threshold of 25% to 50% of the
Companys share capital. For the purposes of this notice requirement, shares owned by an enterprise
include shares owned by another enterprise that is directly or indirectly controlled by the first
enterprise and shares held by another person on behalf of the first enterprise or the controlled
enterprise. Failure to notify the Company will, for as long as such failure continues, disqualify
the shareholder from exercising any rights attached to the Ordinary Shares (e.g., voting rights and
dividends). The Companys articles do not require shareholders to disclose their shareholdings. In the event
that the Companys ordinary shares are listed on an European stock exchange, under the Securities
Trading Act (Wertpapierhandelsgesetz) any shareholder who reaches, exceeds or falls below 5%, 10%,
25%, 50% or 75% of the voting rights in a company listed on any European stock exchange, whether by
acquiring or disposing of shares or otherwise, shall forthwith, and at the latest within seven
calendar days, inform the Company and the Federal Supervisory Authority for Securities Trading
(Bundesanstalt für Finanzdienstleistungsaufsicht) in writing that such person has reached,
exceeded, or fallen below the aforesaid thresholds, the extent of such persons voting rights, and
notify the Federal Supervisory Authority for Securities Trading of such persons address. Failure
to notify the Company will, for so long as such failure continues, disqualify the shareholders for
exercising the voting rights attached to the shares. General Shareholders Meeting A general meeting of the shareholders of the Company may be called by the management board or
the supervisory board. Shareholders holding in the aggregate at least 5% in nominal value of the
Companys issued share capital may request the calling of a general meeting for a specific purpose.
The right to attend and vote at a shareholders meeting is only accorded to those shareholders who
deposit their shares with the Company, with a German notary, with a bank serving as a Depositary
for such securities or at any other place of deposit specified in the notice of the general
meeting, until the end of the meeting. Shares are also deemed to have been deposited if, with the
consent of a depositee, they are blocked in the bank account in which they are held until the end
of the general meeting. In order to exercise the right to attend and vote at the general meeting
shareholders must provide the Company at the general meeting with appropriate documentation which
evidences the deposit of Ordinary Shares as described above. 50




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Following such deposit of Ordinary Shares or the blocking of the account in which they are held, a
holder of Ordinary Shares may still sell or otherwise dispose of such holders Ordinary Shares;
provided, however, that any voting instructions such shareholder may have given with respect to
such Ordinary Shares will be invalidated and any admission cards such shareholder may have received
that would entitle such shareholder to attend and vote at the meeting must be returned to the
deposit bank or the Company unless the buyer of such Ordinary Shares authorizes the seller to vote
in his own name. Notice of shareholder meetings must be published in the Federal Gazette
(Bundesanzeiger) at least one month prior to the last day on which the shares must be deposited,
which is required by the Articles of Association to be not later than the seventh business day
prior to the date of the general meeting. Although notice of each shareholders meeting (whether for the annual general meeting or an
extraordinary meeting) is required to be given as described above, neither the German Stock
Corporation Law nor the Articles of Association have any minimum quorum requirement applicable to
such meetings. Limitations on the Right to own Securities German law or the Companys Articles of Association do not limit the right of Non-residents or
foreign owners to hold or vote the Ordinary Shares or the ADRs . Provisions that would delay a Change in Control The Companys Articles of Association do not contain provisions that would have the effect of
delaying, deferring or preventing a change in control of the Company. Provisions of German Law that are significantly different from Provisions of U.S. Law As described in Ordinary Shares above, German law provides that existing shareholders of a
stock corporation have a preferential right to subscribe for new shares issued by the corporation
in proportion to their holding of shares in the existing share capital of the corporation. This
preferential right can only be excluded in certain limited circumstances and in the same
shareholder resolution authorizing the capital increase and protects shareholders from being
diluted. Provisions governing changes in the capital that are more stringent than required by law The Articles of Association of the Company do not contain provisions relating to changes in
the capital of the Company that are more stringent than applicable statutory law. German Corporate Governance Code Declaration Pfeiffer Vacuum, like other publicly traded companies in Germany, is subject to the German
Corporate Governance Code. On February 26, 2002, a German government commission adopted the German
Corporate Governance Code (DCGK). The corresponding legislation went into force on July 26,
2002. DCGK governs the publication of annual and quarterly reports, defines the management boards
information and reporting obligations to the supervisory board and governs the formation of audit
committees dealing with accounting, risk management, the issuance of auditing commissions to
independent auditors, conflicts of interest of supervisory board members and other matters. The
German Stock Corporation Act (Aktiengesetz) requires a companys supervisory board and management
board to declare annually if the Codes recommendations have been and are being met by the company
and if not, which recommendations have not been or are not being applied. 51




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Pursuant to § 161 of the German Stock Corporation Act, the management and supervisory boards issued
the statement of compliance for the year 2004 in December 2004. With the following exceptions, this
statement reflects compliance with the recommendations of the German Corporate Governance Code
Government Commission:  >

No agreement was able to be reached in negotiations with the Companys D & O insurance
carrier to obtain a lower premium if a deductible is arranged. Pfeiffer Vacuum will therefore
not arrange for a deductible. A deductible would not improve the overall motivation and sense
of responsibility of the management and supervisory boards. Both the management and
supervisory boards work to the benefit of the enterprise.
(Point 3.8 of the Code)>

The compensation paid to the members of the management board has in the past been and
presently still is stated collectively in the Notes to the Consolidated Financial Statements.
(Point 4.2.4 of the Code)>

The members of the supervisory board have in the past received and presently still receive
fixed compensation, which does not contain any performance-related variable income elements.
Their compensation is stated collectively in the Notes to the Consolidated Financial
Statements.
(Point 5.4.5 of the Code) The full text of the Code is available at the following Internet address:
www.corporate-governance-code.de. NYSE Corporate Governance Due to its listing on the New York Stock Exchange, Point 303A.11 of the New York Stock
Exchange Listed Company Manual requires Pfeiffer Vacuum Technology AG to disclose the differences
between U.S. corporations listed on the New York Stock Exchange and Pfeiffer Vacuum Technology AG
in questions relating to corporate governance. The Company has provided an English-language summary comparison of the differences on its Internet
site under: www.pfeiffer-vacuum.net/Investor Relations/Corporate Governance.  C.
    
    Material Contracts The Company has not entered into any material contracts, other than contracts entered
into in the ordinary course of business, to which it or any of its subsidiaries is a party, for the
two years immediately preceding the publication of this document.  D.
    
    Exchange Controls At the present time, Germany does not restrict the export or import of capital, except
for certain restrictions regarding Birma/Myanmar, Côte dIvoire, Iraq, Liberia, Somalia, Sudan,
Yugoslavia and Simbabwe. However, for statistical purposes only, every individual or corporation residing in Germany
(hereinafter a Resident) must report to the Deutsche Bundesbank, subject only to certain
immaterial exceptions, any payment received from or made to an individual or a corporation resident
outside of Germany (a Non-resident) if such payment exceeds approximately  12,500 (or the
equivalent in a foreign currency). In addition, German residents must report any claims against or
any liabilities payable to non-residents if such claims or liabilities, in the aggregate, exceed
approximately  5.0 million (or the equivalent in a foreign currency) during any month. 52




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E.
    
    Taxation Taxation In this section the Company discusses the material United States federal income and German tax
consequences to its Shareholders/ADR-holders. If the shareholder/ADR-holder:  

is a beneficial owner of some of Pfeiffer Vacuums ordinary shares or ADR;

is a resident of the United States for purposes of the United States  Germany income tax treaty (the Income Tax
Treaty), which generally includes: an individual resident in the United States resident; a corporation created or
organized under the laws of the United States, any state thereof or the District of Columbia; and a partnership, estate
or trust, to the extent its income is subject to taxation in the United States as the income of a United States
resident, either in its hands or in the hands of its partners or beneficiaries;

is holding some of Pfeiffer Vacuum ordinary shares/ADR as a capital asset;

is not holding any of Pfeiffer Vacuum ordinary shares/ADR as part of the business property of the
shareholders/ADR-holders permanent establishment in Germany or, if she/he is an individual, as part of her/his fixed
base in Germany that she/he uses to perform independent personal services; and

is not subject to the limitation on benefits restrictions in the Income Tax Treaty, if the shareholder/ADR-holder is
not an individual. The Company has based its discussion on existing United States federal income and German tax law,
including legislation, regulations, administrative rulings and court decisions, as in effect on the
date of this annual report. These tax laws are subject to change, possibly with retroactive effect.
The discussion does not address all aspects of United States federal income and German taxation
that may be relevant to Pfeiffer Vacuums shareholders/ADR-holders in light of their particular
circumstances. For example, the discussion does not address tax consequences resulting from shares
acquired pursuant to the exercise of an employee stock option or shares otherwise received as
compensation and it does not include tax consequences to shareholders/ADR-holders who are subject
to special treatment under United States federal income tax laws (for example, financial
institutions, insurance companies, tax-exempt organizations, broker-dealers and corporations that
own 10% or more of the Companys ordinary shares/ADR). The discussion also does not address any
aspects of state, local or non-United States tax law other than some aspects of German tax law. EACH SHAREHOLDER IS STRONGLY URGED TO CONSULT HER OR HIS TAX ADVISOR AS TO THE UNITED STATES
FEDERAL INCOME AND GERMAN TAX CONSEQUENCES OF HOLDING PFEIFFER-VACUUM ORDINARY SHARES/ADR,
INCLUDING THE PARTICULAR FACTS AND CIRCUMSTANCES THAT MAY BE UNIQUE TO SUCH SHAREHOLDER, AND AS TO
ANY OTHER TAX CONSEQUENCES OF HOLDING PFEIFFER-VACUUM ORDINARY SHARES/ADR. Withholding Tax on Dividends German law requires German corporations, including Pfeiffer Vacuum Technology AG, to withhold
German tax on dividends paid to non-resident stockholders at a total rate of 21.1% (consisting of a
20% withholding tax and a 1.1% surcharge). The shareholder/ADR-holder can obtain a partial refund
of this 21.1% aggregate German withholding tax under the Income Tax Treaty. Generally, United States federal income tax law requires shareholders/ADR-holders to pay taxes on
dividends she/he receives from a German corporation. She/he may be permitted to claim a foreign tax
credit for German income taxes that she/he paid on the dividend to the extent that she/he is not
entitled to a refund for those taxes from the German tax authorities. 53




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The Income Tax Treaty reduces the German withholding tax rate from 21.1% to 15% of the gross amount
of the dividend a shareholder/ADR-holder receives from a German corporation. Therefore, she/he may
apply for a refund of German withholding tax in an amount equal to 6.1% of the gross amount of the
dividend she/he received (21.1% aggregate German withholding tax rate minus 15% Income Tax Treaty
withholding tax rate). Thus, each $1,000 of gross dividend paid to a shareholder/ADR-holder will be subject to a German
withholding tax of $211, of which $61 may be refunded to her/him under the Income Tax Treaty.
Assuming she/he receives the $61 refund, she/he will receive in total $850 of cash for each $1,000
of gross dividend ($789 directly and $61 by way of refund). The United States federal income tax rules will treat a shareholder/ADR-holder as if she/he
received a total dividend of $1,000, and she/he will have to include $1,000 in her/his gross
income. She/he may also be entitled to a foreign tax credit, subject to applicable limitations of
United States federal income tax law. The shareholder/ADR-holder must include Pfeiffer Vacuums euro-denominated dividends in her/his
gross income in a U.S. dollar amount that is based on the exchange rate on the date she/he receives
or is treated as having received the dividends. If she/he convert these dividends into U.S. dollars
on the date she/he receives or is treated as having received the dividends, she/he should not be
required to recognize foreign currency gain or loss on the dividend. She/he may, however, be
required to recognize foreign currency gain or loss on her/his receipt of refunds of German
withholding tax to the extent that (A) the U.S. dollar value of the refund she/he received or was
treated as having received differs from (B) the U.S. dollar equivalent of the refund on the date
she/he received or was treated as having received the underlying dividend. United States federal
income tax rules treat any such foreign currency gain or loss as ordinary income or loss. Withholding Tax Refund Procedures To claim the refund reflecting the current reduction of the German withholding tax from 20% to
15% and the refund of the effective 1.1% German surcharge, when applicable, a
Shareholder/ADR-holder must submit a claim for refund, together with documentation of the tax
withheld and certification of their last filed U.S. federal income tax return, to the German tax
authorities, within four years from the end of the calendar year in which the dividend is received.
Claims for refunds are made on a special German claim for refund form, which must be filed with the
German tax authorities: Bundesamt für Finanzen, 53221 Bonn-Beuel, Germany. The German claim for
refund forms may be obtained from the German tax authorities at the same address where the
applications are filed or from the Embassy of the Federal Republic of Germany, 4645 Reservoir Road,
N.W., Washington, D.C. 20007-1998. Additionally, the form can be downloaded from the following
website: http://www.bff-online.de/Steuer_Vordrucke/KSt_KapSt/AntragErstattungKapE_USA.pdf. Shareholders/ADR-holders must also submit to the German tax authorities certification (IRS Form
6166) of their last filed United States federal income tax return. To apply for certification,
shareholders/ADRholders must file IRS Form 8802. If, after processing the Form 8802, IRS determines
that she/he is eligible for U.S. residency certification, she/he will receive Form 6166, a
computer-generated letter. Form 8802 can be obtained from the
Internal Revenue Service 
Philadelphia Accounts Management Center, U.S. Residency Certification Request, P.O. Box 16347,
Philadelphia, PA 19114-0447. (Additional information, including IRS Publication 8802, can be
obtained from the Internal Revenue Service website at http://www.irs.gov/pub/irs-pdf/f8802.pdf).
The Internal Revenue Service will send the certification directly to the German tax authorities if
the shareholder/ADR-holder authorizes the Internal Revenue Service to do so. 54




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Shareholders/ADR-holders of Pfeiffer Vacuum ordinary shares/ADR who receive a refund attributable
to reduced withholding taxes under the Income Tax Treaty may be required to recognize foreign
currency gain or loss, which will be treated as ordinary income or loss, to the extent that the
U.S. dollar value of the refund received or treated as received by the shareholder/ADR-holder
differs from the U.S. dollar equivalent of the refund on the date the dividend on which such
withholding taxes were imposed was received or treated as received by the shareholder/ADR-holder. Reduced United States Tax Rate for Certain Dividends Under the Jobs and Growth Tax Relief Reconciliation Act of 2003, the maximum rate of United
States federal income tax on qualified dividend income received by an individual (and certain
trusts and estates) is reduced to 15%. The reduced maximum rate applies to eligible dividends
received after December 31, 2002 and before January 1, 2009. Qualified dividend income generally
includes dividends paid by United States corporations and qualified foreign corporations. A foreign
corporation is a qualified foreign corporation for these purposes if:  1)

it is eligible for benefits of a comprehensive income tax treaty with the United States that
the Internal Revenue Service determines is satisfactory for these purposes and that includes
an exchange of information program, or2)

the stock of the foreign corporation on which the dividend is paid is readily tradable on an
established securities market in the United States. In addition, to qualify for the reduced rate, the share of stock on which the dividend is paid must
be held more than 60 days in the 121-day period beginning 60 days before the ex-dividend date and
the stockholder must not be under an obligation (whether pursuant to a short sale or otherwise) to
make related payments with respect to positions in substantially similar or related property. Special rules for determining a taxpayers foreign tax credit limitation shall apply in the case of
qualified dividend income. Rules similar to those of Internal Revenue Code section 904(b)(2)(B)
concerning adjustments to the foreign tax credit limitation to reflect any capital gain rate
differential shall also apply to any qualified dividend income. Taxation of Capital Gains The Income Tax Treaty provides that the German capital gains tax does not apply to gains on
the sale or other disposition of a shareholders/ADR-holders Pfeiffer Vacuum ordinary shares/ADR. If a shareholder/ADR-holder sells or otherwise disposes of her/his Pfeiffer Vacuum ordinary
shares/ADR, she/he will recognize capital gain or loss for United States federal income tax
purposes equal to the difference between the amount realized and the adjusted tax basis in those
shares. If she/he is an individual and has held the Pfeiffer Vacuum ordinary shares/ADR more than
12 months, the capital gain will generally be subject to a maximum United States federal income tax
rate of 15%. German Capital Tax (Vermögensteuer) As a result of a judicial decision, the German capital tax (Vermögensteuer) is not imposed at
the present time. In addition, under the Income Tax Treaty a shareholder/ADR-holder would not have
to pay German capital tax (Vermögensteuer) even if it were currently in effect. 55




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##### 



Other German Taxes There are no German transfer, stamp or other similar taxes that would apply to a
shareholder/ADR-holder in connection with receiving, purchasing, holding or selling Pfeiffer
Vacuums ordinary shares/ADR.  F.
    
    Dividends and Paying Agents Not applicable.  G.
    
    Statement by Experts Not applicable.  H.
    
    Documents on Display The Company files this annual report on form 20-F, the exhibits thereto and other
information with the Securities and Exchange Commission (the SEC). Any documents that the Company
files with the SEC may be read and copied at the SECs Public Reference Room at 450 Fifth Street,
N.W., Washington, D.C., 20549 and at the Commissions regional offices, at prescribed rates. The
SEC also maintains a website at www.sec.gov that contains reports and other information regarding
registrants that file electronically with the Commission. The annual reports and some other
information of the Company are available. As required by German law, the Company files its Consolidated Financial Statements in accordance
with U.S. GAAP in the English and German languages with Deutsche Börse AG. Additionally, Pfeiffer Vacuums Annual Report (Geschäftsbericht) in English and German language and
the annual report on Form 20-F is available from the Companys Internet site
(http://www.pfeiffer-vacuum.net).  I.
    
    Subsidiary information. Not applicable.  Item 11.
    
    Quantitative and Qualitative Disclosures about Market Risk The global nature of the Companys businesses exposes it to market risks resulting from
changes in foreign currency exchange rates and interest rates. Accordingly, changes in foreign
currency exchange rates and interest rates may adversely affect Pfeiffer Vacuums operating results
and financial condition. The Company seeks to manage and control these market risks primarily
through its regular operating and financing activities and evaluates it by monitoring changes in
key economic indicators and market information on an ongoing basis. In addition, associated with
its business operations, Pfeiffer Vacuum is exposed to commodity price risks. 56




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Any market sensitive instruments, including equity and interest bearing securities, that Pfeiffer
Vacuums pension trust hold are not included in this quantitative or qualitative analyses. Please
refer to Note 13 of the Consolidated Financial Statements Pensions Benefits and Similar
Obligations. For a description of accounting for derivative financial instruments please refer to
Note 17 of the Consolidated Financial Statements Financial instruments. Exchange Rate Risk Transaction Risk and Currency Risk Management The global nature of Pfeiffer Vacuums businesses exposes its operations and reported
financial results and cash flows to the risk arising from fluctuations in the exchange rates of the
dollar, the euro, and other world currencies. Its businesses are exposed to transaction risk
whenever it has revenues in a currency that is different from the currency in which it occurs the
costs of generating those revenues. Once the Company convert the revenues into the currency in
which it incurs the costs, the revenues may be inadequate to cover the costs if the value of the
currency in which it generated the revenues declined in the interim relative to the currency in
which it incurred the costs. This risks exposure primarily affects the Companys segment Germany,
which generates a part of its revenues in foreign currencies, primarily U.S. dollar, and incurs
manufacturing costs primarily in euros. Effects of Currency Translation Some of the Companys subsidiaries are located outside the euro zone. Since Pfeiffer Vacuums
financial reporting currency is the euro, it translates the income statements of these subsidiaries
into euros for including their financial result in the Consolidated Financial Statements.
Period-to-period changes in the average exchange rate for a particular countrys currency can
significantly effect the translation of both revenues and operating income denominated in that
currency into euros. Unlike the effect of exchange rate fluctuations on transaction exposure, the
exchange rate translation risk does not affect local currency cash flows. The Company has assets and liabilities outside the euro zone. This assets and liabilities are
denominated in local currencies and reside primarily in Pfeiffer Vacuums sales subsidiary in the
U.S. When the Company convert net asset values into euros, currency fluctuations result in
period-to-period changes in those net asset values. Its equity position reflects these changes.
Pfeiffer Vacuum generally does not hedge against this type of risk. Foreign Currency Exchange Risk The Companys principal foreign currency exchange risk involves changes in the value of the
euro relative to the U.S. dollar and the British pound. Approximately 38% of the Companys sales
are denominated in currencies other than the euro. The table below shows the portion of sales denominated in the U.S. dollar, the British pound, and
other foreign currencies for the year ended December 31, 2004. Currency
    

Percentage of SalesU.S. dollars
    
    
    24%Swiss francs
    
    
    6%British pounds
    
    
    3%Other foreign currencies
    
    
    5%
 57




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The Company enters into foreign currency forward contracts and options to hedge the exposure of its
forecasted foreign-currency sales to fluctuations in exchange rates. These forward contracts and
options are limited to U.S. dollars in which the Company has significant sales. The contracts are designed to protect specifically against the impact of changes in exchange rates
on these sales and typically cover approximately forty to fifty percent of the Companys foreign
exchange risk. The maturities for all forward contracts are aligned with the date the sales are
anticipated to occur. Please see note 17 Financial Instruments of the notes to the Consolidated
Financial Statements for further discussion of the Companys foreign exchange hedging activities. The principal derivative financial instruments used by Pfeiffer Vacuum to hedge foreign currency
exposures are forward foreign exchange contracts and currency options. In 2004 currency options, in
2003 foreign exchange contract were used to hedge against exchange rate risks arising from the U.S.
dollar. The table below provide information about derivative financial instruments: Foreign Currency
Options  December 31, 2004 (All maturing in 2005) Contract Amount
    
    
    Weighted Average
    
    
    Fair ValueOption Strike
    
    
    December 31, 2004Price( in thousands)
    
    
    
    
    
    ( in thousands)U.S. dollar (USD) put (short)
    
    
    15,421
    
    
    
    1.2321
    
    
    
    540
 The total volume of foreign currency options increased from zero on December 31, 2003 to K 15,421
on December 31, 2004. Foreign Currency
Forward Contracts  December 31, 2003 Contract Amount
    
    
    Weighted Average
    
    
    Fair ValueForward Exchange
    
    
    December 31, 2003Rate( in thousands)
    
    
    
    
    
    ( in thousands)U.S. dollar (USD)
    
    
    7,654
    
    
    
    1.2543
    
    
    
    898
 The total volume of foreign currency options decreased from K 7,654 on December 31, 2003 to zero
on December 31, 2004. Interest Rate Risk The Company faces typical interest rate risk insofar as changes of future interest rates will
lead to changes in interest income and interest paid. However, the Company currently has no
long-term debts. In 2003, Pfeiffer Vacuum entered into an investment security amounting to  9.0
million with interest based on the six-months-Euribor. In 2004, the Company entered into an
investment security amounting to  1.0 million with interest based on the three-month-Euribor plus
45 base points. Both investment securities may include an interest rate risk. Because the interest
rates are variable the Company considers the interest rate risk to be not material. Cash assets are
invested in instruments with maturities of less than ninety days. See item 7 of the notes to the
Consolidated Financial Statements. 58




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##### 



Commodity Price Risk Pfeiffer Vacuum is exposed to changes in prices of commodities, such as steel, aluminum and
energy used in the manufacturing of its products. For further information refer to Item 4 Raw
Material and Suppliers. Item 12.    Description of Securities other than Equity Securities A.    Debt Securities Not applicable. B.    Warrants and Rights Not applicable. C.    Other Securities Not applicable. D.    American Depositary Shares Not applicable. Part II Item 13.    Defaults, Dividend Arrearages and Delinquencies None. 59




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##### 



Item 14.    Material Modifications to the Rights of Security Holders and Use of Proceeds Changes with Respect to Ordinary Shares Treasury Stock In the shareholders meeting at June 16, 2004 the shareholders authorized the Company to
acquire treasury stock. The number of ordinary shares that may be repurchased (subject to statutory
limitation) is limited up to a maximum of 10% of all issued shares. No amounts were repurchased
pursuant to this of December 31, 2004. Treasury stock, amounting to approximately  2.4 million,
was repurchased in 2003 and includes 100,076 ordinary shares valued at cost. Item 15.    Controls and Procedures New U.S. Legislation As a result of the Companys listing at New York Stock Exchange, it is subject not only to the
provisions of German law (corporation, codetermination and capital market legislation) and of its
own Articles of Association but also to the licensing requirements of the New York Stock Exchange.
American capital market legislation  specifically, the Sarbanes-Oxley Act and the rules and
regulations of the Securities and Exchange Commission (SEC)  also applies to Pfeiffer Vacuum. The
Company is in the process of assessing the impact of the provisions of the Sarbanes-Oxley Act and
the related rules in order to adopt the appropriate plan of action required for the proper
implementation and compliance of the act. The Companys disclosure controls and procedures are designed to provide reasonable assurance that
information required to be disclosed in this report is recorded, processed, summarized an reported
on a timely basis. All annual and quarterly reports are reviewed by the Companys management board prior to
publication. In accordance with German law, the members of the management board confirm through
their signatures that, to the best of their knowledge and belief, all required information is
contained therein and that they have no knowledge of any material irregularities that could
negatively impact the Companys operating or financial results. All annual and quarterly reports
are also provided to all members of the supervisory board and the audit committee prior to
publication. Furthermore, all members of the supervisory board and the audit committee receive
comprehensive information about all material business transactions, the order situation and the
results of all consolidated companies within the context of a detailed monthly reporting system. The Company has a risk management system in place that enables existing risks to be identified and
correctly treated early on. Methods of avoiding, reducing and securing risks are developed and
implemented. The risk early warning system is regularly reviewed for its fundamental suitability
for identifying developments that could endanger the continued existence of the Company. The
Companys risk coordinator is responsible for compiling timely risk reports and forwarding them to
the risk committee, comprising the management board, department heads and the risk coordinator. The
risk coordinator is also responsible for monitoring the adopted measures. The respective department
heads bear the responsibility for instituted measures. The department heads are required to comment
on risk development on a quarterly basis. 60




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Item 16A.    Audit Committee Financial Expert Audit Committee/Financial Expert The supervisory board has determined that Götz Timmerbeil is an audit committee financial
expert serving on the audit committee. Item 16B.    Code of Ethics The U.S. Securities and Exchange Commission (SEC) rules require Pfeiffer Vacuum to
disclose the adoption of a written Code of Ethics, a code that applies to the members of the board
of management and other persons responsible for the Companys finance, control and accounting
functions (Senior Financial Officers). This code is publicly available on the Companys website at:
www.pfeiffer-vacuum.net. Item 16C.    Principal Accountant Fees and Services In the annual general meeting of the Company the audit committee (members of the
supervisory board) proposed and the shareholders elected Ernst & Young AG,
Wirtschaftsprüfungsgesellschaft, located Eschborn near Frankfurt/M., to its auditing company for
the year 2004. Through fiscal year 2003 the auditing company was KPMG Deutsche Treuhandgesellschaft
AG, Wirtschaftsprüfungsgesellschaft, Frankfurt/M. Principal accountant fees and services billed were: E & Y
    
    
    KPMGDecember 31,2004
    
    
    2003( in thousands)Audit fees
    
    
    270
    
    
    
    330Audit-related fees
    
    
    2
    
    
    
    8Tax fees
    
    
    46
    
    
    
    4
 Audit fees are the aggregate fees billed for the audit of the Companys consolidated and annual
financial statements and reviews of interim financial statements. Audit-related fees are fees
charged for assurance and related services that are reasonably related to the performance of the
audit (especially audit of employee benefit plans and pension schemes). Tax fees are fees billed
for services associated with tax compliance, tax advice and tax consulting. Audit Committees pre-approval policies and procedures The audit committee is responsible for the appointment, compensation, retention and oversight of
the work of the auditing company. The auditing company must report directly to the audit committee. The audit committees policy requires management to obtain the Committees approval before engaging
the independent auditors or to provide any other audit or permitted non-audit services to the
Company and its subsidiaries. The chairman of the audit committee is not permitted to approve any
engagement of the auditors if the service to be performed either fall into a category of services
that are not permitted by applicable law or the service would be inconsistent with maintaining the
auditors interdependence. 61




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##### 



Item 16D.    Exemptions from the Listing Standards for Audit Committees Not applicable. Item 16E.    Purchases of Equity Securities by the Issuer and Affiliated Purchasers Treasury Stock In the shareholders meeting at June 16, 2004 the shareholders authorized the Company to
acquire treasury stock through December 15, 2005. The number of ordinary shares that may be
repurchased (subject to statutory limitation) is limited up to a maximum of 10% of all issued
shares. No amounts were repurchased pursuant to this of December 31, 2004. Treasury stock, amounting to approximately  2.4 million, was repurchased in 2003 and includes
100,076 ordinary shares valued at cost. This share buy-back program was authorized by the
shareholders in the annual shareholders meeting at June 11, 2002 and expired in December 2003. PART III Item 17.    Financial Statements. Not applicable. Item 18.    Financial Statements. See pages F-1 through F-30, incorporated by reference. 62




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Item 19.    Exhibits Documents filed as exhibits to this Report:  1.1

Articles of Association (Satzung) of the Company, as amended to the date hereof (English
translation included), incorporated herein by reference to Exhibit 1.1 to the Annual Report of
the Company pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the
fiscal year ended December 31, 2001 on Form 20-F, filed with the U.S. Securities and Exchange
Commission on March 19, 2002.1.2

Internal Rules of Procedure (Geschäftsordnung) of the Company (English translation included),
incorporated herein by reference to Exhibit 1.2 to the Annual Report of the Company pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended
December 31, 2000 on Form 20-F, filed with the U.S. Securities and Exchange Commission on
March 26, 2001.2.1

Amended and Restated Deposit Agreement, dated as of July 15, 1998, among the Company, the
Bank of New York, as Depositary, and each Holder and Beneficial Owner from time to time of
American Depositary Receipts issued thereunder, including therein a form of American
Depositary Receipt representing the American Depositary Shares registered, incorporated herein
by reference to Exhibit (a) to Post-Effective Amendment No. 2 to the Form F-6 Registration
Statement of the Company and The Bank of New York as Depositary, filed with the U.S.
Securities and Exchange Commission on July 10, 1998.2.2

Form of Certificate of Ordinary Shares, without nominal value (English translation included)
incorporated herein by reference to Exhibit 2.2 to the Annual Report of the Company pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended
December 31, 2000 on Form 20-F, filed with the U.S. Securities and Exchange Commission on
March 26, 2001.2.3

Terms of Issuance of Convertible Bonds issued in 1996 (English version), incorporated herein
by reference to Exhibit 2.3 to the Annual Report of the Company pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2000 on
Form 20-F, filed with the U.S. Securities and Exchange Commission on March 26, 2001.2.4

Terms of Issuance of Convertible Bonds issued in 2000 (English version), incorporated herein
by reference to Exhibit 2.4 to the Annual Report of the Company pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2000 on
Form 20-F, filed with the U.S. Securities and Exchange Commission on March 26, 2001.2.5

Terms of Issuance of Convertible Bonds issued in 2002 (English version), incorporated herein
by reference to Exhibit 2.5 to the Annual Report of the Company pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2002 on
Form 20-F, filed with the U.S. Securities and Exchange Commission on March 25, 2003.2.6

German Corporate Governance Code and incorporation of the Companys recommendations into
its corporate strategy (English version), filed with the U.S. Securities and Exchange
Commission on March 24, 2004.8.1

Significant subsidiaries: Please see part C (Organizational Structure) in Item 4 (Information
on the Company). 63




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##### 



Documents filed as exhibits to this Report (continued):  12.1

Certification of the Chairman of the Management Board pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002, filed with the U.S. Securities and Exchange Commission on March
30, 2005.12.2

Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002, filed with the U.S. Securities and Exchange Commission on March 30, 2005.13.1

Certification of the Chairman of the Management Board pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, filed with the U.S. Securities and Exchange Commission on March
30, 2005.13.2

Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, filed with the U.S. Securities and Exchange Commission on March 30, 2005.99.1

The Companys Code of Ethics (English version), filed with the U.S. Securities and Exchange
Commission on March 30, 2005 filed with the U.S. Securities and Exchange Commission on March
30, 2005. 64




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##### 



SIGNATURE The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and
that it has duly caused and authorized the undersigned to sign this annual report on its behalf. February 24, 2005 PFEIFFER VACUUM TECHNOLOGY AG  
 PFEIFFER VACUUM TECHNOLOGY AG  
 65




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INDEX TO FINANCIAL STATEMENTS PageReport of Independent Registered Public Accounting Firm
    
    
    F-2Consolidated Statements of Income for the years
ended December 31, 2004, 2003 and 2002
    
    
    F-4Consolidated Balance Sheets at December 31, 2004 and 2003
    
    
    F-5Consolidated Statements of Shareholders Equity for the years
ended December 31, 2004, 2003 and 2002
    
    
    F-6Consolidated Statements of Cash Flows for the years
ended December 31, 2004, 2003 and 2002
    
    
    F-7Notes to the Consolidated Financial Statements
    
    
    F-9




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##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders of
Pfeiffer Vacuum Technology AG: We have audited the accompanying consolidated balance sheet of Pfeiffer Vacuum Technology AG and
subsidiaries as of December 31, 2004, and the related consolidated statements of income,
shareholders equity, and cash flows for the years ended December 31, 2004 and 2002. These
Consolidated Financial Statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these Consolidated Financial Statements based on our
audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). 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 consideration of internal control over financial reporting as a basis for designing
audit procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the Companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating the overall
financial statements 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 Pfeiffer Vacuum Technology AG and subsidiaries as of
December 31, 2004, and the results of their operations and their cash flows for the year then ended
in conformity with U.S. generally accepted accounting principles. ERNST & YOUNG AG
WIRTSCHAFTSPRÜFUNGSGESELLSCHAFT Frankfurt am Main, Germany
February 24, 2005 F-2




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##### 



INDEPENDENT AUDITORS REPORT To the Board of Directors of
Pfeiffer Vacuum Technology AG: We have audited the accompanying consolidated balance sheet of Pfeiffer Vacuum Technology AG and
subsidiaries as of December 31, 2003, and the related consolidated statements of income,
shareholders equity, and cash flows for the year then ended. These consolidated financial
statements are the responsibility of the Companys management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). 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 audit provides 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 Pfeiffer Vacuum Technology AG and subsidiaries as of
December 31, 2003, and the results of their operations and their cash flows for the year then ended
in conformity with accounting principles generally accepted in the United States of America. KPMG Deutsche Treuhand-Gesellschaft
Aktiengesellschaft Wirtschaftsprüfungsgesellschaft Frankfurt am Main, Germany
February 24, 2004 F-3




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##### 



PFEIFFER VACUUM TECHNOLOGY AG
CONSOLIDATED STATEMENTS OF INCOME Year ended December 31,2004
    
    
    2003
    
    
    2002
    
    
    
    
    
    (in thousands, except per share data)Net sales
    
    
    156,222
    
    
    
    144,018
    
    
    
    150,942Cost of sales
    
    
    (93,906
    )
    
    
    (81,721
    )
    
    
    (82,525
    )Gross profit
    
    
    62,316
    
    
    
    62,297
    
    
    
    68,417Selling and marketing expenses
    
    
    (20,021
    )
    
    
    (20,941
    )
    
    
    (24,162
    )General and administrative expenses
    
    
    (13,960
    )
    
    
    (12,950
    )
    
    
    (12,241
    )Research and development expenses
    
    
    (10,250
    )
    
    
    (8,928
    )
    
    
    (10,845
    )Operating profit
    
    
    18,085
    
    
    
    19,478
    
    
    
    21,169Interest expense
    
    
    (83
    )
    
    
    (246
    )
    
    
    (525
    )Interest income
    
    
    1,247
    
    
    
    1,803
    
    
    
    2,228Foreign exchange gain
    
    
    377
    
    
    
    2,142
    
    
    
    1,946Income before income tax
    
    
    19,626
    
    
    
    23,177
    
    
    
    24,818Income taxes:Current
    
    
    (6,868
    )
    
    
    (11,544
    )
    
    
    (7,513
    )Deferred
    
    
    (1,132
    )
    
    
    1,113
    
    
    
    230(8,000
    )
    
    
    (10,431
    )
    
    
    (7,283
    )Net income
    
    
    11,626
    
    
    
    12,746
    
    
    
    17,535Net income per ordinary share and ADR:Basic
    
    
    1.34
    
    
    
    1.46
    
    
    
    1.99Diluted
    
    
    1.34
    
    
    
    1.46
    
    
    
    1.99
 See accompanying notes to Consolidated Financial Statements. F-4




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##### 



PFEIFFER VACUUM TECHNOLOGY AG
CONSOLIDATED BALANCE SHEETS December 31,2004
    
    
    2003
    
    
    (in thousands)ASSETSCash and cash equivalents
    
    
    44,986
    
    
    
    29,432Trade accounts receivable (Note 3)
    
    
    18,967
    
    
    
    22,224Other accounts receivable (Note 4)
    
    
    4,062
    
    
    
    2,125Inventories (Note 5)
    
    
    14,865
    
    
    
    20,360Investment securities (Note 7)
    
    
    9,000
    
    
    
    Prepaid expenses
    
    
    541
    
    
    
    593Deferred tax assets  net (Note 11)
    
    
    774
    
    
    
    1,016Other current assets
    
    
    564
    
    
    
    920TOTAL CURRENT ASSETS
    
    
    93,759
    
    
    
    76,670Property, plant and equipment (Note 6)
    
    
    24,098
    
    
    
    25,734Investment securities (Note 7)
    
    
    1,002
    
    
    
    9,000Prepaid pension cost (Note 13)
    
    
    2,817
    
    
    
    2,819Deferred tax assets  net (Note 11)
    
    
    2,328
    
    
    
    3,323Goodwill (Note 8)
    
    
    
    
    
    
    1,037Other assets
    
    
    1,229
    
    
    
    1,197TOTAL NON-CURRENT ASSETS
    
    
    31,474
    
    
    
    43,110TOTAL ASSETS
    
    
    125,233
    
    
    
    119,780LIABILITIES AND SHAREHOLDERS EQUITYTrade accounts payable
    
    
    2,988
    
    
    
    4,153Accrued liabilities (Note 10)
    
    
    9,645
    
    
    
    8,758Income tax liabilities (Note 11)
    
    
    5,720
    
    
    
    6,643Customer deposits
    
    
    1,911
    
    
    
    1,051Other payables
    
    
    3,365
    
    
    
    2,252TOTAL CURRENT LIABILITIES
    
    
    23,629
    
    
    
    22,857Convertible bonds (Note 12)
    
    
    794
    
    
    
    845Accrued pension (Note 13)
    
    
    1,455
    
    
    
    1,041TOTAL NON-CURRENT LIABILITIES
    
    
    2,249
    
    
    
    1,886SHAREHOLDERS EQUITY (Note 14)Share capital (no par, 2.56 nominal
value, 13,459,350 ordinary shares
authorized; 8,790,600 issued and
8,690,524 outstanding at December 31,
2004 and at December 31, 2003)
    
    
    22,504
    
    
    
    22,504Additional paid-in-capital
    
    
    2,821
    
    
    
    2,821Retained earnings
    
    
    79,256
    
    
    
    73,713Accumulated other comprehensive loss
    
    
    (2,788
    )
    
    
    (1,563
    )Treasury stock, at cost (100,076 ordinary
shares at December 31, 2004 and December
31, 2003)
    
    
    (2,438
    )
    
    
    (2,438
    )TOTAL SHAREHOLDERS EQUITY
    
    
    99,355
    
    
    
    95,037TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    
    125,233
    
    
    
    119,780
 See accompanying notes to Consolidated Financial Statements. F-5




---



##### 



PFEIFFER VACUUM TECHNOLOGY AG
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY Accumulated
Other
Comprehensive IncomeAdditional
    
    
    
    
    
    
    Minimum
    
    
    Cumulative
    
    
    Unrealized
    
    
    
    
    
    
    TotalShare
    
    
    paid-in
    
    
    Retained
    
    
    pension
    
    
    translation
    
    
    gain/(loss)
    
    
    Treasury
    
    
    shareholderscapital
    
    
    capital
    
    
    earnings
    
    
    liability
    
    
    adjustment
    
    

on hedges
    
    
    stock
    
    
    equity in thousandsBalance at January 1, 2002
    
    
    22,504
    
    
    
    2,821
    
    
    
    53,258
    
    
    
    
    
    
    
    4,628
    
    
    
    191
    
    
    
    
    
    
    
    83,402Dividends paid
    
    
    
    
    
    
    
    
    
    
    (4,923
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,923
    )Bonds convertedNet income
    
    
    
    
    
    
    
    
    
    
    17,535
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,535Components of other
comprehensive income net of tax of
157 
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (656
    )
    
    
    (3,068
    )
    
    
    218
    
    
    
    
    
    
    
    (3,506
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,029Balance at December 31, 2002
    
    
    22,504
    
    
    
    2,821
    
    
    
    65,870
    
    
    
    (656
    )
    
    
    1,560
    
    
    
    409
    
    
    
    
    
    
    
    92,508Dividends paid
    
    
    
    
    
    
    
    
    
    
    (4,903
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,903
    )Treasury Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,438
    )
    
    
    (2,438
    )Net income
    
    
    
    
    
    
    
    
    
    
    12,746
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,746Components of other
comprehensive income net of tax of (305) 
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    592
    
    
    
    (3,609
    )
    
    
    141
    
    
    
    
    
    
    
    (2,876
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,870Balance at December 31, 2003
    
    
    22,504
    
    
    
    2,821
    
    
    
    73,713
    
    
    
    (64
    )
    
    
    (2,049
    )
    
    
    550
    
    
    
    (2,438
    )
    
    
    95,037Dividends paid
    
    
    
    
    
    
    
    
    
    
    (6,083
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,083
    )Treasury stockNet income
    
    
    
    
    
    
    
    
    
    
    11,626
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,626Components of other
comprehensive income net of tax of (11) 
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (100
    )
    
    
    (765
    )
    
    
    (360
    )
    
    
    
    
    
    
    (1,225
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,401Balance at December 31, 2004
    
    
    22,504
    
    
    
    2,821
    
    
    
    79,256
    
    
    
    (164
    )
    
    
    (2,814
    )
    
    
    190
    
    
    
    (2,438
    )
    
    
    99,355
 See accompanying notes to Consolidated Financial Statements. F-6




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##### 



PFEIFFER VACUUM TECHNOLOGY AG
CONSOLIDATED STATEMENTS OF CASH FLOW Year ended December 31,2004
    
    
    2003
    
    
    2002
    
    
    
    
    
    (in thousands)Cash flow from operating activities:Net income
    
    
    11,626
    
    
    
    12,746
    
    
    
    17,535Adjustments to reconcile net income to net cash
flows from operating activities:provided by operating activities:Depreciation
    
    
    4,868
    
    
    
    3,959
    
    
    
    4,627Loss on goodwill impairment
    
    
    1,037
    
    
    
    
    
    
    
    Loss (gain) on disposal of fixed assets
    
    
    7
    
    
    
    350
    
    
    
    (35
    )Change in deferred taxes
    
    
    1,132
    
    
    
    (1,113
    )
    
    
    (230
    )Provision for doubtful accounts
    
    
    2,563
    
    
    
    824
    
    
    
    850Write down of DVD inventories
    
    
    5,276
    
    
    
    
    
    
    
    Effects of changes in operating assets and liabilities:Trade accounts receivable
    
    
    451
    
    
    
    (2,130
    )
    
    
    1,184Other accounts receivable
    
    
    (1,940
    )
    
    
    1,021
    
    
    
    533Inventories
    
    
    82
    
    
    
    1,480
    
    
    
    (881
    )Prepaid expenses
    
    
    51
    
    
    
    (65
    )
    
    
    603Other current assets
    
    
    268
    
    
    
    (292
    )
    
    
    (560
    )Other long-term assets
    
    
    (303
    )
    
    
    (2,894
    )
    
    
    90Accrued pension liabilities
    
    
    356
    
    
    
    4,482
    
    
    
    1,789Pension trust
    
    
    2
    
    
    
    (35,955
    )
    
    
    Trade and other accounts payable
    
    
    (48
    )
    
    
    746
    
    
    
    (1,785
    )Income tax liabilities
    
    
    (926
    )
    
    
    4,435
    
    
    
    (3,112
    )Accrued other liabilities
    
    
    958
    
    
    
    (181
    )
    
    
    (1,097
    )Customer deposits
    
    
    850
    
    
    
    (859
    )
    
    
    90Net cash provided by (used in) operating activities
    
    
    26,310
    
    
    
    (13,446
    )
    
    
    19,601Cash flow from investing activities:Proceeds from disposals of fixed assets
    
    
    161
    
    
    
    165
    
    
    
    194Capital expenditures
    
    
    (3,400
    )
    
    
    (1,917
    )
    
    
    (2,632
    )Purchase of investment securities
    
    
    (1,002
    )
    
    
    (9,000
    )
    
    
    Acquisition of business assets
    
    
    
    
    
    
    
    
    
    
    (2,403
    )Net cash used in investing activities
    
    
    (4,241
    )
    
    
    (10,752
    )
    
    
    (4,841
    )Cash flow from financing activities:Repayments of borrowings
    
    
    
    
    
    
    (9,037
    )
    
    
    (1,291
    )Dividend payment
    
    
    (6,083
    )
    
    
    (4,903
    )
    
    
    (4,923
    )Bonds payable issuance (repayments)
    
    
    
    
    
    
    (12
    )
    
    
    103Purchase of treasury stock
    
    
    
    
    
    
    (2,438
    )
    
    
    Net cash used in financing activities
    
    
    (6,083
    )
    
    
    (16,390
    )
    
    
    (6,111
    )Effects of foreign exchange rate changes
on cash and cash equivalents
    
    
    (432
    )
    
    
    (2,244
    )
    
    
    (1,420
    )Net increase (decrease) in cash
and cash equivalents
    
    
    15,554
    
    
    
    (42,832
    )
    
    
    7,229
 F-7




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##### 



PFEIFFER VACUUM TECHNOLOGY AG
CONSOLIDATED STATEMENTS OF CASH FLOW
-CONTINUED- Year ended December 31,2004
    
    
    2003
    
    
    2002
    
    
    
    
    
    (in thousands)Net increase (decrease) in cash
and cash equivalents
    
    
    15,554
    
    
    
    (42,832
    )
    
    
    7,229Cash and cash equivalents at beginning of year
    
    
    29,432
    
    
    
    72,264
    
    
    
    65,035Cash and cash equivalents at end of year
    
    
    44,986
    
    
    
    29,432
    
    
    
    72,264Non-cash transactions:Convertible bonds and employee loans
    
    
    (51
    )
    
    
    (154
    )
    
    
    448Supplemental disclosures:Cash paid for interest
    
    
    79
    
    
    
    170
    
    
    
    453Cash paid for taxes
    
    
    9,663
    
    
    
    6,719
    
    
    
    7,033
 See accompanying notes to Consolidated Financial Statements. F-8




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##### 



PFEIFFER VACUUM TECHNOLOGY AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  1.
    
    The Company and Basis of Presentation Pfeiffer Vacuum is a full-line manufacturer in the vacuum technology business offering
solutions for a variety of customer applications relating to the generation, control and
measurement of vacuum. The products developed and manufactured at the production facility in
Asslar, Germany, include turbomolecular pumps, a range of backing pumps, such as rotary vane, Roots
and dry pumps, complete pumping stations as well as customized vacuum systems and vacuum
components. Systems include the so called DVD business, a business unit that developed and produced
manufacturing lines for digital versatile discs and which is discontinued in January 2005. Pfeiffer Vacuum distributes its products through a network of its own sales offices and
subsidiaries as well as independent marketing agents. Moreover, there are service support centers
in most major industrial locations throughout the world. The Companys primary markets are located
in Europe, the United States and Asia. The Consolidated Financial Statements of Pfeiffer Vacuum Technology AG and its subsidiaries (the
Company or Pfeiffer Vacuum) have been prepared in accordance with United States Generally
Accepted Accounting Principles (U.S. GAAP). Pfeiffer Vacuum presents its Consolidated Financial Statements in euros ().  2.
    
    Summary of Significant Accounting Policies Consolidation Principles Basis of Consolidation All companies which Pfeiffer Vacuum Technology AG directly or indirectly controls are
consolidated. The Company is considered to control an entity if it either directly or indirectly
holds a majority of the voting rights and can therefore exercise a controlling influence. All material intercompany gains and losses, receivables, liabilities, revenues and expenses are
eliminated as part of the consolidation process. Use of Estimates The preparation of the Consolidated Financial Statements requires management to make estimates
and assumptions that affect the amounts of assets and liabilities on the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period that are
reported in the financial statements and accompanying notes. These estimates and assumptions could
differ from the actual results. Reclassifications Certain prior-year amounts have been reclassified to provide comparability with the
presentation of the current year financial statements. F-9




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##### 



PFEIFFER VACUUM TECHNOLOGY AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Foreign Currency Translation The financial statements of the Companys foreign subsidiaries have been translated into euros
() in accordance with Statement of Financial Accounting Standards (SFAS) No. 52, Foreign
Currency Translation. The functional currency of all of the Companys foreign subsidiaries is the
applicable local currency in which that entity conducts its business. When translating foreign
functional currency financial statements, year-end exchange rates are applied to the assets and
liabilities, while average annual exchange rates are applied to income statement accounts. The
resulting translation adjustments are recorded as accumulated other comprehensive income (loss) . Foreign currency transaction gains and losses are reported as a separate line item in the income
statement. The exchange rates of the significant foreign currencies used in preparation of the financial
statements were: Exchange
rate at
December 31,
    
    

Annual
average
exchange rate2004
    
    
    2003
    
    
    2004
    
    
    2003
    
    
    20021=
    
    
    1=
    
    
    1=
    
    
    1=
    
    
    1=U.S.A.
    
    USD
    
    
    1.36400
    
    
    
    1.26100
    
    
    
    1.24335
    
    
    
    1.13087
    
    
    
    0.94486Great Britain
    
    GBP
    
    
    0.70710
    
    
    
    0.70700
    
    
    
    0.67869
    
    
    
    0.69185
    
    
    
    0.62877Switzerland
    
    CHF
    
    
    1.54370
    
    
    
    1.55900
    
    
    
    1.54415
    
    
    
    1.52064
    
    
    
    1.46714Sweden
    
    SEK
    
    
    9.02000
    
    
    
    9.07100
    
    
    
    9.12603
    
    
    
    9.12279
    
    
    
    9.15949
 Revenue Recognition Revenue for product sales is recognized when persuasive evidence of an agreement exists,
delivery has occurred, the price is fixed or determinable and collection of the related receivable
is reasonably assured. If product sales are subject to customer acceptance, revenues are not
recognized until customer acceptance has occurred. For product sales which require the Company to
install the product at the customer location, revenue is recognized when the equipment has been
delivered to and installed at the customer location, provided the product sale does not qualify for
separation from the service element and recognition of revenue upon delivery of the product. For
contracts including multiple deliverables meeting the separation criteria of Emerging Issues Task
Force (EITF) No. 00-21, Accounting for Revenue Arrangements with Multiple Deliverables, the
Company allocates the total arrangement consideration to each separate unit of accounting based on
the relative fair values of the deliverables in each unit of accounting and recognizes revenue
based on the Companys revenue recognition policy applicable to each separate unit of accounting. Revenues from services are recognized when the underlying services are performed. Warranty accruals are established in the period in which the related product revenue is recognized.
Managements estimates are primarily based on an assessment of specific exposure and historical
experience by product type. F-10




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##### 



PFEIFFER VACUUM TECHNOLOGY AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Shipping and Handling Costs The Company incurred shipping and handling costs amounting to  2.9 million, which are
included in cost of sales. Cash and Cash Equivalents The Company considers all highly liquid investments with an original maturity of three months
or less to be cash equivalents. Trade Accounts Receivable Trade accounts receivable are recorded at the invoiced amount and typically do not bear
interest. The Company continually assesses the adequacy of the allowance for doubtful accounts
receivable and makes adjustments as appropriate based on both specific identification and aging
distribution of receivables. The Company writes off accounts only after all means of collection
have been exhausted. Investment Securities Debt securities which the Company has the ability and positive intent to hold to maturity are
carried at amortized cost. Investments and maturities of less than one year are classified as
current. Derivatives and Hedging Transactions The Company recognizes derivative financial instruments either as assets or liabilities at
their fair values. Changes in the fair value of derivatives that do not qualify for hedge
accounting are recognized through current income. If the derivative is a hedge, depending on the
nature of the hedge, changes in the fair value of the underlying transaction are either offset
against changes in the fair value of the hedging instrument in current income or changes in the
fair value of the derivative are recognized in other comprehensive income until the hedged item is
recognized in income. The accounting of derivative instruments is based upon the provisions of SFAS 133, Accounting for
Derivative Instruments and Hedging Activities, as amended. Pfeiffer Vacuum formally designates and
documents the financial instruments as a hedge of a specific underlying exposure, as well as the
risk management objectives and strategies for undertaking the hedge transaction. Any ineffective
portion of a financial instruments change in fair value is immediately recognized in earnings. The
Company does not engage in speculative hedging for investment purposes. The maturities for all
forward contracts are aligned with the date the sales are anticipated to occur. Inventories Inventories are stated at the lower of cost or market. Cost is determined using the first-in,
first-out method. F-11




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##### 



PFEIFFER VACUUM TECHNOLOGY AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Property, Plant and Equipment Property, plant and equipment are stated at cost and depreciated over the estimated useful
lives of the assets on a straight-line basis. The following useful lives are used: Buildings
    
    20-50 yearsMachinery and equipment
    
    3-15 years
 The Company reviews long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. If impairment indicators
exist, the Company performs the required analyses and records impairment charges in accordance with
SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. Repair and maintenance costs are expensed as incurred. Goodwill and Other Intangible Assets Effective January 1, 2002, goodwill and intangible assets other than goodwill which are
determined to have indefinite useful lives are no longer amortized but are subject to impairment
analyses annually or if an event occurs or circumstances indicate the carrying amount may be
impaired. Goodwill impairment testing is performed at the reporting unit level. The fair value of
each reporting unit is determined using a discounted cash flow analyses and compared to the
carrying value. If the carrying value exceeds the fair value, then a possible goodwill impairment
exists and further evaluation is required. Arising impairment charges are recorded in the income
statement. The Company amortizes intangible assets with finite useful lives on a straight-line basis over
their respective estimated useful lives to their estimated residual values. Estimated useful lives
for software, patents, licenses and other similar rights generally range from three to five years. Accounting for Stock-Based Compensation The Company applies the intrinsic value-based method in accordance with Accounting Principle
Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees for its stock-based
compensation plans. Under APB Opinion No. 25, compensation expense is recorded on the measurement
date only if the current market price of the underlying stock exceeds the exercise price (see note
12). Pensions The measurement of pensions is based upon the projected unit credit method in accordance with
SFAS No. 87, ''Employers Accounting for Pensions. As permitted under SFAS No. 87 changes in the
amount of either the projected benefit obligation (for pension plans) or plan assets resulting from
experience different than that assumed and from changes in assumptions can result in gains and
losses not yet recognized in the Companys Consolidated Financial Statements. The expected return
on plan assets is determined based on the expected long-term rate of return on plan assets and the
fair value or market-related value of plan assets. F-12




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##### 



PFEIFFER VACUUM TECHNOLOGY AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Amortization of an unrecognized net gain or loss is included as a component of the Companys net
periodic benefit plan cost for a year if, as of the beginning of the year, that unrecognized net
gain or loss exceeds 10 percent of the greater of 1) the projected benefit obligation or 2) the
fair value or market-related value of the plans assets. In such case, the amount of amortization
recognized by the Company is the resulting excess divided by the average remaining service period
of active employees expected to receive benefits under the plan. In December 2003, the FASB issued SFAS No. 132, Employers Disclosure about Pensions and Other
Postretirement Benefits  an amendment of FASB No. 87, 88, and 106, which requires additional
disclosures about the Companys defined benefit plans and other post-retirement obligations, plan
assets, net costs, and net cash flows. For non-U.S. plans, adoption is permitted for fiscal years
ending after June 15, 2004. The adoption of SFAS No. 132 had no material impact on the Companys
Consolidated Financial Statements. Research and Development All research and development costs are expensed as incurred, which in 2004 includes  1.1
million in impairment charges on research and development machinery and  0.2 million in DVD
business related termination benefits. Advertising All advertising and promotional costs amounting to  1.7 million are expensed as incurred. Income Taxes 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 tax loss carry-forwards. The effect of a change in
tax laws on deferred tax assets and liabilities is recognized in the results of operations in the
period in which the new tax rates are enacted. A valuation allowance is recorded to reduce the
carrying amounts of deferred tax assets unless it is more likely than not that such assets will be
realized. Adoption of New Accounting Rules On December 16, 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment,
which is a revision of SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 123(R)
supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees and amends SFAS No. 95,
Statement of Cash Flows. Generally, the approach in SFAS No. 123(R) is similar to the approach
described in SFAS No. 123. However, SFAS No. 123(R) requires all share-based payments to employees,
including grants of employee stock options, to be recognized in the income statement based on their
fair values. Pro forma disclosure is no longer an alternative. SFAS No. 123(R) must be adopted in
the first interim or annual period beginning after June 15, 2005. Early adoption will be permitted
in periods in which financial statements have not yet been issued. The Company plans to adopt SFAS
No. 123(R) on July 1, 2005 using the modified-retrospective method, restating only the prior
interim periods of 2005. F-13




---



##### 



PFEIFFER VACUUM TECHNOLOGY AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As permitted by SFAS No. 123, the Company currently accounts for share-based payments to employees
using Opinion 25s intrinsic value method and, as such, generally recognizes no compensation cost
for employee stock options. Accordingly, the adoption of SFAS
No. 123(R)s fair value method will
not have a significant impact on the Companys result of operations, and it will have no impact on
its overall financial position. The impact of adoption of SFAS No. 123(R) cannot be predicted
exactly at this time because it will depend on levels of share-based payments granted in the
future. However, had Pfeiffer Vacuum adopted SFAS No. 123(R) in prior periods, the impact of that standard
would have approximated the impact of SFAS No. 123 as described in the disclosure of pro forma net
income and earnings per share in Note 12 to its Consolidated Financial Statements. SFAS No. 123(R)
also requires the benefits of tax deductions in excess of recognized compensation cost to be
reported as a financing cash flow, rather than as an operating cash flow as required under current
literature. This requirement will reduce net operating cash flows and increase net financing cash
flows in periods after adoption. While the Company cannot estimate what those amounts will be in
the future (because they will depend upon, among other things, when employees exercise stock
options), the amounts of operating cash flows recognized in prior periods for such excess tax
deduction were K 475, K 678, and K 790 in 2004, 2003 and 2002, respectively. In December 2003, the FASB issued FIN 46R, Consolidation of Variable Interest Entities, which
addresses how a business enterprise should evaluate whether it has a controlling financial interest
in an entity through means other than voting rights and accordingly should consolidate the entity.
FIN 46R replaces FASB Interpretation No. 46, Consolidation of Variable Interest Entities, which
was issued in January 2003. The provisions of FIN 46R had to be applied to special-purpose entities
as of December 31, 2003, and to all other entities as of March 31, 2004. The Company does not hold
variable interests in special-purpose entities. The adoption of FIN 46R did not have any impact on
the Companys Consolidated Financial Statements.  3.
    
    Trade Accounts Receivable Trade accounts receivable consist of the following: December 31,2004
    
    
    2003( in thousands)Trade accounts receivable
    
    
    21,838
    
    
    
    23,977Allowance for doubtful accounts
    
    
    (2,871
    )
    
    
    (1,753
    )Total trade accounts receivable  net
    
    
    18,967
    
    
    
    22,224
 The Company provides credit in connection with its normal course of business to a wide variety of
customers. The Company performs ongoing credit evaluations of its customers and establishes
allowances for identified credit risks. The trade accounts receivable have a remaining term of less
than one year. F-14




---



##### 



PFEIFFER VACUUM TECHNOLOGY AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Summary of activity in the allowance for doubtful accounts: Year ended December, 312004
    
    
    2003
    
    
    2002( in thousands)Balance at beginning of year
    
    
    1,753
    
    
    
    1,738
    
    
    
    1,160Provisions
    
    
    2,563
    
    
    
    824
    
    
    
    850Collections on previously reserved accounts
    
    
    (1,147
    )
    
    
    (576
    )
    
    
    (240
    )Accounts written off
    
    
    (298
    )
    
    
    (233
    )
    
    
    (32
    )Balance at end of year
    
    
    2,871
    
    
    
    1,753
    
    
    
    1,738
 At December 31, 2004,  1.8 million of the allowance for doubtful accounts related to
collectibility issues in the Germany operating segment, specifically to DVD business.  4.
    
    Other Accounts Receivable Other accounts receivable primarily consist of income taxes receivable from the German
tax authorities in the amount of approximately  3.0 million for overpaid income taxes, and VAT
claims in the amount of approximately  0.6 million.  5.
    
    Inventories Inventories consist of the following: December 31,2004
    
    
    2003( in thousands)Raw materials
    
    
    7,021
    
    
    
    7,648Work-in-process
    
    
    9,992
    
    
    
    8,848Finished products
    
    
    8,876
    
    
    
    8,749Reserves
    
    
    (11,024
    )
    
    
    (4,885
    )Total inventories  net
    
    
    14,865
    
    
    
    20,360
 Summary of activity in the inventory reserves: Year ended December, 312004
    
    
    2003
    
    
    2002( in thousands)Balance at beginning of year
    
    
    4,885
    
    
    
    5,194
    
    
    
    4,726Provisions
    
    
    6,608
    
    
    
    336
    
    
    
    1,567Inventory written off
    
    
    (469
    )
    
    
    (645
    )
    
    
    (1,099
    )Balance at end of year
    
    
    11,024
    
    
    
    4,885
    
    
    
    5,194
 At December 31, 2004, approximately 5.3 million of inventory reserves related to the withdrawal of
the DVD business. F-15




---



##### 



PFEIFFER VACUUM TECHNOLOGY AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  6.
    
    Property, Plant and Equipment Property, plant and equipment consist of the following: December 31,2004
    
    
    2003( in thousands)Land
    
    
    980
    
    
    
    980Software
    
    
    2,725
    
    
    
    2,609Machinery and equipment
    
    
    41,551
    
    
    
    42,432Buildings and improvements
    
    
    29,617
    
    
    
    29,619Total property, plant and equipment  at cost
    
    
    74,873
    
    
    
    75,640Accumulated depreciation
    
    
    (50,775
    )
    
    
    (49,906
    )Total property, plant and equipment  net
    
    
    24,098
    
    
    
    25,734
 In 2004 the Company recorded impairment charges of approximately  1.4 million related to its
withdrawal from DVD business, which is part of the segment Germany. The fair market value of these
assets was determined by a third party consultant with industrial machinery expertise based on
prices for similar assets. Amortization expense related to the Software amounted to K 192 in 2004
and K 211 in 2003 and accumulated amortization at December 31, 2004 and 2003 was K 2,450 and K
2,387, respectively.  7.
    
    Investment Securities Investment securities consist of the following: December 31,2004
    
    2003( in thousands)Unrealized
    
    
    
    
    
    
    
    
    
    
    UnrealizedAmortized
    
    
    Fair
    
    
    Holding
    
    
    Amortized
    
    
    Fair
    
    
    Holdingcost
    
    
    value
    
    
    Loss
    
    
    cost
    
    
    value
    
    
    LossCurrentInvestment Securities
    
    
    9,000
    
    
    
    8,982
    
    
    
    18
    
    
    
    
    
    
    
    
    
    
    
    Non-currentInvestment Securities
    
    
    1,002
    
    
    
    1,000
    
    
    
    2
    
    
    
    9,000
    
    
    
    8,705
    
    
    
    295Total Investment Securities
    
    10,002
    
    
    9,982
    
    
    20
    
    
    9,000
    
    
    8,705
    
    
    295
 The Company considers these impairments to be temporary given short duration of the respective
declines in value and because no facts or circumstances have indicated that such declines are other
than temporary. The Company expects the repayment of its investment security amounting to  9.0
million according to the notes of investment by the issuer through 2005 and reclassified it from
non-current to current.  8.
    
    Goodwill In 2004, the Company recorded goodwill impairment charges in the amount of approximately
 1.0 million due to the impairment of its capitalized goodwill. F-16




---



##### 



PFEIFFER VACUUM TECHNOLOGY AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  9.
    
    Long-Term Debt The Company has no long-term debt as of December 31, 2004. Pfeiffer Vacuum and its subsidiaries have various lines of credit available for operating purposes
in the amount of approximately  11.8 million (2003:  12.3 million). For guaranty commitments an
amount of  0.9 million (2003:  0.8 million) is drawn on these credit lines as of December 31,
2004.  10.
    
    Accrued Liabilities Accrued liabilities consist of the following: December 31,2004
    
    
    2003( in thousands)Warranty
    
    
    2,993
    
    
    
    3,625Employee-related expenses
    
    
    5,912
    
    
    
    4,492Other
    
    
    740
    
    
    
    6419,645
    
    
    
    8,758
 Employee related costs primarily include accruals for vacation pay, bonuses, accrued overtime and
service anniversary awards. Warranty provisions consist of the following: Year ended December 31,2004
    
    
    2003
    
    
    2002( in thousands)Balance at beginning of year
    
    
    3,625
    
    
    
    3,774
    
    
    
    4,351Provisions
    
    
    1,346
    
    
    
    2,555
    
    
    
    2,218Utilization
    
    
    (864
    )
    
    
    (2,070
    )
    
    
    (2,031
    )Releases
    
    
    (1,114
    )
    
    
    (634
    )
    
    
    (764
    )Balance at end of year
    
    
    2,993
    
    
    
    3,625
    
    
    
    3,774
  11.
    
    Income Taxes Under current German corporate tax law, taxes on income are composed of corporate taxes,
trade taxes and an additional surtax, that amount to a combined tax rate of 37.9% for the German
companies for the year 2004, 39.5% for the year 2003 and 38.9% for 2002. Effective January 1, 2002, a corporation and trade tax entity with corresponding profit and loss
transfer agreements was established for the consolidated German companies. F-17




---



##### 



PFEIFFER VACUUM TECHNOLOGY AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Income before income tax for the years ended December 31, 2004, 2003 and 2002 was taxable in the
following jurisdictions: Year ended December 31,2004
    
    
    2003
    
    
    2002( in thousands)Germany
    
    
    12,334
    
    
    
    12,868
    
    
    
    18,048Outside Germany
    
    
    7,292
    
    
    
    10,309
    
    
    
    6,77019,626
    
    
    
    23,177
    
    
    
    24,818
 The components of the provision for income taxes are as follows: Year ended December 31,2004
    
    
    2003
    
    
    2002( in thousands)CurrentGermany
    
    
    4,464
    
    
    
    8,783
    
    
    
    4,679Outside Germany
    
    
    2,404
    
    
    
    2,761
    
    
    
    2,8346,868
    
    
    
    11,544
    
    
    
    7,513DeferredGermany
    
    
    754
    
    
    
    (800
    )
    
    
    420Outside Germany
    
    
    378
    
    
    
    (313
    )
    
    
    (650
    )1,132
    
    
    
    (1,113
    )
    
    
    (230
    )Provision for income taxes
    
    
    8,000
    
    
    
    10,431
    
    
    
    7,283
 The Companys net deferred tax assets were as follows: December 31,2004
    
    
    2003( in thousands)Deferred tax assets:Pensions
    
    
    2,029
    
    
    
    2,966Inventory
    
    
    607
    
    
    
    430Intangible assets
    
    
    400
    
    
    
    518Tax loss carry forward
    
    
    207
    
    
    
    532Derivatives
    
    
    
    
    
    
    348Other
    
    
    285
    
    
    
    3493,528
    
    
    
    5,143Deferred tax liabilities:Property, plant and equipment
    
    
    308
    
    
    
    693Derivatives
    
    
    116
    
    
    
    Other
    
    
    2
    
    
    
    111426
    
    
    
    804Deferred tax assets, net
    
    
    3,102
    
    
    
    4,339
 F-18




---



##### 



PFEIFFER VACUUM TECHNOLOGY AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Net deferred income tax assets and liabilities in the consolidated balance sheet: December 31,2004
    
    
    2003
    
    
    2004
    
    
    2003( in thousands)Long-term
    
    
    Short-termDeferred tax assets, net
    
    
    2,636
    
    
    
    4,016
    
    
    
    892
    
    
    
    1,127Deferred tax liabilities, net
    
    
    (308
    )
    
    
    (693
    )
    
    
    (118
    )
    
    
    (111
    )Deferred tax assets, net
    
    
    2,328
    
    
    
    3,323
    
    
    
    774
    
    
    
    1,016
 Reconciliation of income taxes determined using the statutory rate to actual income taxes provided: Year ended December 31,2004
    
    
    2003
    
    
    2002( in thousands)Income tax expenses at German statutory rate
    
    
    7,432
    
    
    
    9,146
    
    
    
    9,648Higher (lower) foreign tax rates
    
    
    (78
    )
    
    
    (507
    )
    
    
    149Loss carry forwards of a non-German subsidiary
    
    
    (325
    )
    
    
    532
    
    
    
    Tax credit on distributed earnings
    
    
    
    
    
    
    
    
    
    
    (865
    )Taxes due to new legislation on distributed earnings in
prior years
    
    
    
    
    
    
    865
    
    
    
    Taxes due to dividend payments
    
    
    11
    
    
    
    336
    
    
    
    Tax debits/credits due to tax filings in prior years
    
    
    (24
    )
    
    
    (3
    )
    
    
    (449
    )Lower German tax rate due to change to unified tax structure
    
    
    
    
    
    
    
    
    
    
    (1,023
    )Impairment of Goodwill
    
    
    393
    
    
    
    
    
    
    
    Non-deductible expenses
    
    
    281
    
    
    
    245
    
    
    
    206Other
    
    
    310
    
    
    
    (183
    )
    
    
    (383
    )Provision for income taxes
    
    
    8,000
    
    
    
    10,431
    
    
    
    7,283
 As of December 31, 2004, the Company had net operating loss carry forwards of a non-German
subsidiary amounting to  0.8 million which may be used to offset future taxable income and will
expire if not used by 2008. In assessing the realizability of deferred tax assets, management considers whether it is more
likely than not that some or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future taxable income during
the periods in which those temporary differences become deductible. In making this assessment,
management considers the scheduled reversal of deferred tax liabilities, projected future taxable
income, and tax planning strategies. Based on the level of historical taxable income and
projections for future taxable income over the periods in which the deferred tax assets are
deductible, management believes that it is more likely than not that the Company will realize the
benefits of these deductible differences. F-19




---



##### 



PFEIFFER VACUUM TECHNOLOGY AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Provision has not been made for additional taxes on undistributed earnings of non-German
subsidiaries. These earnings are considered to be permanently reinvested and could become subject
to additional tax if remitted or deemed remitted as dividends; however calculation of such
additional tax is not practical. Following recent changes in German law, dividends from non-German
subsidiaries are only 95% tax-exempt, i.e. 5% of dividend income is not deductible from income for
corporate tax purposes for fiscal years beginning in 2003. Management estimates that the effects of
this new rule will be negligible, since the German investments are consolidated for tax purposes.
In addition, a 5% income inclusion has also been introduced on capital gains realized from the
disposition of shares in German and non-German corporations, which applies to fiscal years ending
in 2004 and thereafter. Management does not expect significant additional income taxation. Beginning 2004, the Company was subject to a tax audit of the German tax authorities. This tax
audit is still not finalized. Pfeiffer Vacuum does not expect material effects from the outcome on
its Consolidated Financial Statements.  12.
    
    Stock-Based Compensation Employee Participation Program, Term: 2000 through 2005 Within the scope of an employee participation program, in July 2000 the Company issued 4,400
convertible bonds having an aggregate principal amount of  0.6 million to members of management
and salaried employees of the Company in Germany and other countries. The conversion feature entitles the bearer to convert each bond into 50 no-par ordinary shares of
the Company. The conversion price is based upon 110% of the average closing price on the Frankfurt
Stock Exchange for the last ten trading days prior to the resolution by the management board to
issue the convertible bonds. Accordingly, the conversion price for the July 2000 issue was set at 
48.03 per share. There were 120,000 option shares, relating to convertible bonds for the 2000 issue
outstanding at December 31, 2004, and December 31, 2003. Fair value at the date of grant was 
10.64 per ordinary share option. Beginning in July 2002, each holder of convertible bonds could
convert up to 30% of such bonds to ordinary shares, in July 2003 up to 60% and in July 2004 up to
100%. The final conversion date is December 9, 2005. Conversion is only possible during specific
periods of time. The convertible bonds bear interest at 6% p.a. and are redeemable at their principal amount on
December 10, 2005, unless previously converted or called. The bonds may be called by the Company at
their principal amount upon termination of employment. Employees were given the opportunity of
financing the purchase of the convertible bonds through interest-bearing employee loans. These
loans bear interest at the same fixed rate as the bonds, have identical terms, are classified as
other non-current assets in the balance sheet and are repayable upon conversion of the bonds or if
the bonds are called by the Company upon termination of employment. There is a right of setoff for
both principal and interest between the loan and the bond. Employee loans granted under this
program amounted to  230,400 as of December 31, 2004. As of December 31, 2004, employees had returned 2,000 of these convertible bonds having an
aggregate principal value of  256,000 and repaid the corresponding employee loans. F-20




---



##### 



PFEIFFER VACUUM TECHNOLOGY AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Employee Participation Program, Term: 2002 through 2007 Within the scope of a further employee participation program, on July 7, 2002, the Company
issued 4,600 convertible bonds having an aggregate principal amount of  0.6 million to members of
management and salaried employees of the Company in Germany and other countries. The conversion feature entitles the bearer to convert each bond into 50 no-par ordinary shares of
the Company. The conversion price is based upon 110% of the average closing price on the Frankfurt
Stock Exchange for the last ten trading days prior to issuance. The conversion price for the July
2002 issue was set at  42.86 per share. There were 190,000 and 210,000 option shares, relating to
the convertible bonds for the 2002 issue outstanding at December 31, 2004, and December 31, 2003,
respectively. Fair value at the date of grant was  10.35 per ordinary share option. Each holder of
convertible bonds can convert up to 30% of such bonds to ordinary shares subsequent to the Annual
Shareholders Meeting in 2004, up to 60% following the Annual Shareholders Meeting in 2005 and up to
100% following the Annual Shareholders Meeting in 2006. The final conversion date is December 9,
2007. Conversion is only possible during specific periods of time. The convertible bonds bear interest at 6% p.a. and are redeemable at their principal amount on
December 10, 2007, unless previously converted or called. The bonds may be called by the Company at
their principal amount upon termination of employment. Employees were given the opportunity of
financing the purchase of the convertible bonds through interest-bearing employee loans. These
loans bear interest at the same fixed rate as the bonds, have identical terms, are classified as
other non-current assets in the balance sheet and are repayable upon conversion of the bonds or if
the bonds are called by the Company upon termination of employment. There is a right of setoff for
both principal and interest between the loan and the bond. Employee loans granted under this
program amounted to  352,000 as of December 31, 2004. As of December 31, 2004, employees had returned 800 of these convertible bonds having an aggregate
principal value of  102,400 and repaid the corresponding employee loans. Summary of option shares related to the convertible bonds: Weighted AverageNumber of
    
    
    Exercise Price perShares
    
    
    ShareConvertible shares outstanding at January 1, 2002
    
    
    220,000
    
    
    
    48.03Granted
    
    
    230,000
    
    
    
    42.86Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (55,000
    )
    
    
    46.62Convertible shares outstanding at December 31, 2002
    
    
    395,000
    
    
    
    45.22Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (65,000
    )
    
    
    47.63Convertible shares outstanding at December 31, 2003
    
    
    330,000
    
    
    
    44.74Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (20,000
    )
    
    
    42.86Convertible shares outstanding at December 31, 2004
    
    
    310,000
    
    
    
    44.86
 F-21




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##### 



PFEIFFER VACUUM TECHNOLOGY AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 177,000 and 72,000 option shares were exercisable at December 31, 2004 and 2003, respectively. The
Company did not recognize any compensation expense for the stock-based compensation awards in the
years 2004, 2003 and 2002. The fair value of each option grant is estimated on the date of grant using the Black-Scholes
option pricing model, with the following assumptions being used for grants in 2002 and 2000:
Risk-free interest rates ranging from 4% to 5%; expected lives ranging from 4.5 to 6 years;
expected dividend yield of 1% to 2%; and expected volatility ranging from 30% to 40%. SFAS No. 123 requires disclosure of pro forma information regarding net income and net income per
share as if the Company had accounted for its stock-based compensation to employees using the fair
value method. For pro forma purposes using the fair value method, the Companys net income would
have been K 10,948 (2003: K 11,721) and net income per share would have been  1.26 (2003: 
1.34.) 13.    Pension Benefits and Similar Obligations Most employees in Germany, the United States of America, the Netherlands and Belgium are
entitled to receive pension benefits from the Company, which are covered by defined benefit plans
in their respective countries. In the United States, the Company had established a pension fund for
all employees and a supplemental pension fund for executives (SERP), a non-qualified, non-funded
pension plan for certain officers. In Germany, the Company sponsors two pension plans covering most
employees. Consistent with German requirements and practice, the Companys German plans
traditionally were unfunded. In the year 2003, the Company established Pfeiffer Vacuum Trust e.V.
(the Trust) to fund its pension plans. The Trust is an independent, bankruptcy-protected,
separate legal entity whose sole purpose is to act in a fiduciary capacity as trustee for the
assets held and has invested the contributions in a mutual fund managed by an unrelated third
party. The pursued target allocation consists of equities (up to 30%) and of fixed-income
securities and cash (at least 70%). Total pension expense for all plans included the following components: Year ended December 31,2004
    
    
    2003
    
    
    2002( in thousands)Service cost
    
    
    923
    
    
    
    970
    
    
    
    902Interest cost
    
    
    2,164
    
    
    
    2,163
    
    
    
    2,123Expected return on assets
    
    
    (2,081
    )
    
    
    (73
    )
    
    
    (97
    )Amortization of:Unrecognized net actuarial (gains) losses
    
    
    21
    
    
    
    46
    
    
    
    1Unrecognized prior service cost
    
    
    73
    
    
    
    77
    
    
    
    79Other
    
    
    21
    
    
    
    
    
    
    
    1Pension cost, net
    
    
    1,121
    
    
    
    3,183
    
    
    
    3,009
 F-22




---



##### 



PFEIFFER VACUUM TECHNOLOGY AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The following table presents the funded status and amount recognized in the Consolidated Financial
Statements for all defined benefit pension plans: December 31,2004
    
    
    2003( in thousands)Change in benefit obligationBeginning projected benefit obligation
    
    
    39,870
    
    
    
    38,012Service cost
    
    
    923
    
    
    
    970Interest cost
    
    
    2,164
    
    
    
    2,163Benefit payments
    
    
    (1,614
    )
    
    
    (1,479
    )(Gains)/losses
    
    
    3,286
    
    
    
    (1,223
    )Other
    
    
    
    
    
    
    1,863Impact of foreign currency exchange rate differences
    
    
    (141
    )
    
    
    (436
    )Ending projected benefit obligation
    
    
    44,488
    
    
    
    39,870Accumulated Benefit Obligation
    
    
    40,329
    
    
    
    36,142Change in plan assetsFair value at beginning of year
    
    
    38,229
    
    
    
    989Return on plan assets
    
    
    2,235
    
    
    
    171Company contributions
    
    
    1,087
    
    
    
    36,099Benefits paid
    
    
    (1,614
    )
    
    
    (41
    )Other
    
    
    
    
    
    
    1,204Impact of foreign currency exchange rate differences
    
    
    (101
    )
    
    
    (193
    )Fair value at end of year
    
    
    39,836
    
    
    
    38,229Funded status of plans (underfunded)
    
    
    (4,652
    )
    
    
    (1,641
    )Unrecognized actuarial (gain)/loss
    
    
    6,035
    
    
    
    2,963Unrecognized prior service cost
    
    
    219
    
    
    
    292Unrecognized transition obligation
    
    
    249
    
    
    
    276Prepaid (accrued) pension cost, net
    
    
    1,851
    
    
    
    1,890
 December 31,2004
    
    
    2003( in thousands)Amounts recognized in balance sheetsIntangible assets  minimum pension liability
    
    
    220
    
    
    
    6Accrued pension
    
    
    (1,455
    )
    
    
    (1,041
    )Prepaid pension costs
    
    
    2,817
    
    
    
    2,819Other comprehensive income  minimum pension liability
    
    
    269
    
    
    
    106Net amount recognized in balance sheets
    
    
    1,851
    
    
    
    1,890
 F-23




---



##### 



PFEIFFER VACUUM TECHNOLOGY AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Significant actuarial assumptions used: December 31,2004
    
    
    2003
    
    
    2002GermanyWeighted average discount rate
    
    
    5.00
    %
    
    
    5.50
    %
    
    
    5.75
    %Rates of increase in compensation levels
    
    
    2.75
    %
    
    
    2.75
    %
    
    
    3.00
    %Expected long-term rate of return on assets
    
    
    5.50
    %
    
    
    5.50
    %
    
    
    N/AUnited States, Netherlands and BelgiumWeighted average discount rate
    
    
    5.00 - 6.25
    %
    
    
    4.75 - 6.25
    %
    
    
    6.75
    %Rates of increase in compensation levels
    
    
    3.00
    %
    
    
    3.00
    %
    
    
    3.50
    %Expected long-term rate of return on assets
    
    
    4.50 - 7.50
    %
    
    
    4.50 - 7.50
    %
    
    
    8.50
    %
 The measurement date used to determine pension benefits is December 31. The Companys expected long-term rate of return on assets is based on premium corporate bonds and
the appreciation of shares held by the trust. Projected future benefit payments to retired employees of the German operations by Pfeiffer Vacuum
Trust e.V.: Year
    

in thousands2005
    
    
    1,6072006
    
    
    1,7072007
    
    
    1,8782008
    
    
    2,0132009
    
    
    2,1069,311
 Composition of plan assets: December 31,2004
    
    
    2003( in thousands)
    
    
    %
    
    
    ( in thousands)
    
    
    %Equity securities
    
    
    2,947
    
    
    
    7.4
    
    
    
    636
    
    
    
    1.7Fixed-income securities
    
    
    32,580
    
    
    
    81.8
    
    
    
    126
    
    
    
    0.3Fund shares
    
    
    
    
    
    
    
    
    
    
    240
    
    
    
    0.6Cash and cash equivalents
    
    
    2,600
    
    
    
    6.5
    
    
    
    36,007
    
    
    
    94.2Other
    
    
    1,709
    
    
    
    4.3
    
    
    
    1,220
    
    
    
    3.239,836
    
    
    
    100.0
    
    
    
    38,229
    
    
    
    100.0
 Defined Contribution Plans Employees of the Company in certain other countries are covered by defined contribution plans.
Generally, contributions are based upon a percentage of the employees wages or salaries. The costs
of these plans charged to operations amounted to K 636 for 2004, K 642 for 2003 and K 620 for
2002. F-24




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##### 



PFEIFFER VACUUM TECHNOLOGY AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 14.    Shareholders Equity Treasury Stock At the Annual Shareholders Meeting on June 16, 2004, the shareholders authorized the Company
to acquire treasury stock. The number of ordinary shares that may be repurchased (subject to
statutory limitation) is limited to a maximum of 10% of all issued shares. No amounts were
repurchased pursuant to this as of December 31, 2004. Treasury stock, amounting to approximately  2.4 million, was repurchased in 2003 and includes
100,076 ordinary shares valued at cost. Dividend restriction Under German law, dividends are payable only out of unappropriated retained earnings as
reported in the unconsolidated parent-only financial statements of Pfeiffer Vacuum Technology AG,
prepared in accordance with German accounting principles. As of December 31, 2004, a total of 
38.3 million was reported as retained earnings under German law. At the annual shareholders meeting, the management and supervisory boards will propose that the
shareholders participate in the Companys success in the form of a dividend in the amount of  0.40
per share (2003:  0.40). In addition, a bonus dividend in the amount of  0.50 per share (2003: 
0.30) will be proposed in order to distribute a portion of the Companys cash assets to its
shareholders. Accumulated Other Comprehensive Income Accumulated other comprehensive income consists of the following: Minimum
    
    
    Currency
    
    
    UnrealizedPension
    
    
    Translation
    
    
    Gain/(Loss)Liability
    
    
    Adjustment
    
    
    on Hedges
    
    
    TotalDecember 31, 2004Before tax
    
    
    (269
    )
    
    
    (2,814
    )
    
    
    306
    
    
    
    (2,777
    )Tax impact
    
    
    105
    
    
    
    
    
    
    
    (116
    )
    
    
    (11
    )Net amount
    
    
    (164
    )
    
    
    (2,814
    )
    
    
    190
    
    
    
    (2,788
    )December 31, 2003Before tax
    
    
    (107
    )
    
    
    (2,049
    )
    
    
    898
    
    
    
    (1,258
    )Tax impact
    
    
    43
    
    
    
    
    
    
    
    (348
    )
    
    
    (305
    )Net amount
    
    
    (64
    )
    
    
    (2,049
    )
    
    
    550
    
    
    
    (1,563
    )December 31, 2002Before tax
    
    
    (1,074
    )
    
    
    1,560
    
    
    
    670
    
    
    
    1,156Tax impact
    
    
    418
    
    
    
    
    
    
    
    (261
    )
    
    
    157Net amount
    
    
    (656
    )
    
    
    1,560
    
    
    
    409
    
    
    
    1,313
 F-25




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##### 



PFEIFFER VACUUM TECHNOLOGY AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 15.    Commitments and Contingencies The Company has entered into leases and maintenance agreements which expire at various
dates, some of which are renewable. Certain of these agreements contain rent escalation clauses.
The table below presents the maximum amount of the contractual commitments as of December 31, 2004,
classified by the periods in which the contingent liabilities or commitments expire: Lease and Maintenance Contracts Payments due by periodLess than
    
    
    
    
    
    
    
    
    
    
    More thanTotal
    
    
    1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 years in thousandsOperating leases
    
    
    4,491
    
    
    
    1,680
    
    
    
    1,806
    
    
    
    620
    
    
    
    385Maintenance contracts
    
    
    50
    
    
    
    34
    
    
    
    16
    
    
    
    
    
    
    
    Total contractual obligations
    
    
    4,541
    
    
    
    1,714
    
    
    
    1,822
    
    
    
    620
    
    
    
    385
 Rental expenses amounted to  1.5 million for the year 2004,  1.6 million for the year 2003 and 
1.7 million for the year 2002. The Company did not have capital lease obligations in the years 2004, 2003 or 2002. As of December 31, 2004, the Companys exposure under guarantees amounted to K 90 (2003: K 91,
2002: K 123). These guarantees relate to residential rentals. The terms of the guarantees are
unlimited; as a general rule, they are called upon termination of the individual rental leases. 16.    Segment Information The Companys business operations include the development, manufacture, sale and service
of vacuum pumps, vacuum components and instruments as well as vacuum systems. The subsidiaries in
the individual countries are independent legal entities with their own management which distribute
the products and provide services. Accordingly, the Company identifies its operating segments
geographically. Due to the similarity of their economic characteristics including nature of
products sold, type of customers, methods of product distribution and economic environment, the
Company aggregates its European subsidiaries outside Germany into one reportable segment, Europe
(excluding Germany). The Company evaluates the success and performance of each segment on the basis of its income before
income tax. The accounting principles used in regional reporting are identical to those described
in Note 2. F-26




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##### 



PFEIFFER VACUUM TECHNOLOGY AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Summary information relating to the Companys geographic locations: Year ended December 31,2004
    
    
    2003
    
    
    2002( in thousands)Net SalesGermanyThird party
    
    
    72,295
    
    
    
    65,974
    
    
    
    68,219Intercompany
    
    
    49,604
    
    
    
    42,466
    
    
    
    45,975121,899
    
    
    
    108,440
    
    
    
    114,194Europe (excluding Germany)
    
    
    46,468
    
    
    
    46,774
    
    
    
    44,655United States
    
    
    33,316
    
    
    
    32,870
    
    
    
    35,936Rest of World
    
    
    4,931
    
    
    
    3,557
    
    
    
    3,999206,614
    
    
    
    191,641
    
    
    
    198,784Intercompany eliminations
    
    
    (50,392
    )
    
    
    (47,623
    )
    
    
    (47,842
    )Total
    
    
    156,222
    
    
    
    144,018
    
    
    
    150,942
 Year ended December 31,2004
    
    
    2003
    
    
    2002( in thousands)Operating ProfitGermany
    
    
    10,951
    
    
    
    13,762
    
    
    
    13,797Europe (excluding Germany)
    
    
    3,920
    
    
    
    6,103
    
    
    
    2,674United States
    
    
    2,657
    
    
    
    4,148
    
    
    
    3,412Rest of World
    
    
    487
    
    
    
    406
    
    
    
    77118,015
    
    
    
    24,419
    
    
    
    20,654Intercompany eliminations
    
    
    70
    
    
    
    (4,941
    )
    
    
    515Total
    
    
    18,085
    
    
    
    19,478
    
    
    
    21,169Corporate ItemsInterest income  net
    
    
    1,164
    
    
    
    1,557
    
    
    
    1,703Foreign exchange gain
    
    
    377
    
    
    
    2,142
    
    
    
    1,946Income before income tax
    
    
    19,626
    
    
    
    23,177
    
    
    
    24,818
 December 31,2004
    
    
    2003( in thousands)Total AssetsGermany
    
    
    85,978
    
    
    
    84,694Europe (excluding Germany)
    
    
    21,306
    
    
    
    19,633United States
    
    
    15,626
    
    
    
    13,442Rest of World
    
    
    2,323
    
    
    
    2,011Total
    
    
    125,233
    
    
    
    119,780
 F-27




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##### 



PFEIFFER VACUUM TECHNOLOGY AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Summary information relating to the Companys long-lived assets, capital expenditures and
depreciation and amortization by geographical area: December 31,2004
    
    
    2003( in thousands)Long-lived Assets:Germany
    
    
    23,122
    
    
    
    24,690Europe (excluding Germany)
    
    
    777
    
    
    
    771United States
    
    
    56
    
    
    
    86Rest of World
    
    
    143
    
    
    
    187Total
    
    
    24,098
    
    
    
    25,734
 Year ended December 31,2004
    
    
    2003
    
    
    2002( in thousands)Capital Expenditures:Germany
    
    
    2,861
    
    
    
    1,501
    
    
    
    2,194Europe (excluding Germany)
    
    
    437
    
    
    
    328
    
    
    
    392United States
    
    
    9
    
    
    
    30
    
    
    
    Rest of World
    
    
    93
    
    
    
    58
    
    
    
    46Total
    
    
    3,400
    
    
    
    1,917
    
    
    
    2,632
 Year ended December 31,2004
    
    
    2003
    
    
    2002( in thousands)Depreciation and Amortization:Germany
    
    
    4,350
    
    
    
    3,217
    
    
    
    3,516Europe (excluding Germany)
    
    
    408
    
    
    
    518
    
    
    
    840United States
    
    
    35
    
    
    
    162
    
    
    
    198Rest of World
    
    
    75
    
    
    
    62
    
    
    
    73Total
    
    
    4,868
    
    
    
    3,959
    
    
    
    4,627
 Sales by product are as follows: Year ended December 31,2004
    
    
    2003
    
    
    2002( in thousands)Sales by Product:Turbo pumps
    
    
    59,447
    
    
    
    53,571
    
    
    
    56,698Measurement and analyses equipment, components
    
    
    42,529
    
    
    
    35,218
    
    
    
    41,728Service
    
    
    25,011
    
    
    
    25,931
    
    
    
    26,145Backing pumps
    
    
    19,732
    
    
    
    18,040
    
    
    
    19,312Systems
    
    
    9,503
    
    
    
    11,258
    
    
    
    7,059Total
    
    
    156,222
    
    
    
    144,018
    
    
    
    150,942
 F-28




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##### 



PFEIFFER VACUUM TECHNOLOGY AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 17.    Financial Instruments Fair value The carrying amounts of financial instruments such as cash and cash equivalents, current
accounts receivable and payable, approximate their fair value due to the short-term maturities of
these instruments. Foreign Currency Exchange Hedging Approximately 38% of the Companys net sales are denominated in currencies other than the
euro. The Company enters into foreign currency forward contracts and options to hedge the exposure
of its forecasted sales against currency fluctuations, primarily in U.S. dollars. Pfeiffer Vacuum
recognizes derivative financial instruments either as assets or liabilities at their fair values.
Changes in the fair value of derivatives that do not qualify for hedge accounting are recognized
through current income. If the derivative is a hedge, depending on the nature of the hedge, changes
in the fair value of the underlying transaction are either offset against changes in the fair value
hedging instrument in current income or changes in the fair value of the derivative are recognized
in stockholders equity as a component of other comprehensive income/loss, net of applicable taxes,
until the hedged item is recognized in income. The accounting of derivative instruments is based upon the provisions of SFAS 133, Accounting for
Derivative Instruments and Hedging Activities, as amended. Pfeiffer Vacuum formally designates and
documents the financial instruments as a hedge of a specific underlying exposure, as well as the
risk management objectives and strategies for undertaking the hedge transaction. Any ineffective
portion of a financial instruments change in fair value is immediately recognized in earnings. The Company does not engage in speculative hedging for investment purposes. The maturities for all
forward contracts are aligned with the date the sales are anticipated to occur. As of December 31,
2004 and December 31, 2003, no contracts held by the Company had a maturity date greater than one
year. The Companys contracts are marked to market at period end using quoted forward rates. The fair
values recorded in other assets for the periods ended December 31, 2004, and December 31, 2003,
were K 551 and K 898, respectively, and recognized a gain of K 190 and K 550, respectively, in
2004 and 2003 net of income tax effect of K 116 and K 348, in other comprehensive income. As of December 31, 2004 and 2003, the notional amounts of the forward contracts were  15.4 million
and  7.7 million, respectively. All realized gains and losses upon settlement of foreign currency
forward contracts are recorded in the income statement as foreign exchange gains/(losses). The Company performs ongoing credit evaluations of the parties to these contracts and enters into
contracts only with well-established financial institutions. F-29




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##### 



PFEIFFER VACUUM TECHNOLOGY AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 18.    Earnings per Share The following table presents the computation of basic and diluted earnings per share: 2004
    
    
    2003
    
    
    2002Ordinary
    
    
    Ordinary
    
    
    OrdinaryShares
    
    
    Shares
    
    
    SharesNumerator:Net income ( in thousands)
    
    
    11,626
    
    
    
    12,746
    
    
    
    17,535Denominator:Denominator
for basic earnings per share 
weighted-average shares
    
    
    8,690,524
    
    
    
    8,750,201
    
    
    
    8,790,600Effect of dilutive securities:Stock-based compensation (Note 7)
    
    
    
    
    
    
    
    
    
    
    Denominator for diluted earnings per share 
adjusted weighted-average shares and
assumed conversions
    
    
    8,690,524
    
    
    
    8,750,201
    
    
    
    8,790,600Basic earnings per share ()
    
    
    1.34
    
    
    
    1.46
    
    
    
    1.99Diluted earnings per share ()
    
    
    1.34
    
    
    
    1.46
    
    
    
    1.99
 The stock options granted to employees were antidilutive because the exercise price is higher than
the quoted price of the Companys ordinary shares. 19.    Subsequent Events In January 2005, the management board of the Company decided to withdraw from the
unprofitable DVD business and recorded in its financial statements for the year ended December 31,
2004 expenses amounting to approximately  8.9 million (inventories  5.3 million, long lived
assets  1.4 million, redundancy program  1.2 million and goodwill  1.0 million). F-30