##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION     FORM 20-F ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF l934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003     PFEIFFER VACUUM TECHNOLOGY AG  FEDERAL REPUBLIC OF GERMANY  BERLINER STRASSE 43, D-35614 ASSLAR, GERMANY  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 l2(g) of the Act.   
 Securities for which there is
a reporting obligation pursuant to Section 15(d) of the Act.   
 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(as of December 31, 2003) Indicate by check mark whether the registrant (l) has filed all reports
required to be filed by Section l3 or 15(d) of the Securities Exchange Act of
l934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes  [X]
    
    No  [  ]
 Indicate by check mark which financial statement item the registrant has
elected to follow.  Item 17  [  ]
    
    Item 18   [X]




---



##### Table of Contents



TABLE OF CONTENTS
    
    PagePreliminary Remarks
    
    
    5Forward-Looking Statements
    
    
    5PART IItem 1.
    
    Identity of Directors, Senior Management and Advisers
    
    
    6Item 2.
    
    Offer Statistics and Expected Timetable
    
    
    6Item 3.
    
    Key Information
    
    
    6A.
    Selected Financial Data
    
    
    6Statement of Income Data
    
    
    6Balance Sheet Data
    
    
    7Other Data
    
    
    7Exchange Rate Information
    
    
    7B.
    Capitalization and Indebtedness
    
    
    8C.
    Reasons for the Offer and Use of Proceeds
    
    
    8D.
    Risk Factors
    
    
    8General Economic Conditions
    
    
    8Industry and Business
    
    
    9Technological Changes and Introduction of New Products
    
    
    9Highly Competitive Industry
    
    
    9Manufacturing Facilities
    
    
    9Risks
Associated with International Operations
    
    
    9Financial
    
    
    9Currency Risk
    
    
    9Item 4.
    
    Information on the Company
    
    
    10A.
    History and Development of the Company
    
    
    10Organisation and History
    
    
    10Business and Capital Expenditures
    
    
    10B.
    Business Overview
    
    
    10Introduction
    
    
    10Nature of the Companys Operations and Principal Activities
    
    
    11Principal Markets
    
    
    11Seasonality
    
    
    12Raw Materials and Suppliers
    
    
    12Marketing Channels
    
    
    12Dependence of the Company on Intellectual Property, Contracts and
New Manufacturing Processes
    
    
    12Material Effects of Government Regulations
    
    
    12C.
    Organizational Structure
    
    
    13D.
    Property, Plant and Equipment
    
    
    13Item 5.
    
    Operating and Financial Review and Prospects
    
    
    14A.
    Operating Results
    
    
    14Managements Discussion and Analyses of Financial Conditions and
Results of Operations
    
    
    142003
Compared to 2002
    
    
    142002
Compared to 2001
    
    
    19
 1




---



##### Table of Contents



TABLE OF CONTENTS
    
    PageB.
    Liquidity and Capital Resources
    
    
    22C.
    Research and Development, Patents and Licenses, etc.
    
    
    22D.
    Trend Information
    
    
    23E.
    Off-Balance Sheet Arrangements
    
    
    24Guarantees
    
    
    24F.
    Tabular Disclosure of Contractual Obligations
    
    
    24Contractual Obligations
    
    
    24Critical Accounting Policies
    
    
    24Revenue Recognition and Accounts Receivable
    
    
    24Inventory Valuation
    
    
    25Employment Related Benefits
    
    
    25New Accounting Rules and Standards
    
    
    25Item 6.
    
    Directors, Senior Management and Employees
    
    
    25A.
    Directors and Senior Management
    
    
    25General
    
    
    25Management Board
    
    
    26Supervisory Board
    
    
    27Audit Committee
    
    
    28B.
    Compensation
    
    
    28C.
    Board Practices
    
    
    29D.
    Employees
    
    
    29E.
    Share Ownership
    
    
    30Stock-based Compensation Plans
    
    
    30Employee Participation Program, Term: 2000 through 2005
    
    
    30Employee Participation Program, Term: 2002 through 2007
    
    
    31Item 7.
    
    Major Shareholders and Related Party Transactions
    
    
    31A.
    Major Shareholders
    
    
    31B.
    Related Party Transactions
    
    
    32C.
    Interest of Experts and Counsel
    
    
    32Item 8.
    
    Financial Information
    
    
    32A.
    Consolidated Statements and Other Financial Information
    
    
    32Legal Proceedings
    
    
    32Policy on Dividend Distributions
    
    
    32B.
    Significant Changes
    
    
    32Item 9.
    
    The Offer and Listing
    
    
    32A.
    Offer and Listing Details
    
    
    334.     Market Price Information
    
    
    33Trading of ADRs on the New York Stock Exchange
    
    
    33Trading of Ordinary Shares on the Frankfurt Stock Exchange
    
    
    33C.
    Markets
    
    
    34General
    
    
    34Item 10.
    
    Additional Information
    
    
    35A.
    Share Capital
    
    
    35B.
    Memorandum and Articles of Association
    
    
    35Registration, Objects and Purposes of the Company
    
    
    35Directors
    
    
    35Ordinary Shares
    
    
    36Change of Shareholders Rights
    
    
    38General Shareholders Meeting
    
    
    38Limitation on the Right to own Securities
    
    
    38
 2




---



##### Table of Contents



TABLE OF CONTENTS
    
    PageProvisions that would delay a Change in Control
    
    
    39Notification Requirements
    
    
    39Provisions of German Law that are significantly different from
Provisions of U.S. Law
    
    
    39Provisions governing changes in the capital that are more
stringent than required by law
    
    
    39C.
    Material Contracts
    
    
    39D.
    Exchange Control
    
    
    39E.
    Taxation
    
    
    40Taxation
    
    
    40Withholding Tax on Dividends
    
    
    40Withholding Tax Refund Procedures
    
    
    41Reduced United States Tax Rate for Certain Dividends
    
    
    42Taxation of Capital Gains
    
    
    42German Capital Tax (Vermögensteuer)
    
    
    42Other German Taxes
    
    
    43F.
    Dividends and Paying Agents
    
    
    43G.
    Statement by Experts
    
    
    43H.
    Documents on Display
    
    
    43I.
    Subsidiary information
    
    
    43Item 11.
    
    Quantitative and Qualitative Disclosures about Markt Risk
    
    
    43Interest Rate Risk
    
    
    44Foreign Currency Exchange Risk
    
    
    44Item 12.
    
    Description of Securities other than Equity Securities
    
    
    44A.
    Debt Securities
    
    
    44B.
    Warrants and Rights
    
    
    44C.
    Other Securities
    
    
    45D.
    American Depositary Shares
    
    
    45PART IIItem 13.
    
    Defaults, Dividend Arrearages and Delinquencies
    
    
    45Item 14.
    
    Material Modifications to the Rights of Security Holders and Use of Proceeds
    
    
    45Changes with Respect to Ordinary Shares
    
    
    45Treasury Stock
    
    
    45Item 15.
    
    Controls and Procedures
    
    
    45New U.S. Legislation
    
    
    45Item 16A.
    
    Audit Committee Financial Expert
    
    
    46Audit Committee
    
    
    46Item 16B.
    
    Code of Ethics
    
    
    46Item 16C
    
    Principal Accountant Fees and Services
    
    
    47Audit Committees pre-approval policies and procedures
    
    
    47Item 16D
    
    Exemptions from the Listing Standards for Audit Committees
    
    
    47Item 16E
    
    Purchases of Equity Securities by the Issuer and Affiliated Purchasers .
    
    
    47Treasury Stock
    
    
    47
 3




---



##### Table of Contents

\

TABLE OF CONTENTS
    
    PagePART IIIItem 17.
    
    Financial Statements
    
    
    48Item 18.
    
    Financial Statements
    
    
    48Item 19.
    
    Exhibits
    
    
    49Signature
    
    
    
    
    
    50Certification of the Chairman of the Management Board
    
    
    51Report of Independent Auditors
    
    
    F-2EX-2.6: GERMAN CORPORATE GOVERNANCE CODE
 4




---



##### Table of Contents



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 consolidated
financial statements for the years 1999 through 2000 were prepared in Deutsche
Marks (DM), and have been translated into euros at the officially stipulated
conversion rate. 
 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 of raw materials;  
    
    other risks and uncertainties, some of which are described in item 3. Key information under the heading Risk Factors. 5




---



##### Table of Contents



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. 
 2003
    
    2002
    
    2001
    
    2000
    
    1999
    
    
    
    
    
    
    
    (in thousands, except per share amount)Statement of Income DataNet sales
    
    
    144,018
    
    
    
    150,942
    
    
    
    170,140
    
    
    
    184,678
    
    
    
    153,468Gross profit
    
    
    62,297
    
    
    
    68,417
    
    
    
    74,913
    
    
    
    79,523
    
    
    
    63,078Selling and marketing expenses
    
    
    20,941
    
    
    
    24,162
    
    
    
    25,650
    
    
    
    24,999
    
    
    
    22,404General and administrative expenses.
    
    
    12,950
    
    
    
    12,241
    
    
    
    12,585
    
    
    
    11,404
    
    
    
    10,019Research and development expenses
    
    
    8,928
    
    
    
    10,845
    
    
    
    8,503
    
    
    
    7,631
    
    
    
    7,735Operating profit
    
    
    19,478
    
    
    
    21,169
    
    
    
    28,175
    
    
    
    35,489
    
    
    
    22,920Income before taxes
    
    
    23,177
    
    
    
    24,818
    
    
    
    29,400
    
    
    
    34,062
    
    
    
    23,807Income taxes:Current
    
    
    11,544
    
    
    
    7,513
    
    
    
    10,510
    
    
    
    15,917
    
    
    
    10,066Deferred
    
    
    (1,113
    )
    
    
    (230
    )
    
    
    19
    
    
    
    (937
    )
    
    
    409Net income
    
    
    12,746
    
    
    
    17,535
    
    
    
    18,871
    
    
    
    19,082
    
    
    
    13,332Net Income per Ordinary Share:Basic
    
    
    1.46
    
    
    
    1.99
    
    
    
    2.16
    
    
    
    2.24
    
    
    
    1.54Diluted
    
    
    1.46
    
    
    
    1.99
    
    
    
    2.16
    
    
    
    2.21
    
    
    
    1.49
 6




---



##### Table of Contents



Statement of Income Data (continued)
    
    2003
    
    2002
    
    2001
    
    2000
    
    1999
    
    
    
    
    
    
    
    Dividends declared and paid
per Ordinary Share
    
    
    0.70
    
    
    
    0.56
    
    
    
    0.56
    
    
    
    0.51
    
    
    
    0.39Dividends declared and paid
per Ordinary Share in U.S. dollars
    
    $
    0.88
    
    
    $
    0.59
    
    
    $
    0.50
    
    
    $
    0.47
    
    
    $
    0.38
 
 2003
    
    2002
    
    2001
    
    2000
    
    1999
    
    
    
    
    
    
    
    (in thousands, except per share amount)Balance Sheet DataCurrent assets
    
    
    76,670
    
    
    
    121,818
    
    
    
    115,650
    
    
    
    111,150
    
    
    
    87,275Total assets
    
    
    119,780
    
    
    
    155,496
    
    
    
    150,604
    
    
    
    141,501
    
    
    
    106,466Current liabilities
    
    
    22,857
    
    
    
    20,486
    
    
    
    26,589
    
    
    
    37,677
    
    
    
    29,692Long term debt
    
    
    
    
    
    
    7,746
    
    
    
    9,037
    
    
    
    6,136
    
    
    
    Share capital
    
    
    22,504
    
    
    
    22,504
    
    
    
    22,504
    
    
    
    22,065
    
    
    
    21,635Shareholders equity
    
    
    95,037
    
    
    
    92,508
    
    
    
    83,402
    
    
    
    67,107
    
    
    
    47,958
 
 2003
    
    2002
    
    2001
    
    2000
    
    1999Other DataAdjusted weighted average number of
shares outstanding- basic
    
    
    8,750,201
    
    
    
    8,790,600
    
    
    
    8,719,507
    
    
    
    8,526,312
    
    
    
    8,652,141- diluted
    
    
    8,750,201
    
    
    
    8,790,600
    
    
    
    8,719,507
    
    
    
    8,630,605
    
    
    
    8,957,399
 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. 
 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. The table below sets forth, for periods after the introduction of the euro on
January 1, 1999, 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 Period1999
    
    $
    1.1806
    
    
    $
    1.0024
    
    
    $
    1.0654
    
    
    $
    1.00272000
    
    
    1.0394
    
    
    
    0.8286
    
    
    
    0.9212
    
    
    
    0.93052001
    
    
    0.9548
    
    
    
    0.8388
    
    
    
    0.8958
    
    
    
    0.88202002
    
    
    1.0477
    
    
    
    0.8600
    
    
    
    0.9449
    
    
    
    1.04772003
    
    
    1.2610
    
    
    
    1.0371
    
    
    
    1.1309
    
    
    
    1.2610
 7




---



##### Table of Contents



Month of
    
    High
    
    Low
    
    Average Rate (1)
    
    End of PeriodJuly 2003
    
    $
    1.1551
    
    
    $
    1.1140
    
    
    $
    1.1373
    
    
    $
    1.1303August 2003
    
    
    1.1382
    
    
    
    1.0814
    
    
    
    1.1137
    
    
    
    1.0909September 2003
    
    
    1.1689
    
    
    
    1.0786
    
    
    
    1.1223
    
    
    
    1.1689October 2003
    
    
    1.1810
    
    
    
    1.1575
    
    
    
    1.1698
    
    
    
    1.1638November 2003
    
    
    1.1989
    
    
    
    1.1427
    
    
    
    1.1701
    
    
    
    1.1989December 2003
    
    
    1.2610
    
    
    
    1.1944
    
    
    
    1.2278
    
    
    
    1.26102004 (through January 31, 2003).
    
    
    1.2856
    
    
    
    1.2354
    
    
    
    1.2612
    
    
    
    1.2384
   (1)
    
    The average of the Noon Buying Rates on the last business day of each
full month during the relevant period. 
 B.    Capitalization and Indebtedness Not applicable. 
 C.    Reasons for the Offer and Use of Proceeds Not applicable. 
 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. 8




---



##### Table of Contents



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 competition product could lead to
serious changes with respect to the Companys business operations, financial
condition and profitability. In fiscal 2003, the Company spent a total of 
8.9 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. 
 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 Facilities Until year-end 2001, most of the products marketed by the Company had been
manufactured in the factory in Asslar, Germany. Beginning January 2002,
components and systems for the production of DVDs are being developed and
manufactured at a second manufacturing facility in Aschaffenburg, Germany.
Nevertheless, an interruption in production in Asslar could have a material
effect on the Companys operations, finances and profitability. 
 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. It also has to observe foreign import and export licensing
requirements, trade restrictions and changes in tariff and freight rates, etc.,
which can involve risks. 
 Financial 
 Currency Risk The Company prepares its financial reports in euros (). Approximately 35%
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. 9




---



##### Table of Contents



The Company utilizes foreign currency forward transactions 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 
 Organisation 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.de. 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 Expanditures 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 Company now owns 100% of the share capital. The subsidiary sells and
services production systems for Digital Versatile Discs (DVDs). 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 also hired 45 former employees of
Multimedia Machinery GmbH. This acquisition will enable 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. 
  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, as well as components and systems for the
production of prerecorded and rewritable DVDs. 10




---



##### Table of Contents



Pfeiffer 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 2003, 2002 and 2001, 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. In connection with a follow-up audit in November
2003, compliance with the requirements contained in ISO 14001:1996 was
confirmed without restriction. In 2003, Pfeiffer Vacuum was included in the
Kempen/SNS Smaller Europe SRI Index, which was established in October of that
year. Only companies that satisfy the highest standards and requirements in the
three fields of business ethics, human resources and the environment are
included in this index. 
 Principal Markets The Company serves the following
    
    Percentage ofMarket Segments
    
    Revenues in2003%
    
    2002%
    
    2001%Analytical Industry
    
    
    22
    
    
    
    25
    
    
    
    29Research and Development
    
    
    21
    
    
    
    22
    
    
    
    19Industrial
    
    
    18
    
    
    
    12
    
    
    
    10Coating
    
    
    14
    
    
    
    20
    
    
    
    24
    *Semiconductor Industry
    
    
    13
    
    
    
    12
    
    
    
    14Storage Media
    
    
    8
    
    
    
    4
    
    
    
    
    *Chemical/Process Engineering
    
    
    4
    
    
    
    5
    
    
    
    4Total
    
    
    100
    
    
    
    100
    
    
    
    100
   *
    
    A market segment in 2001. 11




---



##### Table of Contents



The Companys sales by geographical area are as follows: 2003
    
    2002
    
    2001T
    
    %
    
    T
    
    %
    
    T
    
    %Germany
    
    
    40,368
    
    
    
    28
    
    
    
    40,530
    
    
    
    27
    
    
    
    47,987
    
    
    
    28Europe (excluding Germany)
    
    
    48,314
    
    
    
    34
    
    
    
    50,868
    
    
    
    34
    
    
    
    56,596
    
    
    
    33United States
    
    
    32,797
    
    
    
    23
    
    
    
    35,786
    
    
    
    24
    
    
    
    44,770
    
    
    
    26Rest of world
    
    
    22,539
    
    
    
    15
    
    
    
    23,758
    
    
    
    15
    
    
    
    20,787
    
    
    
    13Total
    
    
    144,018
    
    
    
    100
    
    
    
    150,942
    
    
    
    100
    
    
    
    170,140
    
    
    
    100
 
 Seasonality The Companys business is subject to neither seasonal nor cyclical
fluctuations. 
 Raw Materials and Suppliers The Company satisfies its requirements for raw materials, auxiliaries,
supplies and finished products from various suppliers in Germany and other
countries. Pfeiffers sole major supplier, accounting for 27% of its total
purchasing volume in 2003, is Inficon AG in Balzers, Liechtenstein
(approximately 26% in 2002, and 21% in 2001). 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. 
 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. This efficient service presence clearly sets the Company apart
from its competitors. 
 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 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. 12




---



##### Table of Contents



C.
    
    Organizational Structure The Company has 16 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 Asia Ltd., Hong Kong/China
    
    
    100.0
    %Pfeiffer 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/Netherland
    
    
    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/Netherland
    
    
    100.0
    %Pfeiffer Vacuum Scandinavia AB, Upplands Väsby (Stockholm)/Sweden
    
    
    100.0
    %Pfeiffer Vacuum Systems GmbH, Aschaffenburg/Germany
    
    
    100.0
    %Pfeiffer Vacuum Systems (International) AG, Zuzwil/Switzerland
    
    
    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
    %
 
  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 45,000 m2 (484,000 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. Approximately 6,000 m2 (65,000 ft2)
of leased floor space is available for the manufacturing, sales and marketing
and administrative operations of the facility in Aschaffenburg, Germany. In
addition, the Company leases premises for sales and service subsidiaries in
various countries. Essentially, the Company manufactures vacuum pumps, vacuum equipment and vacuum
systems at the production location in Asslar, Germany, as well as systems for
DVD production in Aschaffenburg, Germany. All capital investments are financed through the Companys cash assets. Pfeiffer Vacuum regularly monitors and assesses all relevant environmental
factors. Twelve environmental and quality audits were performed during the
course of the year. 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. 13




---



##### Table of Contents



In 2003, thirty-three job safety audits were conducted, twelve of them together
with a plant physician and the Employee Council. The variances that were
identified were rectified in a timely fashion. Four employees attended external
accident prevention seminars in 2003. The Companys employees are familiarized
with all requirements relating to noise abatement, handling of hazardous
materials, accident and fire prevention, as well as other safety requirements.
Every employee has access to the required EU safety data sheets and standard
operating procedures under the point entitled List of Substances in our
quality handbook. The Companys job safety organization and job safety measures were reviewed in
November 2003 in connection with the audits under ISO 9001:2000 and ISO
14001:1996 and certified without restriction. The comprehensive annual job
safety report was submitted in January 2004. 
  Item 5.
    
    Operating and Financial Review and Prospects 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 U.S. dollar. The rates of inflation in Germany during 2003, 2002, 2001, 2000 and 1999 were
1.1%, 1.3%, 2.5%, 2.3% and 1.4%, respectively. The effects of inflation on the
Companys operations have not been significant in recent years. 
  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. 
 2003 Compared to 2002
(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
 14




---



##### Table of Contents



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. 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. Following years of decline and stagnation, the Company now anticipates a
moderate upswing in Germany for the coming year, especially in the industrial
customer segment. 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. However,
Pfeiffer Vacuum was able to note a significant increase in new orders during
the final months of the year. This gives reasons to view the new year with
cautious optimism.
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. 15




---



##### Table of Contents



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. 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 covered by this report
(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 a huge growth opportunities. The most important growth market for
Pfeiffer Vacuum in Asia is China. However, the Company will additionally be
further expanding our existing presence in Japan, Taiwan, India, Korea and the
other countries of Asia. The most important countries outside Asia in which Pfeiffer Vacuum is
represented through agencies and service points include Australia, Israel,
South Africa and Brazil. 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 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. 16




---



##### Table of Contents



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. 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 worktime 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. 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. 17




---



##### Table of Contents



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 payed 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). 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. 18




---



##### Table of Contents



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. 
 2002 Compared to 2001
(Percentages calculated based on amounts in thousands ) Net Sales The following table summarizes the Companys net sales by geographical
area: December 31,2002
    
    2001( in thousands)
    
    %
    
    ( in thousands)
    
    %Net SalesGermany
    
    
    40,530
    
    
    
    26.9
    
    
    
    47,987
    
    
    
    28.2Europe (excluding Germany)
    
    
    50,868
    
    
    
    33.7
    
    
    
    56,596
    
    
    
    33.3United States
    
    
    35,786
    
    
    
    23.7
    
    
    
    44,770
    
    
    
    26.3Rest of World
    
    
    23,758
    
    
    
    15.7
    
    
    
    20,787
    
    
    
    12.2150,942
    
    
    
    100.0
    
    
    
    170,140
    
    
    
    100.0
 The Companys net sales decreased by  19.2 million or 11.3% from  170.1
million for the year ended December 31, 2001 to  150.9 million in 2002. The
major decreases were recorded in the U.S. by  9.0 million and in Germany by 
7.5 million. Sales in Europe (excluding Germany) decreased by  5.7 million.
However, in the rest of world the Company was able, to realize a sales increase
by  3.0 million. Turbo pump sales decreased by  7.3 million, or 11.3%, from 
64.0 million in 2001 to  56.7 million in 2002. The sales in vacuum components
and instruments decreased by  6.2 million or 13.0% from  48.0 million in the
year 2001 to  41.7 million. The global down-turn of the economy, and
especially the weakness of the semiconductor industry led to worldwide
decreased sales of the Company. To improve its market position during the year
2002 the Company increased its
sales force in the U.S.; the German sales force were reorganized and
key-account managers were appointed for the most important market segments. 19




---



##### Table of Contents



Due to the weakness of the U.S. dollar against the euro the Companys net sales
were adversely impacted by the effect of changes in this exchange rates. The
exchange rate accounted for  2.0 million or 10.2% of the total sales decrease
in the year ended December 31, 2002. Order-intake and Order-backlog Orders received by the Company decreased by  13.1 million or 8.3%, from 
158.6 million for the year ended December 31, 2001 to  145.5 million for the
year ended December 31, 2002. The majority of this decrease,  6.3 million, was
attributable to a decrease in orders of turbo pumps, partly offset by an
increase of  4.7 million of orders received in service and spare parts. The Companys backlog decreased by  5.4 million or 20.5%, from  26.3 million
as of December 31, 2001 to  20.9 million as of December 31, 2002. The majority
of the decrease was related to turbo pumps which declined by approximately 
4.2 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 decreased by  6.5 million or 8.7%, from  74.9
million in the twelve months ended December 31, 2001 to  68.4 million in the
twelve months ended December 31, 2002. Gross margin, which is gross profit
expressed as a percentage of net sales, increased from 44.0% in 2001 to 45.3%
in 2002, principally as a result of better cost management in the factory. Selling and Marketing Expenses Selling and marketing expenses decreased  1.5 million or 5.8% from  25.7
million in 2001 to  24.2 million in 2002. The worldwide reorganization and
streamlining of the Companys sales organization led to cost reductions. As a
percentage of sales, selling and marketing expenses increased from 15.1% in
2001 to 16.0% in 2002. The lower net sales revenue of the Company led to an
increase in the percentage of its selling and marketing expenses. General and Administrative Expenses Although material start-up costs of the newly formed production subsidiary
in Aschaffenburg (approximately  1.3 million) are included, the general and
administrative expenses decreased by  0.3 million, or 2.7%, from  12.6
million in the year ended December 31, 2001 to  12.2 million in 2002. As a
percentage of sales, general and administrative expenses increased from 7.4% in
2001 to 8.1% in 2002, due to the decreased net sales. Research and Development Expenses The increase of the Companys research and development expenses by  2.3
million, or 27.5%, from  8.5 million in the year ended December 31, 2001 to 
10.8 million in 2002 was primarily a result of increased research and
development activities in the newly acquired DVD-business (approximately  3.3
million). As a percentage of sales, research and development expenses increased
from 5.0% in 2001 to 7.2% in 2002. The Company depends to a significant extent
on continuing technological advances in vacuum pump design and manufacturing
and has invested in entering new markets and expanding its share of markets in
which the Company presently competes, including increasing its sales of
products to be used in the manufacturing of
prerecorded and rewritable DVDs (coating under vacuum), especially
metalizers and complete DVD lines for production. 20




---



##### Table of Contents



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, 2002 was  21.2 million,
a decrease of  7.0 million from  28.2 million in 2001, principally as a
result of significant decreased sales and increased research and development
expenses. Interest Income and Interest Expense Interest expense amounting to  0.5 million for the period ended December
31, 2002 decreased by  0.1 million, and are primarily due to interest expense
entitled of the loan of Kreditanstalt für Wiederaufbau. Interest income
decreased slightly by  0.2 million from  2.4 million in the year ended
December 31, 2001 to  2.2 million in 2002. Foreign Exchange Gain/Loss The Companys foreign exchange loss in the year 2001 was approximately 
0.6 million. In 2002 a gain of  1.9 million resulted due to the weakness of
the U.S. dollar against the euro. Based on U.S. GAAP requirements, in 2002 an
unrealized exchange gain (approximately  1.4 million) was recorded. Depend on
fluctuating exchange rates of the euro against the U.S. dollar, in future
periods the record of foreign exchange losses is possible. Income Tax Expense The Companys effective tax rate decreased from 35.8% in the year ended
December 31, 2001 to 29.3% in the year ended December 31, 2002. In 2002 the
Company entered into an integrated inter-company relation for tax purposes and
a profit and loss pooling agreement for the German entities. This decision
reduced the tax burden. In 2002, the Company generated taxable income of  18.0 million in Germany and
 6.8 million outside Germany. The Companys current tax expense decreased from
 10.5 million in 2001 to  7.5 million in 2002 as a result of lower taxable
income and the Companys lower effective tax rate. Deferred tax benefits amounted to  0.2 million in 2002 compared with a minor
expense in 2001. For further information see Note 11 to the notes to
Consolidated Financial Statements. Net Income Net income decreased from  18.9 million in 2001 to  17.5 million in
2002, primarily as a result of the factors discussed above. 21




---



##### Table of Contents



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 provided by operating activities was in the period ended December 31,
2002  19.6 million. As at December 31, 2003 the Companys cash flow used in
operating activities was  13.4 million. The Companys German pension plans, consistent with German requirements and
practice, traditionally were unfunded. On December 19, 2003, the Company
established the Pfeiffer Vacuum Trust e.V. This Trust is an independent,
bankruptcy-remote, separate legal entity and its sole purpose is to act in a
fiduciary capacity as trustee for the assets held. In connection with the
formation of the trust, the Company made a contribution of K 35,955 in cash.
The Companys intention is to assure the financing of its employees pension
claims using its high cash position. Additionally, the usage of cash flow by
operating activities was influenced by the lower net income and the increased
tax liabilities due to new legislation (see notes to the Consolidated Financial
Statements 11 Income Taxes). The Companys inventories decreased in the year
ended December 31, 2003 by  2.0 million to  20.4 million, primarily in the
production plant in Asslar. The cash flow used in investing activities increased by  5.9 million, due to
the purchase of note receivables amounting to  9.0 million offset by the lower
capital expenditures amounting to  1.9 million in 2003 and  2.6 million in
2002, and the acquisition of business in 2002 amounting to  2.4 million. The Company repaid its loan from Kreditanstalt für Wiederaufbau in 2003
amounting to  9.0 million, and started a share buy back program using  2.4
million. The cash used in financing activities increased from  6.1 million to
 16.4 million. The Companys working capital is sufficient for its present requirements. For six 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  0.30, totalling  0.70
per share will be paid (2002:  0.56). An aggregate dividend of approximately 
4.9 million was approved and paid in 2003. The Company and its subsidiaries have various lines of credit available for
operating purposes of approximately  12.3 million. No amounts were used on
these lines during 2003 or 2002. Substantially all of the credit facilities are
denominated in euros. 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. 
  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. 22




---



##### Table of Contents



For over 40 years, Pfeiffer Vacuum has been one of the two companies that
sponsor the prestigious Roentgen Prize, which is awarded annually at Justus
Liebig University in Giessen in recognition of outstanding research work
performed by the coming generation of physicists. This year, Dr. Hermann Dürr,
BESSY Berlin, received the prize for his outstanding research findings in the
field of X-radiation in solid state physics. 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,
bringing a number of evolved models to market during the year. In 2003, the Company again invested in evolving products for the DVD business.
It views expanding the DVD business as a forward-looking investment in a growth
market. During the second half of 2003, Pfeiffer Vacuum received several orders
in this segment, which means that for the first time the start-up costs are now
being offset by significant sales. In the spring of 2003, Pfeiffer Vacuum received a particular distinction:
Working in collaboration with top-flight companies, the Production Systems
Chair at the Technical University of Aachen (RWTH Aachen) conducted a
benchmarking project on the subject of Research & Development (R&D) in
Mechanical Engineering. The objective of this project was to identify
successful R&D practices at over 100 of Germanys most successful companies in
the field of mechanical and plant engineering. The Company numbered among the
five companies that were honored at the projects concluding conference. The Company invested  8.9 million in 2003,  10.8 million in 2002 and  8.5 in
2001 in expenditures for research and development projects. 
  D.
    
    Trend information The year 2003 was characterized by a weak dollar, declining exports and a
lackluster economy. Although the Company was unable to compensate for all of
these influences, it was able to moderate them through enterprise and
cost-consciousness. There were no signs of recovery in the world economy in
2003. Modest to zero growth worldwide reflects the situation of the vacuum
industry. On balance, the industry posted negative growth year on year. The
positive development of new orders during the fourth quarter of 2003 clouded
only by the fact that the growth engine of the countries of Europe continues to
sputter. The Company intends to significantly improve its sales and earnings during the
2004 fiscal year. One of the factors upon which the growth prospects are based
includes the development of new orders. DVD business would also appear to be
developing on a positive note. During the fourth quarter of 2003, it received
several orders for DVD Lines and individual components. In the field of purchasing, Pfeiffer Vacuum will continue to work on optimizing
its ordering processes in order to assure a high level of availability of
inputs, while keeping inventories low. Rising sales will be accompanied by only
a moderate increase in administration and selling as well as research &
development expenses. The same also holds true with respect to capital
investment volume. During the 2004 fiscal year, the Company will be critically analyzing all of
its major business processes within the framework of its Turbo Office project
and then further optimizing them. This is only one of the ways in which
Pfeiffer Vacuum intends to get its plants in shape again for the future and
keep it that way. For further trend information, please see item A, Operating Results,
Managements Discussion and Analyses of Financial Condition and Results of
Operations. 23




---



##### Table of Contents



E.
    
    Off-Balance Sheet Arrangements 
 Guarantees As of December 31, 2003, the Companys exposure under guarantees amounted
to K 91 (2002: K 123). These guarantees relate to residential rentals. The
terms of guarantees are unlimited; as a general rule, they are called upon
termination of the individual rental leases. 
  F.
    
    Tabular Disclosure of Contractual Obligations 
 Contractual Obligations The Company has entered into rental-, leasing- or maintenance-agreements
which expire at various dates. The table below presents the maximum amount of
the off-balance sheet contractual commitments as of December 31, 2003,
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
    
    
    3,594
    
    
    
    1,290
    
    
    
    1,467
    
    
    
    423
    
    
    
    414Maintenance Contracts
    
    
    102
    
    
    
    87
    
    
    
    9
    
    
    
    4
    
    
    
    2Total Contractual Obligations
    
    
    3,696
    
    
    
    1,377
    
    
    
    1,476
    
    
    
    427
    
    
    
    416
 The Company did not have any debt or capital lease obligations at December 31,
2003. 
 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. 24




---



##### Table of Contents



The establishment 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. 
 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 value 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 8. Pension Benefits and Similar Obligations). 
 New Accounting Rules and Standards Detailed explanation please see Notes to the Consolidated Financial Statements
Adoption of New Accounting Rules and Accounting Standards. 
  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. 25




---



##### Table of Contents



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. 
 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 (Vorstands-vorsitzender) 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 60), Chairman of the Management Board, 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 from RWTH Aachen. 26




---



##### Table of Contents



Amandus Waterkamp Amandus Waterkamp, (age 51), Chief Financial Officer, joined the Company
in January 2003, was appointed in April 2003 as a member of the Management
Board. Beginning July 1, 2003 Mr. Waterkamp assumed the duties as Chief
Financial Officer of Pfeiffer Vacuum Technology AG. He 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).
In addition to the customary responsibilities in finance and controlling he
enjoys a broad range of experience in the fields of equity investment
management, corporate acquisitions and sales, risk management, internal
auditing and information technology. Mr. Waterkamp holds a Master degree in
Telecommunication Engineering from Fachhochschule Köln and a further Master
degree in Business Administration and Finance from University of Köln. Wilfried Glaum Wilfried Glaum (age 57), retired end of June 2003. He served more than 31
years for the Company, from 1996 through June 2003 as a member of the
Management Board and Chief Financial Officer. Senior Officers (Prokuristen) Manfred Bender (age 38), who graduated with a degree in business economics
(Dipl.-Betriebswirt) from Fachhochschule Giessen-Friedberg, joined the Company
in 1998. He is responsible for the Finance and Controlling Department. In
August 2001 the Management Board granted Mr. Bender a special power of attorney
(Prokura), which grants him the authority to bind the Company with any member
of the Management Board. Prior to 1998, he served as Controller, Internal
Auditor and IT-Manager for Schunk GmbH, a multinational industrial group. 
 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 Meeting to be held within the first eight months of the year 2006. 27




---



##### Table of Contents



The following individuals are members of the Supervisory Board: Name
    
    Age
    
    Principal OccupationDr. Michael Oltmanns
    
    
    47
    
    
    Lawyer and tax consultantMichael J. Anderson
    
    
    46
    
    
    Managing Director of Bank of America Securities,
New York/United StatesProf. Dr. Klaus-Jürgen Kügler
    
    
    53
    
    
    ProfessorGötz Timmerbeil
    
    
    36
    
    
    Certified public accountant and tax consultantGünter Schneider
    
    
    60
    
    
    Member of the Pfeiffer Vacuum Works Council,
elected by the employeesEdgar Keller
    
    
    48
    
    
    Member of the Pfeiffer Vacuum Works Council,
elected by the employees
 
 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
    
    
    36
    
    
    Certified public accountant and tax consultant
(Chairman and Financial Expert)Dr. Michael Oltmanns
    
    
    47
    
    
    Lawyer and tax consultantMichael J. Anderson
    
    
    46
    
    
    Managing Director of Bank of America Securities,
New York/United States
 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.


|B. |  | Compensation
|-- |  | ------------

The aggregate amount of compensation paid by the Company during the year
ended December 31, 2003 to all members of the Management Board of the Company,
as a group, for services in all capacities, was  1.1 million, including a
fixed component amounting to  0.6 million and a variable component amounting
to  0.5 million.

The fixed compensation paid to the members of the Supervisory Board and the
Audit Committee, as a group, during the year ended December 31, 2003, amounted
to K 75 (without any variable component).

The aggregate amount set aside or accrued by the Company during the year ended
December 31, 2003 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  0.2 million.

28



---



##### Table of Contents



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
(Betriebsverfassungsgesetz) (1952). 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. In accordance with the Sarbanes-Oxley-Act the Company installed in March 2003
an Audit Committee. The members of the Audit Committee are also members of the
Supervisory Board. See also Item 6. A. Directors, Senior Management and Employees.


|D. |  | Employees
|-- |  | ---------

December 31,2003
    
    2002
    
    2001
    
    2003
    
    2002
    
    2001Germany
    
    Foreign CountriesProduction
    
    
    297
    
    
    
    311
    
    
    
    297
    
    
    
    58
    
    
    
    58
    
    
    
    63Research and Development
    
    
    91
    
    
    
    102
    
    
    
    88
    
    
    
    2
    
    
    
    3
    
    
    
    3Selling and Marketing
    
    
    108
    
    
    
    124
    
    
    
    123
    
    
    
    91
    
    
    
    101
    
    
    
    107Administration
    
    
    80
    
    
    
    78
    
    
    
    77
    
    
    
    34
    
    
    
    34
    
    
    
    35Total
    
    
    576
    
    
    
    615
    
    
    
    585
    
    
    
    185
    
    
    
    196
    
    
    
    208


As of December 31, 2003, the Company employed 761 people, 576 of which are
in Germany and 185 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 expired agreement for metal
workers, which covers most of the Companys employees, went into effect on
March 1, 2002 and was effective through December 31, 2003. The new agreement
started at 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 and the Aschaffenburg 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.

29



---



##### Table of Contents



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, 2002 by all members of the Supervisory Board and the Management Board: Identity of
    
    
    
    
    
    Percent ofTitle of Class
    
    Person or Group
    
    Amount 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
    %Management BoardOrdinary Shares
    
    Wolfgang Dondorf
    
    
    56,000
    
    
    
    0.6
    %ADRs
    
    Wolfgang Dondorf
    
    
    200
    
    
    
    0.0
    %Ordinary Shares
    
    Amandus Waterkamp
    
    
    0
    
    
    
    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, 2003, 2,000 convertible bonds totaling par value
approximately  256,000 were repurchased from employees voluntarily exiting the
plan. 30




---



##### Table of Contents



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, 2003, 400 convertible bonds totaling par value
approximately  51,200 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: Identity of
    
    
    
    
    
    Percent ofTitle of Class
    
    Person or Group
    
    Amount Owned
    
    ClassDecember 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
    %December 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
    %December 31, 2001Ordinary Shares
    
    Harris Associates L.P., Chicago/U.S.A.
    
    
    394,610
    
    
    
    4.49
    %
 These shareholders have the same voting rights as any other holder of the
Companys ordinary shares. 31




---



##### Table of Contents



B.
    
    Related Party Transactions The Company did not enter into transactions with related parties in the
year ended December 31, 2003, 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, 2003. 
  C.
    
    Interests of Experts and Counsel Not applicable. 
  Item 8.
    
    Financial Information 
  A.
    
    Consolidated Statements and Other Financial Information See Item 18. 
 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 affect on its financial condition or results of operation. 
 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  0.56 per ordinary share were approved and paid in both, 2003 and
2002, respectively. A similar cash dividend of  0.40 per ordinary share and an
additional bonus dividend of  0.30 per ordinary share has been proposed and is
expected, upon final approval by the shareholders of the Company, to be paid in
2004. The Company has declared an annual dividend since 1998. 
  B.
    
    Significant Changes N/A 
  Item 9.
    
    The Offer and Listing Items 9.A.1-3, and 5-7, B, D, E, and F are not applicable. 32




---



##### Table of Contents



A.
    
    Offer and Listing Details 
  4.
    
    Market Price Information 
 Trading of ADRs on the New York Stock Exchange 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($)1999
    
    
    50.13
    
    
    
    23.002000
    
    
    48.38
    
    
    
    25.252001
    
    
    48.00
    
    
    
    22.502002First Quarter
    
    
    37.03
    
    
    
    30.51Second Quarter
    
    
    37.53
    
    
    
    32.15Third Quarter
    
    
    37.21
    
    
    
    16.50Fourth Quarter
    
    
    21.41
    
    
    
    17.242003First Quarter
    
    
    22.69
    
    
    
    18.75Second Quarter
    
    
    30.80
    
    
    
    19.15Third Quarter
    
    
    34.00
    
    
    
    26.15Fourth Quarter
    
    
    36.33
    
    
    
    30.332003Month of July
    
    
    27.92
    
    
    
    26.15Month of August
    
    
    30.77
    
    
    
    27.00Month of September
    
    
    34.00
    
    
    
    29.80Month of October
    
    
    33.60
    
    
    
    30.33Month of November
    
    
    33.75
    
    
    
    32.50Month of December
    
    
    36.33
    
    
    
    32.742004Month of January
    
    
    42.35
    
    
    
    34.85
 On January 31, 2004, the closing sales price per ADR was $34.85 as reported on
the NYSE Composite Tape. 
 Trading of Ordinary Shares on the Frankfurt Stock Exchange 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. 33




---



##### Table of Contents



The table below presents, for the periods indicated, the high and low closing
sales prices in euro for the Ordinary Shares on the Frankfurt Stock Exchange,
based on the exchange from euro 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
    
    
    
    
    
    
    
    $
    
    
    
    $1999:
    
    
    46.50
    
    
    
    23.70
    
    
    
    49.95
    
    
    
    23.762000:
    
    
    50.40
    
    
    
    24.68
    
    
    
    45.03
    
    
    
    23.532001:
    
    
    51.36
    
    
    
    24.40
    
    
    
    45.28
    
    
    
    22.372002:First Quarter
    
    
    41.80
    
    
    
    33.81
    
    
    
    36.42
    
    
    
    29.46Second Quarter
    
    
    40.71
    
    
    
    33.71
    
    
    
    40.60
    
    
    
    33.62Third Quarter
    
    
    38.00
    
    
    
    15.80
    
    
    
    37.43
    
    
    
    15.56Fourth Quarter
    
    
    22.60
    
    
    
    17.01
    
    
    
    23.68
    
    
    
    17.822003: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
    
    
    
    28.83Month of July
    
    
    25.11
    
    
    
    22.55
    
    
    
    28.38
    
    
    
    25.49Month of August
    
    
    28.42
    
    
    
    23.17
    
    
    
    31.00
    
    
    
    25.28Month of September
    
    
    30.65
    
    
    
    25.62
    
    
    
    35.83
    
    
    
    29.95Month of October
    
    
    29.00
    
    
    
    24.77
    
    
    
    33.75
    
    
    
    28.83Month of November
    
    
    29.50
    
    
    
    27.65
    
    
    
    35.37
    
    
    
    33.15Month of December
    
    
    29.88
    
    
    
    25.90
    
    
    
    37.68
    
    
    
    32.662004:Month of January 2004
    
    
    34.19
    
    
    
    27.75
    
    
    
    42.34
    
    
    
    34.37
 On January 31, 2004, the closing sales price per Ordinary Share on the
Frankfurt Stock Exchange, as reported by Deutsche Börse was  33.15. The average daily volume of Ordinary Shares traded at the Frankfurt Stock
Exchange (previously Neuer Markt) during 2003 was 18,668. 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 ADRs also trade on the Berliner Freiverkehr,
the Stuttgart Freiverkehr, the Frankfurt Freiverkehr, the Düsseldorf
Freiverkehr and the Hamburg Freiverkehr in Germany. 34




---



##### Table of Contents



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. Previously the Company was included in the index system NEMAX 50
containing fifty selected companies from the Neuer Markt, introduced on July 1,
1999. In order to assure the continuity of financial instruments issued on this
basis, it is anticipated that the NEMAX 50 Index will continue to be calculated
in parallel until year-end 2004. All Ordinary Shares have been issued in bearer form. 
  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. 
 Directors The Company has a two-tier board structure consisting of a Management
Board and a Supervisory Board. In accordance with the Sarbanes-Oxley-Act the
Company installed in March 2003 an Audit Committee. (See Item 6.A. Directors
and Senior Management). A member of the Management or Supervisory Board may not vote on proposals,
arrangements or contracts in which that member has a material interest pursuant
to general principles of German law applicable to corporate bodies. 35




---



##### Table of Contents



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. The Company may make loans to members of its Management Board and their family
members only pursuant to a resolution of the Supervisory Board if the loan
exceeds the amount of the Management Board members monthly compensation (§89
of the German Stock Corporation Law). Company loans to members of its
Supervisory Board and their family members require the consent of the
Supervisory Board (§115 of the German Stock Corporation Law). Membership of the Management and Supervisory Board or the Audit Committee is
not limited by any age limit requirement. Membership ends at the end of the
period for which a member was appointed. Management and Supervisory Board and Audit Committee members are not required
to hold any shares in the Company while in office. 
 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. 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. 36




---



##### Table of Contents



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. 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. 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). 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. 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. 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. 37




---



##### Table of Contents



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. 
 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. 
 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. 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 . 38




---



##### Table of Contents



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. 
 Notification Requirements 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). In addition, in the event that the Companys
Ordinary Shares are listed on an European stock exchange, under the Securities
Trading Act (Wertpapierhandelsgesetz) any person 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. 
 
 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. 
  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 Angola, Afghanistan,
Birma/Myanmar, Iraq, Yugoslavia and Simbabwe. 39




---



##### Table of Contents



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. 
  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 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. 40




---



##### Table of Contents



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. 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
surtax, 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. Such certification is obtained from the office of the Director of
the Internal Revenue Service Center by filing a request for the certification
with the Internal Revenue Service  Philadelphia Service Center, Foreign
Certification Request, P.O. Box 16347, Philadelphia, PA 19114-0447. (Additional
information, including IRS Publication 686, can be obtained from the Internal
Revenue Service website at http://www.irs.gov/pub/irs-pdf/p686.pdf). Requests
for certification are to be made in writing and must include the
shareholders/ADR-holders name, social security number or employer
identification number, tax return form number and tax period for which
certification is requested. 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. This
certification is valid for three years and need only be resubmitted in a fourth
year in the event of a subsequent application for refund. 41




---



##### Table of Contents



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 120-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. 42




---



##### Table of Contents



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 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511, and 233 Broadway, New York, New York 10274,
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.de). 
  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.
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.
The Company does not hold risk-sensitive instruments for investment purposes. 43




---



##### Table of Contents



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. Pfeiffer Vacuum invested
in a note receivable amounting to approximately  9.0 million with interest
based on the six-months-Euribor. This note receivable may include an interest
rate risk. Cash assets are invested in instruments with maturities of less than
ninety days. 
 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 35% 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, 2003. Currency
    
    Percentage of SalesU.S. dollars
    
    
    23
    %British pounds
    
    
    3
    %Other foreign currencies
    
    
    9
    %
 The Company enters into foreign currency forward contracts to hedge the
exposure of its forecasted foreign-currency sales to fluctuations in exchange
rates. These forward contracts are limited to currencies in which the Company
has significant sales that are denominated in currencies other than the euro
(i.e., the U.S. dollar). The contracts are designed to protect specifically
against the impact of changes in exchange rates on these sales and typically
cover approximately sixty to seventy 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 14 Financial Instruments of
the notes to the Consolidated Financial Statements for further discussion of
the Companys foreign exchange hedging activities. The portion of the Companys forecasted foreign currency sales that are not
covered by its hedging activities would be adversely affected by a devaluation
of foreign currencies relative to the Euro. A hypothetical, simultaneous,
instantaneous, and unfavorable ten percent decrease in the value of the U.S.
Dollar relative to the Euro would result in a decline in the Companys
forecasted sales denominated in U.S. Dollars for the first six months of 2004
of an amount equal to approximately  1.4 million. The foregoing calculations
are based on the assumption that sales in the first six months of 2004 will be
equal to the Companys sales in the six month period that ended on December 31,
2003. 
 Item 12.    Description of Securities other than Equity Securities 
  A.
    
    Debt Securities Not applicable. 
  B.
    
    Warrants and Rights Not applicable. 44




---



##### Table of Contents



C.
    
    Other Securities Not applicable. 
  D.
    
    American Depositary Shares Not applicable. 
 Part II 
 Item 13.    Defaults, Dividend Arrearages and Delinquencies None. 
 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 11, 2002 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. In 2003, the Company repurchased 100,076 shares for
cash on the market. 
 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. The Company is in the process of assessing the impact of the recently
issued 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. 45




---



##### Table of Contents



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. 
 Item 16A.    Audit Committee Financial Expert 
 Audit Committee In accordance with the Sarbanes-Oxley-Act the Company established in March
2003 an Audit Committee. The following individuals are members of the Audit
Committee: Götz Timmerbeil
    
    
    36
    
    
    German Certified public accountant and tax consultant
(Chairman and Financial Expert)Dr. Michael Oltmanns
    
    
    47
    
    
    Lawyer and tax consultantMichael J. Anderson
    
    
    46
    
    
    Managing Director of Bank of America Securities,
New York/United States
 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 result of the audits and/or reviews performed by the independent
auditors. 
 Item 16B.    Code of Ethics 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. The 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. 46




---



##### Table of Contents



The Company has incorporated most of the recommendations of the Coporate
Governance Code into its corporate strategy. More detailed information about
DCGK is published on the Companys internet-homepage (www.pfeiffer-vacuum.de)
and filed as exhibit 2.6 to this report. 
 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 KPMG Deutsche
Treuhandgesellschaft AG, Wirtschaftsprüfungs-gesellschaft, located
Frankfurt/M., to its auditing company for the year 2003. Through fiscal year
2002 the auditing company was Ernst & Young, Deutsche Allgemeine Treuhand AG,
Frankfurt. Principal accountant fees and services consist of the following: KPMG
    
    E & YDecember 31,2003
    
    2002( in thousands)Audit fees
    
    
    250
    
    
    
    243Audit-related fees
    
    
    12
    
    
    
    0Tax fees
    
    
    0
    
    
    
    53Other fees
    
    
    0
    
    
    
    0
 Audit-related fees are charged by KPMG for assurance and related services that
are related to the performance of the audit (especially audit of employee
benefit plans and pension schemes). 
 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. 
 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 11, 2002 the shareholders authorized
the Company to acquire treasury stock. The number of Ordinary Shares to be
repurchased (subject to statutory limitation) is limited up to a maximum of 10%
of the issued outstanding shares. 47




---



##### Table of Contents



The following table shows the buying date and the number of repurchased shares
within 2003: Value
    
    Numbers
    
    Value
    
    AveragePrice per
    
    Number of
    
    of Shares
    
    of Shares
    
    of Shares
    
    Share PriceDate
    
    Share
    
    Shares
    
    accumulated
    
    accumulated
    
    accumulated
    
    accumulated
    
    
    
    
    
    
    
    
    
    
    
    
    
    05-16-2003
    
    
    22.43200
    
    
    
    25,626
    
    
    
    574,842.43
    
    
    
    25,626
    
    
    
    574,842.43
    
    
    
    22.4320005-23-2003
    
    
    22.99800
    
    
    
    8,000
    
    
    
    183,984.00
    
    
    
    33,626
    
    
    
    758,826.43
    
    
    
    22.5666606-06-2003
    
    
    22.86200
    
    
    
    2,000
    
    
    
    45,724.00
    
    
    
    35,626
    
    
    
    804,550.43
    
    
    
    22.5832407-30-2003
    
    
    22.93400
    
    
    
    500
    
    
    
    11,467.00
    
    
    
    36,126
    
    
    
    816,017.43
    
    
    
    22.5880908-08-2003
    
    
    24.03005
    
    
    
    14,600
    
    
    
    350,838.73
    
    
    
    50,726
    
    
    
    1,166,856.16
    
    
    
    23.0031208-19-2003
    
    
    24.62990
    
    
    
    7,205
    
    
    
    177,458.43
    
    
    
    57,931
    
    
    
    1,344,314.59
    
    
    
    23.2054409-26-2003
    
    
    26.04000
    
    
    
    17,205
    
    
    
    448,018.20
    
    
    
    75,136
    
    
    
    1,792,332.79
    
    
    
    23.8545110-02-2003
    
    
    26.07800
    
    
    
    15,879
    
    
    
    414,092.56
    
    
    
    91,015
    
    
    
    2,206,425.35
    
    
    
    24.2424410-29-2003
    
    
    25.60000
    
    
    
    9,061
    
    
    
    231,961.60
    
    
    
    100,076
    
    
    
    2,438,386.95
    
    
    
    24.36535100,076
    
    
    
    2,438,386.95
 
 PART III 
 Item 17.    Financial Statements. Not applicable. 
 Item 18.    Financial Statements. See pages F-1 through F-29, incorporated by reference. 48




---



##### Table of Contents



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).
 49




---



##### Table of Contents



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. March 19, 2004 PFEIFFER VACUUM TECHNOLOGY AG By: /s/ Wolfgang Dondorf  Wolfgang Dondorf
Chief Executive Officer
(Chairman of the Management Board) 50




---



##### Table of Contents






I, Wolfgang Dondorf, certify that:  1.
    
    I have reviewed this annual report on Form 20-F of Pfeiffer Vacuum
Technology AG;  2.
    
    Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;  3.
    
    Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial conditions, results of operations and cash flows of the
company as of, and for, the periods presented in this report;  4.
    
    The companys other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e) for the company and have:  a)
    
    Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the company, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;  b)
    
    Evaluated the effectiveness of the companys disclosure controls and
procedures and presented in this report our conclusion about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on evaluation; and  c)
    
    Disclosed in this report any change in the Companys internal control
over financial reporting that ocurred during the period covered by the annual
report that has materially affected, or is reasonable likely to materially
affect, the companys internal control over financial reporting.  5.
    
    The companys other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
companys auditors and the audit committee of the companys board of directors
(or persons performing the equivalent functions):  a)
    
    All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the companys ability to record, process, summarize
and report financial information; and  b)
    
    Any fraud, whether or not material, that involves management or other
employees who have a significant role in the companys internal control over
financial reporting. March 19, 2004 By: /s/ Wolfgang Dondorf  Wolfgang Dondorf
Chief Executive Officer
(Chairman of the Management Board) 51




---



##### Table of Contents



INDEX TO FINANCIAL STATEMENTS PageIndependent Auditors Reports
    
    
    F-2Consolidated Statements of Income for the years
ended December 31, 2003, 2002 and 2001
    
    
    F-4Consolidated Balance Sheets at December 31, 2003 and 2002
    
    
    F-5Consolidated Statements of Shareholders Equity for the years
ended December 31, 2003, 2002 and 2001
    
    
    F-6Consolidated Statements of Cash Flows for the years
ended December 31, 2003, 2002 and 2001
    
    
    F-7Notes to the Consolidated Financial Statements
    
    
    F-9




---



##### Table of Contents






INDEPENDENT
AUDITORS REPORT 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, 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 auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our 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-2




---



##### Table of Contents



REPORT OF INDEPENDENT AUDITORS To the Supervisory Board and Shareholders
Pfeiffer Vacuum Technology AG We have audited the accompanying consolidated balance sheets of Pfeiffer Vacuum
Technology AG and subsidiaries as of December 31, 2002 and the related
consolidated statements of income, shareholders equity and cash flows for each
of the two years in the period ended December 31, 2002. These financial
statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits in accordance with auditing standards generally
accepted in Germany and in the 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
audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Pfeiffer Vacuum
Technology AG and subsidiaries as of December 31, 2002, and the consolidated
results of their operations and their cash flows for each of the two years in
the period ended December 31, 2002, in conformity with accounting principles
generally accepted in the United States. Frankfurt am Main, Germany
February 03, 2003  ERNST & YOUNG
DEUTSCHE ALLGEMEINE TREUHAND AG
WIRTSCHAFTSPRÜFUNGSGESELLSCHAFT F-3




---



##### Table of Contents



PFEIFFER VACUUM TECHNOLOGY AG
CONSOLIDATED STATEMENTS OF INCOME Year ended December 31,2003
    
    2002
    
    2001
    
    
    
    (in thousands, except per share data)Net sales
    
    
    144,018
    
    
    
    150,942
    
    
    
    170,140Cost of sales
    
    
    (81,721
    )
    
    
    (82,525
    )
    
    
    (95,227
    )Gross profit
    
    
    62,297
    
    
    
    68,417
    
    
    
    74,913Selling and marketing expenses
    
    
    (20,941
    )
    
    
    (24,162
    )
    
    
    (25,650
    )General and administrative expenses
    
    
    (12,950
    )
    
    
    (12,241
    )
    
    
    (12,585
    )Research and development expenses
    
    
    (8,928
    )
    
    
    (10,845
    )
    
    
    (8,503
    )Operating profit
    
    
    19,478
    
    
    
    21,169
    
    
    
    28,175Interest expense
    
    
    (246
    )
    
    
    (525
    )
    
    
    (605
    )Interest income
    
    
    1,803
    
    
    
    2,228
    
    
    
    2,440Foreign exchange gain (loss)
    
    
    2,142
    
    
    
    1,946
    
    
    
    (610
    )Income before income tax
    
    
    23,177
    
    
    
    24,818
    
    
    
    29,400Income taxes:Current
    
    
    (11,544
    )
    
    
    (7,513
    )
    
    
    (10,510
    )Deferred
    
    
    1,113
    
    
    
    230
    
    
    
    (19
    )(10,431
    )
    
    
    (7,283
    )
    
    
    (10,529
    )Net income
    
    
    12,746
    
    
    
    17,535
    
    
    
    18,871Net income per ordinary share and ADR:Basic
    
    
    1.46
    
    
    
    1.99
    
    
    
    2.16Diluted
    
    
    1.46
    
    
    
    1.99
    
    
    
    2.16
 See accompanying notes to consolidated financial statements. F-4




---



##### Table of Contents



PFEIFFER VACUUM TECHNOLOGY AG
CONSOLIDATED BALANCE SHEETS December 31,2003
    
    2002
    
    (in thousands)ASSETSCash and cash equivalents
    
    
    29,432
    
    
    
    72,264Trade accounts receivable (Note 3)
    
    
    22,224
    
    
    
    21,937Other accounts receivable
    
    
    2,125
    
    
    
    3,164Inventories (Note 4)
    
    
    20,360
    
    
    
    22,403Prepaid expenses
    
    
    593
    
    
    
    562Deferred tax assets  net (Note 11)
    
    
    1,016
    
    
    
    775Other current assets
    
    
    920
    
    
    
    713TOTAL CURRENT ASSETS
    
    
    76,670
    
    
    
    121,818Property, plant and equipment (Note 5)
    
    
    25,734
    
    
    
    28,434Note receivable (Note 14)
    
    
    9,000
    
    
    
    Prepaid pension cost (Note 8)
    
    
    2,819
    
    
    
    Deferred tax
assets  net (Note 11)
    
    
    3,323
    
    
    
    2,731Goodwill
    
    
    1,037
    
    
    
    1,037Other assets
    
    
    1,197
    
    
    
    1,476TOTAL NON-CURRENT ASSETS
    
    
    43,110
    
    
    
    33,678TOTAL ASSETS
    
    
    119,780
    
    
    
    155,496LIABILITIES AND SHAREHOLDERS EQUITYCurrent portion of long-term debt
    
    
    
    
    
    
    1,291Trade accounts payable
    
    
    4,153
    
    
    
    3,483Accrued liabilities (Note 9)
    
    
    8,758
    
    
    
    9,188Income tax liabilities
    
    
    6,643
    
    
    
    2,317Customer deposits
    
    
    1,051
    
    
    
    1,938Other payables
    
    
    2,252
    
    
    
    2,269TOTAL CURRENT LIABILITIES
    
    
    22,857
    
    
    
    20,486Long-term debt (Note 6)
    
    
    
    
    
    
    7,746Convertible bonds (Note 7)
    
    
    845
    
    
    
    1,011Accrued pension (Note 8)
    
    
    1,041
    
    
    
    33,615Minority interests
    
    
    
    
    
    
    130TOTAL NON-CURRENT LIABILITIES
    
    
    1,886
    
    
    
    42,502SHAREHOLDERS EQUITY (Note 10)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, 2003 and 8,790,600 at December 31, 2002)
    
    
    22,504
    
    
    
    22,504Additional paid-in-capital
    
    
    2,821
    
    
    
    2,821Retained earnings
    
    
    73,713
    
    
    
    65,870Accumulated other comprehensive income (loss)
    
    
    (1,563
    )
    
    
    1,313Treasury stock, at cost (100,076 ordinary shares at December 31, 2003)
    
    
    (2,438
    )
    
    
    TOTAL SHAREHOLDERS EQUITY
    
    
    95,037
    
    
    
    92,508TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    
    119,780
    
    
    
    155,496
 See accompanying notes to consolidated financial statements. F-5




---



##### Table of Contents



PFEIFFER VACUUM TECHNOLOGY AG
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY Accumulated Other ComprehensiveIncomeAdditional
    
    
    
    
    
    
    
    
    
    Cumulative
    
    Unrealized
    
    
    
    
    
    TotalShare
    
    paid-in
    
    Retained
    
    Minimum
    
    translation
    
    gain/(loss) on
    
    Treasury
    
    shareholderscapital
    
    capital
    
    earnings
    
    pension liability
    
    adjustment
    
    hedges
    
    stock
    
    equity in thousandsBalance at January 1, 2001
    
    
    22,065
    
    
    
    2,184
    
    
    
    38,706
    
    
    
    (19
    )
    
    
    3,540
    
    
    
    631
    
    
    
    
    
    
    
    67,107Dividends paid
    
    
    
    
    
    
    
    
    
    
    (4,319
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,319
    )Bonds converted
    
    
    439
    
    
    
    637
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,076Net income
    
    
    
    
    
    
    
    
    
    
    18,871
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,871Components of other
comprehensive income 
net of tax of
(122) 
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19
    
    
    
    1,088
    
    
    
    (440
    )
    
    
    
    
    
    
    667Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,538Balance at December 31, 2001
    
    
    22,504
    
    
    
    2,821
    
    
    
    53,258
    
    
    
    
    
    
    
    4,628
    
    
    
    191
    
    
    
    
    
    
    
    83,402Dividends paid
    
    
    
    
    
    
    
    
    
    
    (4,923
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,923
    )Net income
    
    
    
    
    
    
    
    
    
    
    17,535
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,535Components of other
comprehensive income  net of tax of
157 
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (656
    )
    
    
    (3,068
    )
    
    
    218
    
    
    
    
    
    
    
    (3,506
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,029Balance at December 31, 2002
    
    
    22,504
    
    
    
    2,821
    
    
    
    65,870
    
    
    
    (656
    )
    
    
    1,560
    
    
    
    409
    
    
    
    
    
    
    
    92,508Subtotal accumulated other
comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,313Dividends 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
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,870Balance at December 31, 2003
    
    
    22,504
    
    
    
    2,821
    
    
    
    73,713
    
    
    
    (64
    )
    
    
    (2,049
    )
    
    
    550
    
    
    
    (2,438
    )
    
    
    95,037Subtotal accumulated other
comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,563
    )
 See accompanying notes to consolidated financial statements. F-6




---



##### Table of Contents



PFEIFFER VACUUM TECHNOLOGY AG
CONSOLIDATED STATEMENTS OF CASH FLOW Year ended December 31,2003
    
    2002
    
    2001
    
    
    
    (in thousands)Cash flow provided by operating activities:Net income
    
    
    12,746
    
    
    
    17,535
    
    
    
    18,871Adjustments
to reconcile net income to net cash provided by operating activities:Depreciation
    
    
    3,959
    
    
    
    4,627
    
    
    
    4,569Goodwill amortization
    
    
    
    
    
    
    
    
    
    
    120Loss (gain) on disposal of fixed assets
    
    
    350
    
    
    
    (35
    )
    
    
    (116
    )Change in deferred taxes
    
    
    (1,113
    )
    
    
    (230
    )
    
    
    19Provision for doubtful accounts
    
    
    824
    
    
    
    850
    
    
    
    108Effects of changes in operating assets and liabilities:Trade accounts receivable
    
    
    (2,130
    )
    
    
    1,184
    
    
    
    3,607Other accounts receivable
    
    
    1,021
    
    
    
    533
    
    
    
    529Inventories
    
    
    1,480
    
    
    
    (881
    )
    
    
    4,406Prepaid expenses
    
    
    (65
    )
    
    
    603
    
    
    
    (291
    )Other current assets
    
    
    (292
    )
    
    
    (560
    )
    
    
    (171
    )Other long-term assets
    
    
    (2,894
    )
    
    
    90
    
    
    
    (731
    )Accrued pension liabilities
    
    
    4,482
    
    
    
    1,789
    
    
    
    1,409Contribution to the pension trust
    
    
    (35,955
    )
    
    
    
    
    
    
    Trade and other accounts payable
    
    
    746
    
    
    
    (1,785
    )
    
    
    (2,034
    )Income tax liabilities
    
    
    4,435
    
    
    
    (3,112
    )
    
    
    (4,867
    )Accrued other liabilities
    
    
    (181
    )
    
    
    (1,097
    )
    
    
    (4,359
    )Customer deposits
    
    
    (859
    )
    
    
    90
    
    
    
    (1,131
    )Net cash provided by (used in) operating activities
    
    
    (13,446
    )
    
    
    19,601
    
    
    
    19,938Cash flow used in investing activities:Proceeds from disposals of fixed assets
    
    
    165
    
    
    
    194
    
    
    
    290Capital expenditures
    
    
    (1,917
    )
    
    
    (2,632
    )
    
    
    (9,091
    )Purchase of note receivable
    
    
    (9,000
    )
    
    
    
    
    
    
    Acquisition of business assets
    
    
    
    
    
    
    (2,403
    )
    
    
    Net cash used in investing activities
    
    
    (10,752
    )
    
    
    (4,841
    )
    
    
    (8,801
    )Cash flow provided by (used in) financing activities:Proceeds from (repayments of) borrowings
    
    
    (9,037
    )
    
    
    (1,291
    )
    
    
    4,192Dividend payment
    
    
    (4,903
    )
    
    
    (4,923
    )
    
    
    (4,319
    )Bonds payable repayments (issuance)
    
    
    (12
    )
    
    
    103
    
    
    
    Bonds payable converted
    
    
    
    
    
    
    
    
    
    
    1,076Purchase of treasury stock
    
    
    (2,438
    )
    
    
    
    
    
    
    Net cash provided by (used in) financing activities
    
    
    (16,390
    )
    
    
    (6,111
    )
    
    
    949Effects of foreign exchange rate changes
on cash and cash equivalents
    
    
    (2,244
    )
    
    
    (1,420
    )
    
    
    423Net increase (decrease) in cash and cash equivalents
    
    
    (42,832
    )
    
    
    7,229
    
    
    
    12,509
 F-7




---



##### Table of Contents



PFEIFFER VACUUM TECHNOLOGY AG
CONSOLIDATED STATEMENTS OF CASH FLOW
-CONTINUED- Year ended December 31,2003
    
    2002
    
    2001
    
    
    
    (in thousands)Net increase (decrease) in cash and cash equivalents
    
    
    (42,832
    )
    
    
    7,229
    
    
    
    12,509Cash and cash equivalents at beginning of year
    
    
    72,264
    
    
    
    65,035
    
    
    
    52,526Cash and cash equivalents at end of year
    
    
    29,432
    
    
    
    72,264
    
    
    
    65,035Non-cash transactions:Convertible bonds and employee loans
    
    
    (154
    )
    
    
    448
    
    
    
    Supplemental disclosures:Cash paid for interest
    
    
    170
    
    
    
    453
    
    
    
    360Cash paid for taxes
    
    
    6,719
    
    
    
    7,033
    
    
    
    13,016
 See accompanying notes to consolidated financial statements. F-8




---



##### Table of Contents



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 main production facility in 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. The Company
has two manufacturing facilities in Germany. Pfeiffer Vacuum distributes its products through a network of its own sales
offices and subsidiaries, as well as independent marketing agents. Moreover,
there are also 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
subsidiaries (the Company or Pfeiffer Vacuum) have been prepared in
accordance with United States generally accepted accounting principles (U.S.
GAAP). Pfeiffer Vacuum has prepared 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 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




---



##### Table of Contents



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 Financial Accounting Standards
Board (FASB) Statement 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 on 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 rate2003
    
    2002
    
    2003
    
    2002
    
    20011=
    
    
    
    1=
    
    
    
    1=
    
    
    
    1=
    
    
    
    1=U.S.A.
    
    USD
    
    
    1.26100
    
    
    
    1.04770
    
    
    
    1.13087
    
    
    
    0.94486
    
    
    
    0.89583Great Britain
    
    GBP
    
    
    0.70700
    
    
    
    0.65050
    
    
    
    0.69185
    
    
    
    0.62877
    
    
    
    0.62194Switzerland
    
    CHF
    
    
    1.55900
    
    
    
    1.45270
    
    
    
    1.52064
    
    
    
    1.46714
    
    
    
    1.51047Sweden
    
    SEK
    
    
    9.07100
    
    
    
    9.18200
    
    
    
    9.12279
    
    
    
    9.15949
    
    
    
    9.25408
 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. 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. Managements estimates are primarily based on an
assessment of specific exposure and historical experience by product type. Cash and Cash Equivalents The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. F-10




---



##### Table of Contents



PFEIFFER VACUUM TECHNOLOGY AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Trade Accounts Receivable Trade accounts receivable are recorded at the invoiced amount and
typically do not bear interest. The Company periodically 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. 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 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. Inventories Inventories are stated at cost, including allocation of applicable
overheads and depreciation charges. The carrying amount of inventories is
reduced to the lower of cost or market at the balance sheet date. 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 assumed: 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. Repair and maintenance costs are expensed as incurred. Goodwill and Other Intangible Assets In July 2001, the FASB issued Statement of Financial Accounting Standards
(SFAS) 141, Business Combinations, and SFAS 142, Goodwill and Other
Intangible Assets. Since October 1, 2001, the Company has amortized,
consistent with these statements, 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.
Goodwill and intangible assets other than goodwill which are determined to have
indefinite useful lives are not amortized, but instead tested for impairment at
least annually. In connection with the adoption of SFAS 142, the Company was
required to reassess the useful lives of its intangible assets and determined
that none of its intangible assets have indefinite useful lives. The Company
evaluates the recoverability of goodwill using an impairment test approach. If
the fair value of goodwill is less than the carrying amount, the difference is
recorded as an impairment. F-11




---



##### Table of Contents



PFEIFFER VACUUM TECHNOLOGY AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Before October 1, 2001, intangible assets other than goodwill were amortized on
a straight-line basis over the shorter of their contractual rights or estimated
useful lives. Goodwill was amortized over its estimated period of benefit on a
straight-line basis, not exceeding 10 years. Accounting for Stock-Based Compensation SFAS 148, Accounting for Stock-Based Compensation, Transition and
Disclosure, was issued on December 31, 2002. Statement 148 amends SFAS 123,
Accounting for Stock-Based Compensation, to provide alternative methods of
transition to Statement 123s fair-value method of accounting for stock-based
employee compensation. Statement 148 also amends the disclosure provisions of
Statement 123 and APB Opinion 28, Interim Financial Reporting. Statement
148s amendment of the transition and annual disclosure requirements of
Statement 123 are effective for fiscal years ending after December 15, 2002,
with earlier application permitted. The adoption of SFAS 148 did not have any
impact on the Companys financial position or results of operations. As permitted under SFAS 123, Accounting for Stock-Based Compensation, as
amended, the Company applies the intrinsic value-based method in accordance
with APB 25 for its stock-based compensation plans. Under APB 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 7). Pensions The measurement of pensions is based upon the projected unit credit method
in accordance with SFAS 87, Employers Accounting for Pensions. As
permitted under SFAS 87 changes in the amount of either the projected benefit
obligation (for pension plans) or plan assets resulting from experience
different from 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. 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 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 plan assets, obligations, net costs,
and net cash flows. For non-U.S. plans adoption is permitted for fiscal years
ending after June 15, 2004. The Company will adopt SFAS 132 in June 2004. Research and Development All research and development costs are expensed as incurred. F-12




---



##### Table of Contents



PFEIFFER VACUUM TECHNOLOGY AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Advertising All advertising and promotional costs are expensed as incurred. Income Taxes The Company applies SFAS 109, Accounting for Income Taxes. Under the
asset and liability method set forth in SFAS 109, 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 carryforwards. 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 In June 2001, the FASB issued SFAS 143, Accounting for Asset Retirement
Obligations. This statement applies to legal obligations associated with the
retirement of tangible long-lived assets that result from the acquisition,
construction, development and/or the normal operation of a long-lived asset,
except for certain obligations of lessees. SFAS 143 requires that the fair
value of a liability for an asset retirement obligation be recognized in the
period in which it is incurred if a reasonable estimate of fair value can be
made. The associated asset retirement costs are capitalized as part of the
carrying amount of the long-lived asset and subsequently allocated to expense
over the assets useful life. Enterprises are required to adopt SFAS 143 for
fiscal years beginning after June 15, 2002. The Company adopted SFAS 143 on
January 1, 2003. The adoption of SFAS 143 did not have any impact on the
Companys consolidated financial statements. In April 2002, the FASB issued SFAS 145, Rescission of FASB Statements 4, 44
and 64, Amendment of FASB Statement 13 and Technical
Corrections. SFAS 145
requires gains and losses on extinguishments of debt to be classified as gains
or losses from continuing operations rather than as extraordinary items as
previously required under SFAS 4, unless the gains and losses meet the criteria
for being classified as extraordinary pursuant to APB 30. SFAS 145 also amends
SFAS 13, Accounting for Leases, to eliminate an inconsistency between the
required accounting for sale-lease back transactions and the required
accounting for certain lease modifications that have economic effects that are
similar to sale-lease back transactions. The rescission of SFAS 4 is effective
for fiscal years beginning after May 15, 2002. The provisions of SFAS 145 that
relate to SFAS 13 are effective for transactions occurring after May 15, 2002.
The adoption of these provisions had no impact on the Companys consolidated
financial statements. In November 2002, the
Emerging Issue Task Force (EITF) reached a final
consensus on EITF 00-21,Revenue Arrangements with Multiple
Deliverables. EITF 00-21 addresses certain aspects of the accounting of revenue arrangements
with multiple deliverables by a vendor. The Issue outlines an approach for
determining when a revenue arrangement for multiple deliverables should be
divided into separate units of accounting and, if separation is appropriate,
how the arrangement consideration should be allocated to the identified
accounting units. The consensus reached in the Issue has been effective for
Pfeiffer Vacuum in its financial statements beginning July 1, 2003. Pfeiffer
Vacuum has applied the consensus prospectively in 2003. The adoption of EITF 00-21 did not have a material impact on the Companys consolidated financial
statements. F-13




---



##### Table of Contents



PFEIFFER VACUUM TECHNOLOGY AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS In November 2002, the
FASB also issued FASB Interpretation (FIN) 45,
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others  an
interpretation of FASB Statements 5, 57, and 107 and rescission of FASB
Interpretation 34. This Interpretation elaborates on the disclosure to be
made by a guarantor in its financial statements regarding obligations under
certain guarantees that it has issued. FIN 45 also clarifies that a guarantor
is required to recognize, at inception of a guarantee, a liability for the fair
value of the obligation due to the issuance of the guarantee. Disclosure
requirements are effective for financial statements covering interim and annual
periods ending after December 15, 2002. The recognition and measurement
provisions are effective for guarantees issued or modified after December 31,
2002. The adoption of FIN 45 did not have any material impact on the Companys
consolidated financial statements. In July 2002, the FASB issued SFAS 146, Accounting for Costs Associated with
Exit or Disposal Activities. This Statement requires that a liability for
costs associated with exit or disposal activities be recognized in the period
in which the costs are incurred if a reasonable estimate of fair value can be
made. Under current accounting guidance, a liability can be recognized when
management has committed to an exit plan. The requirements under SFAS 146 are effective prospectively for exit or
disposal activities initiated after December 31, 2002. Restatement of
previously issued financial statements is not permissible. The adoption of this
Statement did not have any impact on the Companys consolidated financial
statements. In April 2003, the FASB issued SFAS 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. This Statement amends and
clarifies accounting for derivative instruments and hedging activities under
SFAS 133, Accounting for Derivative Instruments and Hedging Activities. SFAS 149 is generally effective for contracts entered into or modified after June 30, 2003. However, the provisions of SFAS 149 that relate to SFAS 133
implementation issues that have been effective for fiscal quarters that began
prior to June 15, 2003, will continue to be applied in accordance with their
respective effective dates. The application of SFAS 149 did not have any
significant impact on the Companys consolidated financial statements. In May 2003, the FASB issued SFAS 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. SFAS 150
amends the accounting and classification for certain financial instruments,
such as those used in most stock buy-back programs that previously were
accounted for and classified as equity. SFAS 150 requires that certain types of
freestanding financial instruments that have characteristics of both
liabilities and equity be classified as liabilities, with changes in fair value
flowing through the income statement in most cases. SFAS 150 could affect a
companys ratios, performance measures and certain stock buy-back programs.
Pfeiffer Vacuum applies the provisions of SFAS 150 to all financial instruments
entered into or modified after May 31, 2003. The adoption of SFAS 150 did not
have any impact on the Companys consolidated financial statements. 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 and does not expect that the adoption of FIN 46R to
all other variable interests will have any impact on the consolidated financial
statements. F-14




---



##### Table of Contents



PFEIFFER VACUUM TECHNOLOGY AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS In May 2003, the EITF reached a consensus on EITF 01-8, Determining Whether an
Arrangement Contains a Lease. EITF 01-8 clarifies certain provisions of SFAS
13, Accounting for Leases, with respect to the identification of lease
elements in arrangements that do not explicitly include lease provisions. Any
lease element identified under EITF 01-8 should be accounted for under current lease
literature by lessors and lessees. The adoption of EITF 01-8 did not have any
impact on the Companys consolidated financial statements.  3.
    
    Trade Accounts Receivable Trade accounts receivable consist of the following: December 31,2003
    
    2002( in thousands)Trade accounts receivable
    
    
    23,977
    
    
    
    23,675Allowance for doubtful accounts
    
    
    (1,753
    )
    
    
    (1,738
    )Total trade accounts receivable  net
    
    
    22,224
    
    
    
    21,937
 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. Trade
accounts receivable have a remaining term of less than one year. Summary of activity in the allowance for doubtful accounts: Year ended December, 312003
    
    2002
    
    2001( in thousands)Balance at beginning of year
    
    
    1,738
    
    
    
    1,160
    
    
    
    2,374Provision for doubtful accounts
    
    
    824
    
    
    
    850
    
    
    
    108Collections on previously reserved accounts
    
    
    (576
    )
    
    
    (240
    )
    
    
    (675
    )Accounts written off
    
    
    (233
    )
    
    
    (32
    )
    
    
    (647
    )Balance at end of year
    
    
    1,753
    
    
    
    1,738
    
    
    
    1,160
  4.
    
    Inventories Inventories consist of the following: December 31,2003
    
    2002( in thousands)Raw materials
    
    
    7,648
    
    
    
    7,078Work-in-process
    
    
    8,848
    
    
    
    10,018Finished products
    
    
    8,749
    
    
    
    10,501Reserves
    
    
    (4,885
    )
    
    
    (5,194
    )Total inventories  net
    
    
    20,360
    
    
    
    22,403
 F-15




---



##### Table of Contents



PFEIFFER VACUUM TECHNOLOGY AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Summary of the activity in the inventory reserves: Year ended December, 312003
    
    2002
    
    2001( in thousands)Balance at beginning of year
    
    
    5,194
    
    
    
    4,726
    
    
    
    6,511Provisions
    
    
    336
    
    
    
    1,567
    
    
    
    343Inventory written off
    
    
    (645
    )
    
    
    (1,099
    )
    
    
    (2,128
    )Balance at end of year
    
    
    4,885
    
    
    
    5,194
    
    
    
    4,726
  5.
    
    Property, Plant and Equipment Property, plant and equipment consist of the following: December 31,2003
    
    2002( in thousands)Land
    
    
    980
    
    
    
    980Intangible assets (other than goodwill)
    
    
    2,609
    
    
    
    2,594Machinery and equipment
    
    
    42,432
    
    
    
    43,298Buildings and improvements
    
    
    29,619
    
    
    
    29,617Total
property, plant and equipment  at cost
    
    
    75,640
    
    
    
    76,489Accumulated depreciation
    
    
    (49,906
    )
    
    
    (48,055
    )Total
property, plant and equipment  net
    
    
    25,734
    
    
    
    28,434
 The accumulated amortization at December 31, 2003 and 2002 that relates to
intangible assets other than goodwill is K 2,387 and K 2,228, respectively.
Amortization expense amounted to K 211 for 2003 and K 200 for 2002.  6.
    
    Long-Term Debt In 2000, the Company received a loan in the amount of  10.3 million from
Kreditanstalt für Wiederaufbau. The loan was repaid in 2003; the amount
outstanding as of December 31, 2002 was  9.0 million. The loan bore interest
at a fixed rate of 4.25%. In addition, the Company and its subsidiaries have various lines of credit
available for operating purposes in the amount of approximately  12.3 million.
No amounts were drawn on these credit lines during 2003 or 2002.  7.
    
    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 value ordinary shares of the Company. F-16




---



##### Table of Contents



PFEIFFER VACUUM TECHNOLOGY AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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 and 180,000 option shares, relating to convertible bonds for
the 2000 issue outstanding at December 31, 2003 and December 31, 2002,
respectively. Fair value at the date of grant was  10.64 per ordinary share
option. Beginning in July 2002, each holder of convertible bonds can 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 bond is 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. As of December 31, 2003, employees had returned 2,000 of these convertible
bonds having an aggregate principal value of  256,000 and repaid the
corresponding employee loans. 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 210,000 and 215,000 option shares, relating to the convertible bonds for
the 2002 issue outstanding at December 31, 2003 and December 31, 2002,
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 bond is 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. As of December 31, 2003, employees had
returned 400 of these convertible bonds having an aggregate principal value of
 51,200 and repaid the corresponding employee loans. F-17




---



##### Table of Contents



PFEIFFER VACUUM TECHNOLOGY AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Summary of option shares related to the convertible bonds: Weighted AverageExercise Price perNumber of Shares
    
    ShareConvertible shares outstanding at January 1, 2001
    
    
    391,400
    
    
    
    29.74Granted
    
    
    
    
    
    
    Exercised
    
    
    (171,400
    )
    
    
    6.27Forfeited
    
    
    
    
    
    
    Convertible shares outstanding at December 31, 2001
    
    
    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
    
    
    
    44.74
 72,000 and 54,000 options were exercisable at December 31, 2003 and 2002,
respectively. The Company did not recognize any compensation expense for the
stock-based compensation awards in the years 2003, 2002 and 2001. 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 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 11,721
and net income per share would have been  1.34. For the years 2002 and 2001,
the fair value method did not materially impact net income or net income per
share.  8.
    
    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. On December
19, 2003, the Company established Pfeiffer Vacuum Trust e.V. (the Trust), a
registered association. It is an independent, bankruptcy-protected, separate
legal entity whose sole purpose is to act in a fiduciary capacity as trustee
for the assets held. In connection with the formation of the trust, the Company
made a cash contribution of K 35,955. The trust has invested this cash in a
mutual fund managed by an unrelated third party that pursues a target
allocation of 30% in equities and 70% in fixed-income securities and cash. F-18




---



##### Table of Contents



PFEIFFER VACUUM TECHNOLOGY AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Total pension expense for all plans included the following components: December 31,2003
    
    2002
    
    2001( in thousands)Service cost
    
    
    970
    
    
    
    902
    
    
    
    910Interest cost
    
    
    2,163
    
    
    
    2,123
    
    
    
    2,075Expected return on assets
    
    
    (73
    )
    
    
    (97
    )
    
    
    (99
    )Amortization of:Unrecognized net actuarial (gains) losses
    
    
    46
    
    
    
    1
    
    
    
    2Unrecognized prior service cost
    
    
    77
    
    
    
    79
    
    
    
    79Other
    
    
    
    
    
    
    1
    
    
    
    1Net pension cost
    
    
    3,183
    
    
    
    3,009
    
    
    
    2,968
 The following table presents the funded status and amount recognized in the
consolidated financial statements for all defined benefit pension plans: December 31,2003
    
    2002( in thousands)Change in benefit obligationBeginning projected benefit obligation
    
    
    38,012
    
    
    
    34,509Service cost
    
    
    970
    
    
    
    902Interest cost
    
    
    2,163
    
    
    
    2,123Benefit payments
    
    
    (1,479
    )
    
    
    (1,407
    )(Gains)/losses
    
    
    (1,223
    )
    
    
    2,258Other
    
    
    1,863
    
    
    
    (2
    )Impact of foreign currency exchange rate differences
    
    
    (436
    )
    
    
    (371
    )Ending projected benefit obligation
    
    
    39,870
    
    
    
    38,012Change in plan assetsFair value at beginning of year
    
    
    989
    
    
    
    1,241Return on plan assets
    
    
    171
    
    
    
    (87
    )Company contributions
    
    
    36,099
    
    
    
    71Benefits paid
    
    
    (41
    )
    
    
    (46
    )Other
    
    
    1,204
    
    
    
    Impact of foreign currency exchange rate differences
    
    
    (193
    )
    
    
    (190
    )Fair value at end of year
    
    
    38,229
    
    
    
    989Funded status of plans (underfunded)
    
    
    (1,641
    )
    
    
    (37,023
    )Unrecognized actuarial (gain)/loss
    
    
    2,963
    
    
    
    4,396Unrecognized prior service cost
    
    
    292
    
    
    
    371Unrecognized transition obligation
    
    
    276
    
    
    
    2Minimum liability
    
    
    (112
    )
    
    
    (1,361
    )Prepaid
(accrued) pension cost  net
    
    
    1,778
    
    
    
    (33,615
    )
 F-19




---



##### Table of Contents



PFEIFFER VACUUM TECHNOLOGY AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31,2003
    
    2002( in thousands)Amounts recognized in balance sheetsIntangible
assets  minimum pension liability
    
    
    6
    
    
    
    287Accrued pension
    
    
    (1,041
    )
    
    
    (33,615
    )Prepaid pension costs
    
    
    2,819
    
    
    
    Minimum pension liability in excess of unrecognized
prior service cost  net of tax
    
    
    64
    
    
    
    656Net amount recognized in balance sheets
    
    
    1,848
    
    
    
    (32,672
    )Significant actuarial assumptions used:
 December 31,2003
    
    2002
    
    2001GermanyWeighted average discount rate
    
    
    5.50
    %
    
    
    5.75
    %
    
    
    6.25
    %Rates of increase in compensation levels
    
    
    2.75
    %
    
    
    3.00
    %
    
    
    3.00
    %Expected long-term rate of return on assets
    
    
    5.50
    %
    
    
    N/A
    
    
    
    N/AUnited StatesWeighted average discount rate
    
    
    6.25
    %
    
    
    6.75
    %
    
    
    7.50
    %Rates of increase in compensation levels
    
    
    3.00
    %
    
    
    3.50
    %
    
    
    4.00
    %Expected long-term rate of return on assets
    
    
    7.50
    %
    
    
    8.50
    %
    
    
    8.50
    %
 The measurement date used to determine pension benefits is December 31. The Company does not intend to make voluntary contributions to the Pfeiffer
Vacuum Trust e.V. in 2004. Projected future benefit payments to retired
employees of the German operations by Pfeiffer Vacuum Trust e.V.: Year
    
     in thousands2004
    
    
    1,6042005
    
    
    1,6712006
    
    
    1,7242007
    
    
    2,0372008
    
    
    2,0619,097
 Defined Contribution Plans Employees of the Company in certain other countries are covered by defined
contribution benefit 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 642 for 2003, K 620 for 2002 and K 598
for 2001. F-20




---



##### Table of Contents



PFEIFFER VACUUM TECHNOLOGY AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 9. Accrued Liabilities Accrued liabilities consist of the following: December 31,2003
    
    2002( in thousands)Warranty
    
    
    3,625
    
    
    
    3,774Employee-related expenses
    
    
    4,492
    
    
    
    4,635Other
    
    
    641
    
    
    
    7798,758
    
    
    
    9,188
 Employee related costs primarily include accruals for vacation pay, bonuses,
accrued overtime and service
anniversary awards. Warranty provisions consist of the following: Dezember 31,2003
    
    2002( in thousands)Balance at beginning of year
    
    
    3,774
    
    
    
    4,351Warranties issued during the year
    
    
    2,668
    
    
    
    2,323Utilization of accruals
    
    
    (2,070
    )
    
    
    (2,031
    )Releases
    
    
    (634
    )
    
    
    (764
    )Foreign exchange translation adjustment
    
    
    (113
    )
    
    
    (105
    )Balance at end of year
    
    
    3,625
    
    
    
    3,774
 10. Shareholders Equity Treasury Stock At the shareholders meeting on June 11, 2002 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. In 2003, the Company repurchased 100,076 shares for cash
on the market. 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, 2003, a total of  37.6 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 of  0.40 per share (2002:  0.56). In addition, a bonus dividend
of  0.30 per share (2002: nil) will be proposed in order to distribute a
portion of the Companys cash assets to its shareholders. F-21




---



##### Table of Contents



PFEIFFER VACUUM TECHNOLOGY AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Accumulated Other Comprehensive Income Accumulated other comprehensive income consists of the following at December
31: Minimum
    
    Currency
    
    UnrealizedPension
    
    Translation
    
    Gain/(Loss)Liability
    
    Adjustment
    
    on Hedges
    
    TotalDecember 31, 2003Before tax
    
    
    (107
    )
    
    
    (2,049
    )
    
    
    898
    
    
    
    (1,258
    )Tax impact
    
    
    43
    
    
    
    
    
    
    
    (348
    )
    
    
    (305
    )Net amount
    
    
    (64
    )
    
    
    (2,049
    )
    
    
    550
    
    
    
    (1,563
    )December 31, 2002
    
    
    (1,074
    )
    
    
    1,560
    
    
    
    670
    
    
    
    1,156Before TaxTax impact
    
    
    418
    
    
    
    
    
    
    
    (261
    )
    
    
    157Net amount
    
    
    (656
    )
    
    
    1,560
    
    
    
    409
    
    
    
    1,313December 31, 2001Before Tax
    
    
    
    
    
    
    4,628
    
    
    
    313
    
    
    
    4,941Tax impact
    
    
    
    
    
    
    
    
    
    
    (122
    )
    
    
    (122
    )Net amount
    
    
    
    
    
    
    4,628
    
    
    
    191
    
    
    
    4.819
 11. Income Taxes Under current German corporate tax law, taxes on income are composed of
corporate taxes, trade taxes and an additional surtax, and amounted to a
combined tax rate of 39.5% for the German companies for the year 2003, and
38.9% for both 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 trade tax rate 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 an entitlement to
a tax credit on distributed earnings in 2003 for the fiscal year 2002 amounting
to  0.9 million. In conformity with German tax legislation this claim reduced
income tax expense and the income tax rate for the year 2002. Consequently, the
effective calculated tax rate for the year ended December 31, 2002 was 29.3%. On April 11, 2003 the German Tax Authorities issued a resolution  effective
April 12, 2003  relating to the refund of corporation tax credits resulting
from distributed earnings to 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 retroactively became
uncollectible. Beginning on December 31, 2005 it will be possible, to claim
partial utilization of the corporation tax credit in light of the circumstances
of the individual case. As a result of this new legislation and other factors,
the Companys effective tax rate increased to 45.0% for the 2003 fiscal year. F-22




---



##### Table of Contents



PFEIFFER VACUUM TECHNOLOGY AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Income before income tax for the years ended December 31, 2003, 2002 and 2001
was taxable in the following jurisdictions: December 31,2003
    
    2002
    
    2001( in thousands)Germany
    
    
    12,868
    
    
    
    18,048
    
    
    
    18,972Outside Germany
    
    
    10,309
    
    
    
    6,770
    
    
    
    10,42823,177
    
    
    
    24,818
    
    
    
    29,400
 The components of the provision for income taxes are as follows: December 31,2003
    
    2002
    
    2001( in thousands)CurrentGermany
    
    
    8,783
    
    
    
    4,679
    
    
    
    5,142Outside Germany
    
    
    2,761
    
    
    
    2,834
    
    
    
    5,36811,544
    
    
    
    7,513
    
    
    
    10,510DeferredGermany
    
    
    (800
    )
    
    
    420
    
    
    
    (90
    )Outside Germany
    
    
    (313
    )
    
    
    (650
    )
    
    
    109(1,113
    )
    
    
    (230
    )
    
    
    19Provision for income taxes
    
    
    10,431
    
    
    
    7,283
    
    
    
    10,529
 The Companys net deferred tax assets were as follows: December 31,2003
    
    2002( in thousands)Deferred tax
assets:Pensions
    
    
    2,966
    
    
    
    2,381Inventory
    
    
    430
    
    
    
    519Intangible assets
    
    
    518
    
    
    
    1,025Tax loss carryforward
    
    
    532
    
    
    
    Derivatives
    
    
    348
    
    
    
    260Other
    
    
    349
    
    
    
    1045,143
    
    
    
    4,289Deferred tax liabilities:Property, plant and equipment
    
    
    693
    
    
    
    675Other
    
    
    111
    
    
    
    108804
    
    
    
    783Net deferred tax assets
    
    
    4,339
    
    
    
    3,506
 F-23




---



##### Table of Contents



PFEIFFER VACUUM TECHNOLOGY AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Net deferred income tax assets and liabilities in the consolidated balance
sheet: December 31,2003
    
    2002
    
    2003
    
    2002( in thousands)Long-term
    
    Short-termDeferred tax assets, net
    
    
    4,016
    
    
    
    3,406
    
    
    
    1,127
    
    
    
    883Deferred tax liabilities, net
    
    
    (693
    )
    
    
    (675
    )
    
    
    (111
    )
    
    
    (108
    )Net deferred tax assets
    
    
    3,323
    
    
    
    2,731
    
    
    
    1,016
    
    
    
    775
 Reconciliation of income taxes determined using the statutory rate to actual
income taxes provided: December 31,2003
    
    2002
    
    2001( in thousands)Income tax expenses at German statutory rate
    
    
    9,146
    
    
    
    9,648
    
    
    
    11,437Higher (lower) foreign tax rates
    
    
    (507
    )
    
    
    149
    
    
    
    (78
    )Tax credit on distributed earnings
    
    
    
    
    
    
    (865
    )
    
    
    (857
    )Taxes due to new legislation on distributed earnings in prior years
    
    
    865
    
    
    
    
    
    
    
    Withholding taxes due to dividend payments
    
    
    336
    
    
    
    
    
    
    
    Tax credits due to tax filings in prior years
    
    
    (3
    )
    
    
    (449
    )
    
    
    Lower German tax rate due to change to unified tax structure
    
    
    
    
    
    
    (1,023
    )
    
    
    Non-deductible expenses
    
    
    245
    
    
    
    206
    
    
    
    18Other
    
    
    349
    
    
    
    (383
    )
    
    
    9Provision for income taxes
    
    
    10,431
    
    
    
    7,283
    
    
    
    10,529
 As of December 31, 2003, the Company had net operating loss carryforwards of a
non-German subsidiary amounting to K 2,127 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. 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, F-24




---



##### Table of Contents



which applies to fiscal years ending in 2004 and thereafter. Management does
not expect significant additional income taxation. PFEIFFER VACUUM TECHNOLOGY AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 12. 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, 2003,
classified by the 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
    
    
    3,594
    
    
    
    1,290
    
    
    
    1,467
    
    
    
    423
    
    
    
    414Maintenance Contracts
    
    
    102
    
    
    
    87
    
    
    
    9
    
    
    
    4
    
    
    
    2Total Contractual Obligations
    
    
    3,696
    
    
    
    1,377
    
    
    
    1,476
    
    
    
    427
    
    
    
    416
 Rental expenses amounted to  1.6 million for the year 2003,  1.7 million for
the year 2002, and  1.3 million for 2001. The Company did not have capital lease obligations in the years 2003, 2002 or
2001. As of December 31, 2003, the Companys exposure under guarantees amounted to 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. 13. 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 and production equipment used in the manufacture of DVDs. 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 Chief Executive Officer of Pfeiffer Vacuum is the chief operating decision
maker and 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. Decisions of the chief
operating decision-maker relating to resource allocations for investment or
compensation of segment management are based upon this performance indicator. F-25




---



##### Table of Contents



PFEIFFER VACUUM TECHNOLOGY AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Summary information relating to the Companys geographic locations: December 31,2003
    
    2002
    
    2001( in thousands)Net SalesGermanyThird party
    
    
    65,974
    
    
    
    68,219
    
    
    
    72,298Intercompany
    
    
    42,466
    
    
    
    45,975
    
    
    
    49,116108,440
    
    
    
    114,194
    
    
    
    121,414Europe (excluding Germany)
    
    
    46,774
    
    
    
    44,655
    
    
    
    52,404United States
    
    
    32,870
    
    
    
    35,936
    
    
    
    44,553Rest of World
    
    
    3,557
    
    
    
    3,999
    
    
    
    2,467191,641
    
    
    
    198,784
    
    
    
    220,838Intercompany eliminations
    
    
    (47,623
    )
    
    
    (47,842
    )
    
    
    (50,698
    )Total
    
    
    144,018
    
    
    
    150,942
    
    
    
    170,140
 December 31,2003
    
    2002
    
    2001( in thousands)Operating profitGermany
    
    
    13,762
    
    
    
    13,797
    
    
    
    17,415Europe (excluding Germany)
    
    
    6,103
    
    
    
    2,674
    
    
    
    3,375United States
    
    
    4,148
    
    
    
    3,412
    
    
    
    7,026Rest of World
    
    
    406
    
    
    
    771
    
    
    
    23924,419
    
    
    
    20,654
    
    
    
    28,055Intercompany eliminations
    
    
    (4,941
    )
    
    
    515
    
    
    
    120Total
    
    
    19,478
    
    
    
    21,169
    
    
    
    28,175Corporate itemsInterest income  net
    
    
    1,557
    
    
    
    1,703
    
    
    
    1,835Foreign exchange gain (loss)
    
    
    2,142
    
    
    
    1,946
    
    
    
    (610
    )Income before income tax
    
    
    23,177
    
    
    
    24,818
    
    
    
    29,400
 December 31,2003
    
    2002( in thousands)Total assetsGermany
    
    
    84,694
    
    
    
    119,816Europe (excluding Germany)
    
    
    19,633
    
    
    
    22,698United States
    
    
    13,442
    
    
    
    10,625Rest of World
    
    
    2,011
    
    
    
    2,357Total
    
    
    119,780
    
    
    
    155,496
 F-26




---



##### Table of Contents



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 geographic area: December 31,2003
    
    2002( in thousands)Long-lived assets:Germany
    
    
    24,690
    
    
    
    26,424Europe (excluding Germany)
    
    
    771
    
    
    
    1,371United States
    
    
    86
    
    
    
    408Rest of World
    
    
    187
    
    
    
    231Total
    
    
    25,734
    
    
    
    28,434
 December 31,2003
    
    2002
    
    2001( in thousands)Capital expenditures:Germany
    
    
    1,501
    
    
    
    2,194
    
    
    
    7,466Europe (excluding Germany)
    
    
    328
    
    
    
    392
    
    
    
    1,350United States
    
    
    30
    
    
    
    
    
    
    
    71Rest of World
    
    
    58
    
    
    
    46
    
    
    
    204Total
    
    
    1,917
    
    
    
    2,632
    
    
    
    9,091
 December 31,2003
    
    2002
    
    2001( in thousands)Depreciation and amortization:Germany
    
    
    3,217
    
    
    
    3,516
    
    
    
    3,330Europe (excluding Germany)
    
    
    518
    
    
    
    840
    
    
    
    841United States
    
    
    162
    
    
    
    198
    
    
    
    315Rest of World
    
    
    62
    
    
    
    73
    
    
    
    83Total
    
    
    3,959
    
    
    
    4,627
    
    
    
    4,569
 December 31,2003
    
    2002
    
    2001( in thousands)Sales by product:Turbo pumps
    
    
    53,571
    
    
    
    56,698
    
    
    
    63,953Measurement and Analyses Equipment, Components
    
    
    35,218
    
    
    
    41,728
    
    
    
    47,968Service
    
    
    25,931
    
    
    
    26,145
    
    
    
    26,858Backing pumps
    
    
    18,040
    
    
    
    19,312
    
    
    
    22,330Systems
    
    
    11,258
    
    
    
    7,059
    
    
    
    9,031Total
    
    
    144,018
    
    
    
    150,942
    
    
    
    170,140
 F-27




---



##### Table of Contents



PFEIFFER VACUUM TECHNOLOGY AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 14. 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. The fair value of
the note receivable at December 31, 2003 was K 8,705 and is based upon an
estimate provided by the issuer. Foreign Currency Exchange Hedging The Company enters into foreign currency forward contracts to hedge the
exposure of its forecasted sales to fluctuations in foreign currency exchange
rates. Approximately 35% 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. The Company has assessed these contracts to be highly effective hedges against
the impact of foreign exchange rate changes on its sales. 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, 2003 and December 31, 2002, no contracts held by the Company
had a maturity date greater than one year. All of the Companys contracts are marked to market at period end using quoted
forward rates. The fair value recorded in other assets for the period ended
December 31, 2003 and December 31, 2002 were K 898 and K 670, respectively,
and recognized a gain of K 550 and K 409, respectively, in 2003 and 2002 net
of income tax effect of K 348 and K 261, in other comprehensive income. As of December 31, 2003 and 2002, the notional amounts of the forward contracts
were  7.7 million and  8.9 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-28




---



##### Table of Contents



PFEIFFER VACUUM TECHNOLOGY AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 15. Earnings per Share The following table presents the computation of basic and diluted earnings per
share: 2003
    
    2002
    
    2001Ordinary
    
    Ordinary
    
    OrdinaryShares
    
    Shares
    
    SharesNumerator:Net income ( in thousands)
    
    
    12,746
    
    
    
    17,535
    
    
    
    18,871Denominator:Denominator for basic earnings per share -
weighted-average shares
    
    
    8,750,201
    
    
    
    8,790,600
    
    
    
    8,719,507Effect of dilutive securities:Stock-based compensation (Note 7)
    
    
    
    
    
    
    
    
    
    
    Denominator for diluted earnings per share -
adjusted weighted-average shares and
assumed conversions
    
    
    8,750,201
    
    
    
    8,790,600
    
    
    
    8,719,507Basic earnings per share ()
    
    
    1.46
    
    
    
    1.99
    
    
    
    2.16Diluted earnings per share ()
    
    
    1.46
    
    
    
    1.99
    
    
    
    2.16
 The stock options granted to employees were antidilutive because the exercise
price is higher than the quoted price of the Companys ordinary shares. F-29