UNITED STATES SECURITIES AND EXCHANGE COMMISSION

FORM 20-F

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004

PFEIFFER VACUUM TECHNOLOGY AG

FEDERAL REPUBLIC OF GERMANY
(Jurisdiction of Incorporation or Organization)

BERLINER STRASSE 43, D-35614 ASSLAR, GERMANY
(Address of Principal Executive Offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act.

Securities registered or to be registered pursuant to Section 12(g) of the Act.
NONE
(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
NONE
(Title of Class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:

Ordinary shares, without nominal value                    8,690,524

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ                    No o

Indicate by check mark which financial statement item the registrant has elected to follow.

Item 17 o                    Item 18 þ

TABLE OF CONTENTS

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TABLE OF CONTENTS

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TABLE OF CONTENTS

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TABLE OF CONTENTS

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Preliminary Remarks

     These Consolidated Financial Statements have been prepared in accordance with United States Generally Accepted Accounting Principles (U.S. GAAP) and the regulations of the United States Securities and Exchange Commission (SEC), Washington D.C., U.S.A.

Unless the context otherwise requires, the terms “Pfeiffer Vacuum” and “the Company” are used synonymously for Pfeiffer Vacuum Technology AG and the subsidiaries included in the Consolidated Financial Statements.

Unless express reference is made to a differing presentation, all amounts in the Company’s corporate reports are expressed in euros (€). The selected financial data for the year 2000 were prepared in Deutsche Marks (DM), and have been translated into euros at the officially stipulated conversion rate (selected financial date).

Forward-Looking Statements

     This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended by Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements are based predominantly upon the Company’s current expectations and are subject to certain risks and uncertainties. The accuracy of such forward-looking statements is — among other things — dependent upon:

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Part I

Item 1.    Identity of Directors, Senior Management and Advisers

     Not applicable.

Item 2.    Offer Statistics and Expected Timetable

     Not applicable.

Item 3.    Key Information

A.    Selected Financial Data

Selected Financial Data

     The following selected financial data should be read in conjunction with, and are qualified in their entirety by reference to the Company’s Consolidated Financial Statements and Operating and Financial Review and Prospects included elsewhere in this Report.

The consolidated statement of income data and balance sheet data have been derived from the Company’s Audited Consolidated Financial Statements, prepared in accordance with accounting principles generally accepted in the United States.

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The Company has translated the euro dividend proposed for 2004 into dollars solely for the shareholder’s convenience at an exchange rate of € 1 = $1.364, the noon buying rate for euros on December 31, 2004. The U.S. dollar amounts for prior years reflect the dollar amounts translated at the noon-buying rate of December 31, of the respective years.

Pfeiffer Vacuum succeeded in increasing its earnings in its core business of “vacuum pumps” during the past fiscal year and additionally possesses a high level of cash and cash equivalents. The management and the supervisory board will propose to the annual shareholders’ meeting that the shareholders participate in the Company’s success in the form of a base dividend of € 0.40 and a bonus of € 0.50. The dividend will thus be significant higher than the years before (2003: € 0.40 base dividend plus € 0.30 bonus).

In conformity with the tax reform that has been in effect in Germany since January 1, 2001, and to assure comparability of the data, the presentation of the dividend payment per share has been changed from a gross-dividend to a cash-dividend basis.

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.

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The table below sets forth, for periods after January 1, 2000, the high, low, average and period-end noon buying rates for the euro expressed as U.S. dollars per € 1.

Fluctuations in exchange rate between the euro and the U.S. dollar will affect the U.S. dollar equivalent of the euro price of Pfeiffer Vacuum’s ordinary shares on the German Stock Exchange. Accordingly, exchange rate fluctuations are likely to affect the market price of the Company’s ordinary shares on the New York Stock Exchange.

Exchange rate fluctuations may also affect the amount of any cash dividend Pfeiffer Vacuum pays if a shareholder receives the dividend in U.S. dollars rather than in euros.

B.    Capitalization and Indebtedness

     Not applicable.

C.    Reasons for the Offer and Use of Proceeds

     Not applicable.

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D.    Risk Factors

     Within the context of its global operations, the Company is naturally subject to various risks, which are intrinsically linked with its entrepreneurial activities. In order to be able to specifically deal with these risks, Pfeiffer Vacuum utilizes suitable instruments for identification, analysis and action in its risk management system and evolves these instruments in the individual departments. The Company has defined the risk areas of risk management within the individual departments and put in place the necessary procedures, early warning and monitoring systems. It takes the defined risk factors into consideration in its annual budgeting process and its multiple-year strategic planning. The planning processes are accompanied by comments from the planning and supervising bodies. Moreover, the strategic planning, budget and current business position are comprehensively deliberated with the supervisory board.

The supervisory board receives detailed monthly overviews of the Company’s financial results, as well as reports from the management board that could be of particular importance with respect to profitability or liquidity. The supervisory board is involved in the entire risk management process.

General Economic Conditions

     A substantial portion of the Company’s sales are generated in Europe and the United States. As a result, an economic weakness or a decline in growth in these markets can have a negative impact on Pfeiffer Vacuum’s profitability. A substantial slow-down or decline in demand for the Company’s products could have serious effects on its economic and financial positions. In addition, the strong competition that prevails in the Company’s market poses the risk of loss of market share and name recognition. In order to limit these market risks, Pfeiffer Vacuum constantly analyzes its environment and its competitive situation. It relativizes negative economic changes through measures aimed at adjusting capacities and swift cost reduction. Ongoing contact and the market intimacy that this brings supplies the Company with important information about the needs of its customers.

Pfeiffer Vacuum utilizes the information about technology needs that it gains from the marketplace to enhance its competitive position and name recognition.

Industry and Business

Technological Changes and Introduction of New Products

     The vacuum industry is characterized by ongoing technological change, as well as by enhancements and new developments to its products. A substantial portion of the Company’s economic success is dependent upon its ability to continue to market enhanced or new products on a timely basis and at competitive prices. The failure of the Company to preserve its technological lead and manufacture adequate new products in the event of substantial technological change or the superiority of a competitor’s product could lead to serious changes with respect to the Company’s business operations, financial condition and profitability.

In fiscal 2004, the Company spent a total of € 10.3 million on research and development, to combat the risk of technology losses and to satisfy the quality standard. Strict quality controls reduce the risk of quality shortcomings.

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Highly Competitive Industry

     The Company is one of the leading full-line suppliers of vacuum technology and operates in a highly competitive market. Significant factors that affect competition include product performance, applications support, post-sales service and training, a network of sales and service organizations, pricing and product availability, as well as brand name recognition. Certain of Pfeiffer’s competitors have greater resources and a broader product line. There can be no absolute assurance that the Company will be able to continue to increase or maintain its market share or that stronger competition might not have a negative effect on its business operations, financial condition and profitability.

Manufacturing Facility

     All of the manufacturing activities performed by the Company take place in a the facility located at the Company’s Headquarters in Asslar, Germany. Any extended interruption or impairment of the Company’s production capabilities at its Asslar facility would have a material adverse effect on the Company’s business, financial condition and results of operations. A business interruption insurance provides cover against stoppage primarily due to natural disasters like e.g. thunderstorm and flood.

Procurement Risk

     The procurement market contains the risk of delivery bottlenecks and the dependence of single suppliers. The Company examines continuously alternative suppliers and prefers reliable vendors. Expected scarce resources in raw material like steel and aluminum Pfeiffer Vacuum guards against with long-term supply agreements.

Human Resources Management

     The Company manufactures high tech products and depends on its highly qualified staff. Losing a main part of its key personal may lead to serious problems in the factory.

Information Technology

     General and individual risks can evolve from malfunction of the hard- or software and computer crimes like hacker or virus attacks aligned with loss of data. The Company’s internal support team manages this security-sensitive problems with daily backups of all datas and implementation of regularly updated virus scanners and firewalls.

Risks Associated with International Operations

     As in the case of all internationally operating enterprises, the Company is subject to general risks with respect to regional economic conditions, differing taxation and legislation, unexpected changes in national regulatory requirements, compliance with import and export conditions, as well as foreign legislation. Furthermore, Pfeiffer Vacuum has to observe foreign import and export licensing requirements, trade restrictions and changes in tariff and freight rates, etc., which can involve risks.

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Financial

Currency Risk

     The Company prepares its financial reports in euros (€). Approximately 38% of its sales are invoiced in foreign currencies, primarily in U.S. dollars. The Company’s sales, operating profit and cash flow are significantly exposed to changes in exchange rates between the euro and foreign currencies.

The Company utilizes foreign currency forward transactions and options to hedge anticipated receipts in foreign currencies against foreign currency exchange fluctuations. Such hedging transactions are restricted to currencies in which the Company generates substantial sales (primarily U.S. dollars) and are conducted exclusively with well established financial institutions. The Company does not engage in speculative foreign currency forward transactions for investment purposes.

Item 4:    Information on the Company

A.    History and Development of the Company

Organization and History

     Pfeiffer Vacuum Technology AG is domiciled at Berliner Strasse 43, D-35614 Asslar, Germany; telephone: +49-(0)6441-802-0, fax: +49-(0)6441-802-202, http://www.pfeiffer-vacuum.net.

The Company is a stock corporation (“Aktiengesellschaft”) organized under the laws of the Federal Republic of Germany. It develops, manufactures, sells and services a broad range of vacuum technology products for various applications. Pfeiffer Vacuum was founded in 1890. The Company had already been active in the vacuum technology industry since the early 20th century, and developed into a leader in vacuum technology with such developments as the turbomolecular pump in 1958. In 1996, the Company was converted from a limited liability company (“Gesellschaft mit beschränkter Haftung”) into a stock corporation (“Aktiengesellschaft”) and listed on the New York Stock Exchange (“NYSE”). A second listing of the Company’s common shares on the Frankfurt Stock Exchange has been in effect since April 15, 1998.

Business and Capital Expenditures

     In May 1999, the Company purchased 100% of the assets and liabilities of Catalano Associates, Inc. (Semivac), which is domiciled in the United States, for a purchase price of U.S. dollar 3.3 million. Semivac distributes and services vacuum components. In June 2000, Pfeiffer Vacuum acquired 75% of the shares of Pfeiffer Vacuum Systems (International) AG (formerly Memex Optical Media Solutions AG), Zuzwil/Switzerland, in consideration for payment of a purchase price of 2.5 million Swiss francs (€ 1.6 million). At July 31, 2003 the Company acquired the remaining 250 registered shares of Pfeiffer Vacuum Systems (International) AG, Zuzwil/Switzerland. The purchase price was 1 Swiss franc. The subsidiary sells and services production systems for Digital Versatile Discs (DVDs). Effective January 1, 2004, Pfeiffer Vacuum Systems (International) AG in Zuzwil/Switzerland merged with the Company’s sales subsidiary Pfeiffer Vacuum (Schweiz) AG in Zurich, Switzerland (absorbing company). In January 2002, the Company acquired fixed assets, intangible assets and inventories from the bankruptcy trustee of Multimedia Machinery GmbH for a purchase price of € 2.4 million. Pfeiffer Vacuum also hired 45 former employees of Multimedia Machinery GmbH. This acquisition enabled the Company to expand its activities relating to the development, manufacture and marketing of complete manufacturing lines for the production of prerecorded and rewritable DVDs.

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In the third quarter 2004 the Company decided to restructure the unprofitable DVD-business. Registered office was relocated from Aschaffenburg/Germany to the Headquarters in Asslar/Germany. The manufacturing in Aschaffenburg will be ceased in the first quarter of 2005. All activities of the plant are bundled in the Headquarters in Asslar.

B.    Business Overview

Introduction

     The Company develops, manufactures, sells and services a broad range of turbomolecular pumps, backing pumps, such as rotary vane, Roots and dry pumps, complete pumping stations, as well as customized vacuum systems. Its product portfolio also includes digital pressure gauges, complementary vacuum components and vacuum instruments.

Pfeiffer Vacuum possesses a global sales and service network, comprised of its own sales offices, subsidiaries and exclusive marketing agents. Moreover, there are service support points in all major industrial locations throughout the world. The Company’s primary markets are in Europe, the United States of America and Asia.

Nature of the Company’s Operations and Principal Activities

     The Company’s products are employed in a broad range of commercial and analytical applications. Many products used in daily life can only be manufactured with the aid of a vacuum process. Materials having differing melting points, e.g. metal and plastic or metal and glass, can only be bonded to one another in a vacuum chamber. Through utilization of vacuum technology, it is possible to reproduce pressure conditions similar to those that exist in space, which are required for the production of numerous high-tech products, e.g. the fabrication of semiconductors, computer hard disks, optical lenses, architectural glass, coated eyeglass lenses, television tubes, computer monitors, mobile phone displays, CDs and DVDs, incandescent lamps, automotive electronics, automotive headlamps, surface-treated replacement and machine parts, as well as electron microscopes. Moreover, vacuum technology is employed in scientific research and space simulation.

Pfeiffer possesses decades of research and development experience relating to vacuum systems and the manufacture of efficient, dependable vacuum pumps. The Company maintains close contact with its customers, primarily during the product development phase, to assure the manufacture of products that satisfy market requirements. In addition to highly precise engineering, the manufacture of vacuum pumps also necessitates differentiated quality controls. Pfeiffer possesses a highly developed CAD/CAM system that assures a high degree of precision engineering of its products.

The Company’s customers include manufacturers of analytical instruments and manufacturers of vacuum process equipment, research and development institutions, as well as companies that employ vacuum processes in their production operations. Pfeiffer Vacuum’s customer base also assures that income can be generated from the sale of replacement parts and the provision of customer service. In the years 2004, 2003 and 2002, no single customer accounted for more than 10% of the Company’s total sales.

The Company’s sophisticated environmental management system has been certified under ISO 14001 since 1996. Compliance with the requirements contained in ISO 14001 was confirmed without restriction in 2004.

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Principal Markets

The Company serves the following
Market Segments

The Company’s sales by geographical area are as follows:

Seasonality

     The Company’s business is subject to neither seasonal nor cyclical fluctuations.

Raw Materials and Suppliers

     Developments on the international energy market impacted the Company in the field of purchasing in 2004. Prices for energy, for example, continued to rise having a negative impact on Pfeiffer Vacuum’s profitability. The same also applies with respect to the development of steel and aluminum prices. However, by entering into long-term framework agreements, the Company succeeds in largely containing the price rises and assuring a supply of raw material required for manufacturing operations.

Pfeiffer Vacuum satisfies its requirements for raw materials, auxiliaries, supplies and finished products from various suppliers in Germany and other countries. The Company’s sole major supplier, accounting for approximately 28% of its total purchasing volume in 2004, is Inficon AG in Balzers, Liechtenstein (approximately 27% in 2003, and 26% in 2002). The Company has been purchasing from Inficon for more than twenty years. The Company presently purchases from Inficon primarily vacuum gauges and mass spectrometers, as well as leak detectors. Other sources are available for these products.

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Marketing Channels

     The Company is represented through its own sales and service subsidiaries in all major industrialized nations throughout the world. In addition more than 20 exclusive agencies offer Pfeiffer Vacuum‘s customers competent advice and on-site service.

Dependence of the Company on Intellectual Property, Contracts and New Manufacturing Processes

     The Company holds numerous patents and has certain patent applications pending. It is convinced that it is not substantially dependent upon any one particular patent or license. Nor is the Company dependent upon special manufacturing contracts, marketing contracts, financing contracts or new manufacturing processes.

Material Effects of Government Regulations

     Manufacturing operations in Germany are subject to numerous laws and regulations. Such laws and regulations impose strict limitations upon permissible environmental impact through pollutants and contain stringent requirements relating to the treatment and disposal of wastes. Through its certification under ISO 14001, the Company subjects itself to a corresponding environmental management system, which involves internal and external monitoring at differing intervals. Although Pfeiffer Vacuum believes that it is in compliance with all environmental requirements and codes, there can be no assurance that the Company will not be subject to environmentally related liabilities in the future and/or that expenses will not be incurred in order to cover environmentally related liabilities or to assure compliance with environmental requirements.

C.    Organizational Structure

     The Company has 14 subsidiaries in Europe, the United States and Asia, more than 20 exclusively operating marketing agents in other countries, as well as service support points in all major industrial locations throughout the world.

The Company’s subsidiaries are:

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In the year 2004, Pfeiffer Vacuum Systems (International) AG, Zuzwil, Switzerland, was merged with Pfeiffer Vacuum (Schweiz) AG, Zurich, Switzerland. Pfeiffer Vacuum Asia Ltd., Hong Kong, China, ceased all business activities and was closed.

D.    Property, Plant and Equipment

     The Company is the owner of an approximately 80,000 m² (861,000 ft²) site in Asslar, Germany. The buildings in which the corporate Headquarters, main sales and marketing office and manufacturing operations are housed consist of approximately 41,000 m² (441,000 ft²) of floor space. The main part thereof is owned by the Company, only approximately 7,000 m² (75,000 ft²) are leased from a charitable foundation. Pfeiffer leases approximately 13,000 m² (140,000 ft²) of its own real property to third parties.

During fiscal year 2004, approximately 6,000 m² (65,000 ft²) of leased floor space were available for the manufacturing, sales and marketing and administrative operations of the Company’s subsidiary Pfeiffer Vacuum Systems GmbH in Aschaffenburg, Germany. The subsidiary’s place of business relocated in November 2004 from Aschaffenburg to Headquarters premises in Asslar. Lease contracts of the Aschaffenburg facility are terminated. In addition, the Company leases premises for sales and service subsidiaries in various countries.

The Company manufactures vacuum pumps, vacuum equipment and vacuum systems at the production location in Asslar, Germany.

The Company’s production capacity at its manufacturing facility in Asslar enables Pfeiffer Vacuum to complete all its orders in adequate time attend to its delivery promises. The “Alliance for Work” that was mutually agreed with the Employee Council in 2003 and the flexibilization of working hours permitted the Company to conform the rate of capacity utilization to the order situation. The employees’ negative time account balances were able to be used during months in which there was increased demand for Pfeiffer Vacuum’s products. A further effect was the ability to retain qualified, well-trained employees.

All capital investments are financed through the Company’s cash assets.

Pfeiffer Vacuum regularly monitors and assesses all relevant environmental factors. Its environmental management system was reviewed by an independent certifier in connection with a follow-up audit in September 2004. The Company passed the audit without any complaints. A new certificate under ISO 14001:1996 was issued for further three years. The items that were audited included handling of hazardous materials and water pollutants (coolant-lubricants, oils, cleaning agents, paints, solvents). Proper storage of hazardous materials was also monitored. No material variances from legal requirements and the criteria defined in the quality handbook were identified.

The Company’s risk potential was again reviewed and assessed with respect to required preventive measures, in connection with which an improved concept was developed for flood protection. All relevant environmental factors are regularly monitored and assessed. Ten environmental audits were conducted during the course of the year. The items that were audited included compliance with legal requirements in handling and storing hazardous materials. No material variances were identified.

In 2004, a total of 32 job safety audits were conducted, 14 of them together with the plant medical service and the employee council. In addition, three audits were conducted together with the environmental protection and fire protection coordinators. The job safety committees held a total of six meetings. All employees are familiarized with the requirements relating to job safety, noise abatement, handling of hazardous materials, accident and fire prevention. Every employee has access to the required EU safety data sheets and standard operating procedures in the quality handbook.

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The Company’s job safety organization and job safety measures were reviewed in September 2004 in connection with the audits under ISO 9001:2000 and ISO 14001:1996 and certified without restriction.

The number of reportable on-the-job accidents in 2004 increased marginally from the previous year’s level, from eleven to twelve. No on-the-job accident was found to have been caused by a technical shortcoming or by the lack of safety equipment.

Item 5.    Operating and Financial Review and Prospects

Introduction

     The Company’s Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

The comparability of the financial statements for different periods may be affected by the effects of currency translation resulting from Pfeiffer Vacuum’s international operations, most notably as a result of changes in the exchange rate between the euro and the U.S. dollar.

Inflation

     The rates of inflation in Germany during 2004, 2003, 2002, 2001 and 2000 were 1.9%, 1.1%, 1.3%, 2.5% and 2.3%, respectively. The effects of inflation on the Company’s operations have not been significant in recent years.

Critical Accounting Policies

     The process of preparing financial statements requires the use of estimates on the part of management. The estimates used by management are based on the company’s historical experiences combined with management’s understanding of current facts and circumstances. Certain of the company’s accounting policies are considered critical as they are both important to the portrayal of the company’s financial condition and results and require significant or complex judgment on the part of management. The following is a summary of certain accounting policies considered critical by management of the company.

Revenue Recognition and Accounts Receivable

     The Company recognizes revenue when title and risk of ownership have passed to the buyer. Allowances for doubtful accounts are estimated at the individual operating companies based on estimates of losses related to customer receivable balances. Estimates are developed by using standard quantitative measures based on historical losses, adjusting for current economic conditions and, in some cases, evaluating specific customer accounts for risk of loss.

The determination of reserves requires the use of judgment and assumptions regarding the potential for losses on receivable balances. Though the Company considers these balances adequate and proper, changes in economic conditions in specific markets in which the Company operates could have a material effect on reserve balances required.

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Inventory Valuation

     Management reviews its inventory balances to determine if inventories can be sold at amounts equal to or greater than their carrying amounts. The review includes identification of slow moving inventories, obsolete inventories, and discontinued products. The identification process includes historical performance of the inventory, current operational plans for the inventory, as well as industry and customer specific trends.

Employment Related Benefits

     The Company incurs certain employment-related expenses associated with pensions. In order to measure the expense associated with these employment-related benefits, management must make a variety of estimates including discount rates used to present the value of certain liabilities, assumed rates of return on assets set aside to fund these expenses, compensation increases, employee turnover rates, and anticipated mortality rates. The estimates used by management are based on the Company’s historical experience as well as current facts and circumstances. The Company uses third-party specialists to assist management in appropriately measuring the expense associated with these employment-related benefits. Different estimates used by management could result in the Company recognizing different amounts of expense over different periods of time (See notes to the Consolidated Financial Statements 13. “Pension Benefits and Similar Obligations”).

New Accounting Rules and Accounting Standards

     For detailed explanation please see Notes to the Consolidated Financial Statements “Adoption of New Accounting Rules and Accounting Standards”.

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A.    Operating Results

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     The following discussion should be read in conjunction with the Financial Statements and notes thereto included elsewhere herein.

2004 Compared to 2003
(Variances and percentages calculated based on amounts in thousands €)

Net Sales

     The following table summarizes the Company’s net sales by geographical area:

The Company’s net sales increased by € 12.2 million or 8.5% from € 144.0 million for the year ended December 31, 2003 to € 156.2 million in 2004. This sales increase is primarily attributable to higher volume. Additionally, a modest growth in Pfeiffer Vacuum’s major markets and the introduction of new products led to a positive effect.

The major increase of the Company’s sales was recorded in Germany by € 6.6 million from € 40.4 million in 2003 to € 47.0 million in 2004. Germany continues to be the largest market within Europe. Sales in Europe (excluding Germany) increased by € 1.0 million. The major factor that contributed to this development was a sales increase in Switzerland, which rose from € 6.5 million to € 8.7 million and in Austria, which rose from € 6.4 million to € 8.1 million, respectively. In France, sales declined from € 6.4 million in 2003 to € 4.8 million. The sales increase in the U.S. accounted for € 0.3 million, only. The sales recorded in U.S. dollar increased by approximately 11.5%, but due to the weakness of the U.S. dollar against the euro the Company’s net sales were adversely impacted by exchange rate differences amounting to approximately € 3.3 million. In Asia the Company was able, to realize a sales increase by € 4.0 million or 18.4%.

The Company’s Products

     For more than 100 years, Pfeiffer Vacuum has been setting milestones in vacuum technology with its products. The extensive line of products and services ranges from individual components right through to complex vacuum systems.

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Any number of high-tech products and articles that are used in daily life can only be manufactured in chambers in which a vacuum prevails that is comparable to the pressure conditions that exist in outer space. True to the motto “Vacuum is nothing, but everything to us” Pfeiffer Vacuum takes pride in finding the right vacuum technology solution for every customer and every application.

The Company’s sales by product accounted for:

Vacuum generation pumps

     Different types of pumps are required for different pressure ranges. In the case of the low and medium vacuum ranges, these are primarily rotary vane and Roots pumps, as well as dry pumps. Turbomolecular pumps, or turbopumps for short, are needed for the high and ultra-high vacuum ranges.

Accounting for 38.1% of total sales in 2004 (2003: 37.2%), the Company’s most important product is the turbomolecular pump. This class of pumps was invented at the Company nearly 50 years ago, and has since been steadily evolved. Pfeiffer Vacuum has since sold over 250,000 turbopumps worldwide.

Turbopumps are available in a wide range of sizes — from the world’s smallest, the TPD 011 for the analytical industry, right through to large 3,000-liter pumps, which are primarily employed in the coating and semiconductor industries. Responding to market needs, Pfeiffer Vacuum has developed small, compact turbopumps and have further optimized performance and reliability specifications.

Turbopumps always require so-called backing pumps in order to compress the advanced gas against the atmosphere and expel it. Proven rotary vane or diaphragm pumps are employed as backing pumps. They cover the vacuum range from atmospheric pressure to a maximum of 10^-3 mbar.

The Company’s single- and two-stage rotary vane pumps offer volume flow rates of from 2.5 to 630 m³/h. They are suitable for all applications in the low and medium vacuum ranges and can be employed as backing pumps for turbomolecular and Roots pumps.

The Roots pumps are characterized by an optimum ratio between volume flow rate and size. The effect of these pumps is produced by the synchronized counter-rotation of two octagon-shaped rotors. The volume flow rates of the various pump sizes range from 250 to 25,000 m³/h.

The standard Roots pumps in the so-called A-Series can be employed for a wide variety of applications, such as in the coating industry, space simulation chambers, vacuum metallurgy or freeze-drying plants and in the packaging industry.

During the year covered by this report, Pfeiffer Vacuum brought the world’s first series of magnetically coupled Roots pumps to market. Their volume flow rates range from 250 to 6,000 m³/h. These hermetically sealed pumps make oil leakage a thing of the past, and their operating costs are significantly lower. Because of their very low leakage rates, magnetically coupled Roots pumps are employed in both thin-layer technology as well as in industrial processes that involve toxic and aggressive gases.

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The ADEx Series was brought to market this year specifically for processes in explosion-hazard environments or to evacuate explosive gases. These Roots pumps satisfy the explosion-hazard requirements of EU Directive 94/9 and are especially interesting for customers in the chemicals and pharmaceuticals industries.

To complement the standalone pumps, Pfeiffer Vacuum also offers a broad range of Roots pumping stations. In addition to its proven standard pumping stations, in which various sizes of Roots pumps are combined with rotary vane backing pumps, the Company also offers process-adapted pumping stations as customer-specific solutions.

The backing pump line is rounded out by a number of dry pumps. A dry pump does not require lubricants in the pump chamber, thus making it especially suitable for applications in the semiconductor industry, for example, in which oil residues could endanger the process. Dry pumps also include small diaphragm pumps, whose volume flow rates of from 1 to 10 m³/h make them especially suitable as backing pumps for small turbopumps. They are predominantly employed in analytical equipment.

The Company’s sales in backing pumps increased from € 18.0 million to € 19.7 million by € 1.7 million or 9.4%.

Vacuum measurement and analysis equipment

     Pfeiffer Vacuum not only offers its customers products for generating vacuum. Vacuum measurement and analysis equipment is just as necessary. In vacuum technology processes, it is not only important to generate a vacuum, it is equally important to be able to identify and control the quality of this vacuum. There is no one single instrument that can measure the entire vacuum range of the vacuum that has been generated. This is why Pfeiffer Vacuum offers three different series of total pressure measurement instruments: The ActiveLine, a cost-effective solution for total pressure measurement in a vacuum; the DigiLine, consisting of digitally controlled gauge heads for industrial applications in which robustness and reliability are key; and the ModulLine for radiation-resistant total pressure measurement in ultra-high vacuum environments in research & development.

In production processes, it is often not only important to know “how much” is in something, but also “what it is.” A mass spectrometer can be used to analyze the composition of a gas mixture in a production system. One of the applications for portable mass spectrometers is in environmental analysis. Pfeiffer Vacuum supplies a broad portfolio of mass spectrometers, ranging all the way to high-performance mass spectrometers for plasma analysis in coating processes and semiconductor fabrication.

Leaks can occur in even the best systems. These leaks are detrimental to the process and result in quality shortcomings. Leak detectors are employed to identify these kinds of effects that are harmful to the production process. The helium leak detectors offered by Pfeiffer Vacuum are characterized by high accuracy combined with robustness and industrial suitability. Typical applications include leak detection in refrigerators, air conditioning systems, piping systems and pressure vessels.

The Company’s product portfolio is rounded out by a broad selection of installation instruments and components; these might be valves, gaskets, seals, flanges and fasteners. Its customers require these components whenever they build a vacuum system themselves.

The sales in vacuum measurement and analysis equipment increased from € 35.2 million in 2003 to € 42.5 million in 2004. The percentage of total product sales accounted for 27.2%, as opposed to 24.4% in 2003.

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Vacuum systems

     In addition to individual vacuum components, such as pumps, measurement equipment and components, Pfeiffer Vacuum also develops and manufactures complete vacuum systems for customer-specified processes. Such systems comprise the following assembles: Recipient (vacuum chamber), vacuum pump or vacuum pumping station, measurement and regulating equipment, as well as electrical/electronic control.

Products in the systems segment also include helium leak testing systems, or leak detection systems for short. Environmental protection, quality assurance and cost optimization are placing very high demands on the leak-free integrity of numerous components, such as vehicle fuel tanks, aluminum wheel rims, chilled water piping and compressors or air conditioning systems, as well as food packaging and pressure vessels. On the one hand, it is necessary to satisfy increasingly strict legal limits and quality requirements, while minimizing testing times and operating costs on the other. Pfeiffer Vacuum employs innovative measurement technology and process-adapted automation technology to satisfy these requirements. Its custom-designed helium leak testing systems thus satisfy the highest demands with respect to efficient quality assurance.

Products in the vacuum systems segment also include Type Classic coating systems. These are single-chamber systems that are predominantly employed in the fields of optics, sensor technology and semiconductor fabrication. A Classic system can be used to produce coatings by means of vapor-deposition, plasma or sputtering processes.

One interesting activity with potential for the future is to retrofit existing vapor-deposition systems. Over a thousand of these systems for such optical systems as binocular lenses, night vision goggles and eyeglasses are out in the market. Although fully functional, they are technologically outmoded. In many cases, for example, no replacement parts are any longer available for the control system. However since many customers shy away from the costs of a new acquisition, Pfeiffer Vacuum offers a modular retrofit concept for these systems, in which the vacuum technology is made state of the art and the control system is equipped with cutting-edge computer technology. Four of these systems were modernized in 2004.

In 2004, the percentage of total sales accounted for by all vacuum systems (included DVD) amounted to 6.1%, as opposed to 7.9% in 2003.

Service

     Service for its products is a line of business in its own right within the Company’s product portfolio. A close-knit worldwide service network assures that prompt assistance can be provided to its customers. Service includes maintenance, repair or replacement of products at the factory or on the customer’s premises and supply of replacement parts. In contrast to most of Pfeiffer Vacuums competitors, it guarantees on-site service and a 24-hour response time for replacement or repair of its pumps in all major industrialized nations.

Service sales decreased in 2004 by € 0.9 million or 3.5% and accounted for 16.0% of total sales revenue, as opposed to 18.0% in 2003.

Order-intake and Order-backlog

     The Company’s order intake increased by € 5.1 million or 3.4%, from € 150.2 million for the year ended December 31, 2003 to € 155.3 million for the year ended December 31, 2004. Order intake in turbo pumps increased by € 3.1 million, in backing pumps by € 2.2 million and vacuum components and instruments by € 9.3 million, partly offset by decreased orders received in systems by € 8.0 million, and service by € 1.0 million.

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The backlog decreased slightly by € 0.9 million or 3.3%, from € 27.2 million as of December 31, 2003 to € 26.3 million as of December 31, 2004. The majority of the decrease was related to systems which declined by € 3.5 million, partly offset by increased orders in vacuum components and instruments by € 2.4 million.

Contracts are included in backlog only if they represent firm orders and include firm shipping schedules. The backlog position at any particular time generally should not be construed to represent future levels of sales and orders.

Gross Profit

     The Company’s gross profit amounts to € 62.3 million in both, the years ended December 31, 2004 and 2003. Gross margin, which is gross profit expressed as a percentage of net sales, decreased from 43.3% in 2003 to 39.9% in 2004. The gross profit is adversely impacted by effects due to Pfeiffer Vacuum’s withdrawal from the DVD business amounting to approximately € 6.1 million, thereof € 5.3 million in the valuation adjustment of inventories, € 0.5 million termination benefits and € 0.3 million impairment charges on fixed assets. Through the higher percentage of sales accounted for in products with higher gross margins, the Company succeeded in largely compensating for the € 6.1 million negative effect stemming from its DVD business. As a result, the Company’s gross margin would have been 43.8% in 2004.

Selling and Marketing Expenses

     Selling and marketing expenses decreased by € 0.9 million or 4.4% from € 20.9 million in 2003 to € 20.0 million in 2004. Permanent worldwide cost management led to decreased selling and marketing expenses. Continuing education measures to assure that the Company’s sales people’s knowledge is always up to date are offered by both, the in-house staff and external lecturers. This included training in the subject of customer-driven advisory services and price negotiations for staff from customer service, as well as on modern techniques of moderation for sales and marketing staff. The service staff is trained in how to effectively plan and conduct on-site technical training. Two dedicated in-house employees provide technical training for employees and customers. Further employees from Marketing, Development and Service can be called in on an as-needed basis to lecture at training courses.

A broad course curriculum offers training in German and English on new and existing products to all sales and service staff. As a percentage of sales, selling and marketing expenses decreased from 14.5% in 2003 to 12.8% in 2004. Additionally, higher net sales revenue of the Company led to a decrease in the percentage of its selling and marketing expenses. Additionally, the selling and marketing expenses were burdened with approximately € 0.3 million termination benefits due to its withdrawal from DVD business.

Advertising expenses accounted for € 1.7 million for the period ended December 31, 2004.

General and Administrative Expenses

     The general and administrative expenses increased by € 1.0 million, or 7.8%, from € 13.0 million in the year ended December 31, 2003 to € 14.0 million in 2004. As a percentage of sales, general and administrative expenses decreased slightly from 9.0% in 2003 to 8.9% in 2004.

In 2004, the special item due to the withdrawal from DVD business adversely impacted the general and administration expenses by approximately € 1.2 million, thereof € 1.0 million losses in goodwill impairment and € 0.2 million due to termination benefits.

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Nevertheless, the Company’s ability to administer all needs of administration with a small staff at Headquarters as well as at the subsidiaries led to flat general and administration expenses in the years 2004 and 2003. Additionally, the increased revenues in 2004 had a positive effect on the percentage of sales.

Research and Development Expenses

     With the objective of continuing to satisfy its customers’ needs in the future, the Company continuously invests in the development of new and innovative products. Nearly 50 years ago, the turbomolecular pump was invented at Pfeiffer Vacuum. Today, it is a generic name for an ideal vacuum pump for generating high and ultra-high vacuum in an extremely varied range of potential applications. Pfeiffer Vacuum has steadily broadened its technology leadership in this class of pumps, bringing a number of evolved models to market during the period ended December 31, 2004. Through its research and development expenses Pfeiffer Vacuum will combat the risk of insufficient innovation. In addition, maintaining high standards of quality is a top priority of the Company as a manufacturer of high-tech quality products.

The Company’s research and development expenses increased by € 1.3 million, or 14.8%, from € 8.9 million in the year ended December 31, 2003 to € 10.3 million in 2004. An amount of approximately € 1.1 million is attributable to revaluations in the fixed assets and € 0.2 million termination benefits that were necessary in connection with the withdrawal from DVD business.

The percentage of research and development expenses related to Pfeiffer Vacuum’s net sales revenue accounted for 6.6% in 2004 and 6.2% in 2003. The Company expenses all research and development costs as they are incurred and anticipates that future spending on research and development will be comparable to current levels.

Operating Profit

     Operating profit for the year ended December 31, 2004 amounted to € 18.1 million, and decreased by € 1.4 million from € 19.5 million in 2003. The Company’s decision to withdraw from the DVD business impacted the gross profit adversely by approximately € 8.9 million (thereof € 6.1 million in cost of sales, € 0.3 million in selling and marketing expenses, € 1.2 million in general and administration expenses and € 1.3 million in research and development expenses).

Interest Income and Interest Expense

     Net amount of interest income decreased by € 0.4 million from € 1.6 million in the year ended December 31, 2003 to € 1.2 million in 2004.

Foreign Exchange Gain/Loss

     The Company recorded foreign exchange gains amounting to € 0.4 million and € 2.1 million in the periods ended December 31, 2004 and 2003, respectively.

Income Tax Expense

     The Company’s effective tax rate was 40.8% and 45.0% in the years ended December 31, 2004 and 2003, respectively.

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In 2004, the Company generated taxable income of € 12.3 million in Germany and € 7.3 million outside Germany. The Company’s current tax expense decreased from € 11.5 million in 2003 to € 6.9 million in 2004. The German statutory tax rate decreased from 39.5% in 2003 to 37.9% in 2004 and led to lower tax expenses in 2004 amounting to approximately K€ 200. Additionally, in the year 2003 the German Tax Authorities passed a resolution (effective April 12, 2003) regarding the refund of corporation tax credits resulting from distributed earnings to the shareholders. The Company’s dividend payments for the year 2002, paid in 2003, were no longer eligible for tax credit. Accordingly, the Company’s tax credit for the year 2003 amounting to approximately € 0.9 million was retroactively uncollectible and had to be added to the current tax expenses of the year 2003.

For further information see Note 11 to the Notes to Consolidated Financial Statements.

Net Income

     Net income decreased from € 12.7 million in 2003 to € 11.6 million in 2004, primarily as a result of the factors discussed above.

2003 Compared to 2002
(Variances and percentages calculated based on amounts in thousands €)

Net Sales

     The following table summarizes the Company’s net sales by geographical area:

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.

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In the semiconductor industry, the Company was able to qualify itself at major German production facilities with its turbopumps for ion implanters, in both retrofit and new product business. All major German manufacturers in the field of mechanically resistant coating — which is defined as the application of anti-wear coatings on drills and cutting tools — employ the Company’s vacuum products because of their engineering superiority. Stagnation among end-customers in Europe and the United States was able to be partially offset through strong growth in China.

There were new and innovative application examples at various industrial customers, such as electron beam welding systems for the aerospace industry, or in conjunction with recycling of galvanized steel by means of VOD (vacuum oxygen degassing) processes.

Europe (excluding Germany)

     The sales in Europe decreased by € 2.6 million from € 50.9 million in fiscal 2002 to € 48.3 million in fiscal 2003. The new European Union member countries are expected to bring sales growth in Europe over the medium term. In most of the countries of Europe, the Company suffers — just as its competitors — from a hesitancy to invest on the part of industry due to the unsettled state of economic development and a lack of government research grants.

Several highlights from various countries in Europe:

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.

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

Several success stories from the United States:

Asia and the Rest of the World

     The Company recorded in the Rest of World (including Asia) sales decreases amounting to 1.2 million.

Economic growth differed significantly in the countries of Asia. The Chinese market offers huge growth opportunities. The most important growth market for Pfeiffer Vacuum in Asia is China. However, the Company will additionally be further expanding its existing presence in Japan, Taiwan, India, Korea and the other countries of Asia.

In China, the Company further expanded its presence with the assistance of its agency. A new service center was established in Shanghai. The greatest success this year in China was the breakthrough in the glass coating segment. The country’s largest production system, as well as a further system, is being equipped with Pfeiffer pumps.

In Korea, Pfeiffer Vacuum succeeded in displacing competition products with the turbopumps on all tools at one of the largest manufacturers of semiconductor storage devices.

The most important countries outside Asia in which Pfeiffer Vacuum is represented through agencies and service points include Australia, Israel, South Africa and Brazil.

The crucial factors for this customer were the better performance specifications and reliability of the Company’s pumps, as well as its better service. In India, Pfeiffer Vacuum succeeded in displacing competition products at two OEM manufacturers. In Japan, the Company is the most important supplier of vacuum pumps for manufacturers of analytical equipment and for research & development facilities. The analytical market again suffered from economic stagnation this year. Even though sales declined, Pfeiffer Vacuum was able to retain its market share. For the first time, it also succeeded in gaining a foothold in the Japanese semiconductor industry, which had previously been difficult to enter. 25 large turbopumps from competitors in existing tools were replaced by higher-performance Pfeiffer Vacuum pumps.

The Company views growth potential in the coming year first and foremost in China, especially in the glass coating, flat panel display and semiconductor segments. In Japan, there are several projects in the analytical market that are up for decision in 2004, and the agencies in Japan, Taiwan and China are expected to benefit from the recovery of the semiconductor market.

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The Company’s sales by product accounted for:

Order-intake and Order-backlog

     Orders received by the Company increased by € 4.7 million or 3.2%, from € 145.5 million for the year ended December 31, 2002 to € 150.2 million for the year ended December 31, 2003. The majority of this increase was attributable to an increase in orders of turbo pumps.

The Company’s backlog increased by € 6.3 million or 30.1%, from € 20.9 million as of December 31, 2002 to € 27.2 million as of December 31, 2003. The majority of the increase was related to turbo pumps. Contracts are included in backlog only if they represent firm orders and include firm shipping schedules. The backlog position at any particular time generally should not be construed to represent future levels of sales and orders.

Gross Profit

     The Company’s gross profit decreased by € 6.1 million or 8.9%, from € 68.4 million in the twelve months ended December 31, 2002 to € 62.3 million in the twelve months ended December 31, 2003.

Gross margin, which is gross profit expressed as a percentage of net sales, decreased from 45.3% in 2002 to 43.3% in 2003. Declining sales and rising cost of sales led to the lower margin. An essential part of this decrease is due to negative exchange rate differences between the strong euro against the U.S. dollar which accounted for approximately € 5.5 million. Additionally the slight decline in the plant utilization rate due to the weakening economy led to a lower gross profit.

Saving on external services and postponing capital investments produced further cost reductions. Another measure that was instituted, although it will not translate into cost savings until the economy revives, was to expand the flexible work time hours-worked accumulation total to minus 150 hours per employee. These paid but unworked hours will then be available at no cost when the economy recovers.

Selling and Marketing Expenses

     Selling and marketing expenses decreased € 3.2 million or 13.3% from € 24.2 million in 2002 to € 20.9 million in 2003. The worldwide reorganization and streamlining of the Company’s sales organization led to cost reductions. As a percentage of sales, selling and marketing expenses decreased from 16.0% in 2002 to 14.5% in 2003. The manpower of the sales and marketing force dropped by approximately 11.6% and led to the decrease in selling and marketing expenses.

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General and Administrative Expenses

     General and administrative expenses increased by € 0.7 million, from € 12.2 million in the year ended December 31, 2002 to € 13.0 million in 2003.

As a percentage of sales, general and administrative expenses increased from 8.1% in 2002 to 9.0% in 2003. The general and administrative expenses in 2003 turned back to the normal level. The Company paid within 2002 employees profit sharings/benefits which were lower than the estimated and accrued amounts, due to its economic situation. The retransfer of the provisions resulted to a positive effect in 2002. Additionally, lower net sales revenue of the Company in 2003 led to an increase in the percentage of its general and administrative expenses.

Research and Development Expenses

     The Company’s research and development expenses decreased by € 1.9 million, or 17.7%, from € 10.8 million in the year ended December 31, 2002 to € 8.9 million in 2003. As a percentage of sales, research and development expenses decreased from 7.2% in 2002 to 6.2% in 2003. Developing new products and evolving its successful existing product portfolio enjoy high priority at Pfeiffer Vacuum. In addition to its own specialists in the engineering and development departments, it also collaborates closely with universities and with companies in Germany and other countries who possess key technologies.

The Company expenses all research and development costs as they are incurred and anticipates that future spending on research and development will be comparable to current levels.

Operating profit

     Operating profit for the year ended December 31, 2003 was € 19.5 million and decreased by € 1.7 million from € 21.2 million in 2002. The weak U.S. dollar affected the operating profit adversely by approximately € 4.2 million.

Nevertheless, the Company reduced personnel-costs, in the production, in sales and administration departments, by implementing a variety of cost reduction measures. The workforce was lowered from 811 to 761 in a socially compatible manner by not renewing temporary employment contracts and not re-staffing the jobs of retiring employees, primarily in Germany and the United States. For the production facility in Asslar, the 35-hour workweek under the collective bargaining agreement was reduced for a stipulated period of time to 32.5 hours per week, with a corresponding reduction in pay. Those staff members to whom the regular pay scale does not apply accepted weekly 2.5 hours overtime without compensation.

Interest Income and Interest Expense

     Interest expense amounting to € 0.2 million for the period ended December 31, 2003 decreased by € 0.3 million, and are primarily due to interest expense entitled of the loan of Kreditanstalt für Wiederaufbau, repaid in 2003. Interest income decreased by € 0.4 million from € 2.2 million in the year ended December 31, 2002 to € 1.8 million in 2003 as a result of lower interest rates and the repayment of the loan (using cash).

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Foreign Exchange Gain/Loss

     The Company’s foreign exchange gain in the year 2002 amounted to approximately € 1.9 million; in 2003 was it approximately € 2.1 million, primarily a consequence of to the weakness of the U.S. dollar against the euro.

Income Tax Expense

     Under current German corporate tax law, taxes on income are composed of corporate taxes, trade taxes and an additional surtax and amount to a combined tax rate of 39.5% for the German companies for the year 2003, and 38.9% for 2002 and 2001, respectively.

For the year 2003 the corporation tax including the additional surtax rate was 28.0% (26.4% for the years 2002 and 2001), the effective rate for trade tax was 11.5% (12.5% for the years 2002 and 2001).

Effective January 1, 2002, a corporation and trade tax entity with corresponding profit and loss transfer agreements was established for the consolidated German companies. Additionally, the Company had a claim to a tax credit on distributed earnings in 2003 for the fiscal year 2002. In conformity to the German Tax Legislation this claim reduced the income tax expense and the income tax rate for the year 2002. Consequently, the effective calculated tax rate in the year ended December 31, 2002 was 29.3%.

On April 11, 2003 the German Tax Authorities passed a resolution — effective April 12, 2003 — regarding the refund of corporation tax credits resulting from distributed earnings to the shareholders. The Company’s dividend payments for the year 2002, paid in 2003, are no longer eligible for tax credit. Accordingly, the Company’s tax credit for the year 2003 was retroactively uncollectible. Beginning December 31, 2005 it is possible, to claim a partial utilisation of the corporation tax credit in light of the circumstances of the case. As a result of this new legislation and among other things the effective tax rate of the Company increased to 45.0% for the fiscal year 2003.

Net Income

     Net income decreased from € 17.5 million in 2002 to € 12.7 million in 2003, primarily as a result of the factors discussed above.

     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, 2004 € 26.3 million, as at December 31, 2003 the Company’s cash flow used in operating activities was € 13.4 million. In particular, this significant improvement was attributable to the fact that the cash flow the year before had been negatively impacted by the transfer of cash and cash equivalents to the pension trust that was formed in 2003 (€ 36.0 million). Additionally, the cash flow provided by operating activities was influenced by the lower net income, overpayments for income taxes through the year 2004 and VAT claims. Net cash provided by operating activities at December 31, 2002 was € 19.6 million. The main reasons for the usage within the year 2003 are explained above. Additionally, the usage of cash flow by operating activities in the year 2003 was influenced by the lower net income and the increased tax liabilities due to new legislation, and decreased inventories in the year ended December 31, 2003 in relation to 2002 by € 2.0 million, primarily in the production plant in Asslar.

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The cash flow used in investing activities decreased by € 6.5 million, due to the purchase of investment securities amounting to € 1.0 million through 2004 and € 9.0 million in 2003 and by the higher capital expenditures amounting to € 3.4 million in 2004 and € 1.9 million in 2003.

Cash flow used in financing activities decreased by € 10.3 million, primarily due to the repayment of the Company’s loan from Kreditanstalt für Wiederaufbau in 2003 amounting to € 9.0 million, and the purchase of treasury stock in 2003 using € 2.4 million, offset by higher dividend payments to the shareholders amounting to € 6.1 million in 2004 (2003: € 4.9 million).

The Company’s working capital is sufficient for its present requirements.

For seven years in a row, Pfeiffer Vacuum has been enabling its shareholders to participate in the Company’s success in the form of a dividend. Because of its high level of cash and cash equivalents, the management and supervisory board will propose to the annual shareholders’ meeting that, in addition to a dividend of € 0.40, a bonus dividend in the amount of € 0.50, totaling € 0.90 per share will be paid (2003: € 0.70). An aggregate dividend of approximately € 6.1 million was approved and paid in 2004.

The Company and its subsidiaries have various lines of credit available for operating purposes of approximately € 11.8 million (2003: € 12.3 million), € 0.9 million and € 0.8 million were used on these lines during 2004 and 2003, respectively. Substantially all of the credit facilities are denominated in euros. These lines of credit are indefinitely and do not include any restriction on use. The Company’s borrowing requirements are not seasonal. Because of its high cash position Pfeiffer Vacuum’s actual usage is solely limited to advance payment guarantees or performance bonds to single customers.

Other than solvency requirements, there are no legal restrictions on the transfer of funds by the Company’s subsidiaries. The subsidiaries are legally independent enterprises, financing their cash obligations through their business activities.

Foreign Currency Exchange Hedging

     The Company enters into foreign currency forward contracts and options to hedge the exposure of its forecasted sales to fluctuations in foreign currency exchange rates. Approximately 38% of the Company’s net sales are denominated in currencies other than the euro. These forward contracts are limited to currencies in which the Company has significant sales, primarily U.S. dollars, and are designed to protect against the impact of changes in exchange rates on these sales. Internal controls assure the effectiveness of all hedging activities. For further Information see item 17 of the Notes to the Consolidated Financial Statements “Financial Instruments — Foreign Currency Exchange Hedging”.

     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.

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Nearly 50 years ago, the turbomolecular pump was invented at Pfeiffer Vacuum. Today, it is still the vacuum pump of choice for high and ultra-high vacuum, offering an extremely varied range of potential applications. Pfeiffer Vacuum has steadily broadened its technology leadership in this class of pumps.

The Company spent € 10.3 million in 2004, € 8.9 million in 2003 and € 10.8 million in 2002 in expenditures for research and development projects.

     The 2004 fiscal year was characterized first and foremost by two factors: A significant improvement in operating profit from the Company’s core business and an impact on profitability stemming from the withdrawal from DVD business.

With the Company’s highly profitable core business, it succeeded in increasing sales by € 12.2 million from € 144.0 million to € 156.2 million in a business environment that was characterized by a weakness of the dollar and a lack of impetus from the development of the global economy. In spite of the cost-reduction measures that were initiated the year before and developed their full effect in 2004, as well as the higher percentage of sales accounted for by products with high gross margins, Pfeiffer Vacuum succeeded in largely compensation for the € 8.9 million negative effect stemming from its withdrawal from DVD business. As a result, operating profit declined only by € 1.4 million from € 19.5 million in 2003 to € 18.1 million in 2004.

Developments in the DVD market as well as the poor track record of payments in this market ultimately necessitated this move. Revaluations of assets in connection with the sale have already been incorporated in the Consolidated Financial Statements for the year ended December 31, 2004. Overall, this special effect impacted adversely Pfeiffer Vacuums statement of income by € 8.9 million. Without this special effect, the operating profit would have risen by 38.5% from the year before, to € 27.0 million. New orders and orders on hand stood at an encouraging level.

World Economy

     Following years of stagnation, it is now fair to speak of a moderate upswing. In 2004, the world economy grew by 4.8 %, stemming in particular from the economic development of the threshold and developing countries. The relatively poor development of the industrialized nations is primarily attributable to the high price of oil and the weak U.S. dollar.

United States

     At 4.4 %, economic growth in the United States in 2004 lagged slightly behind the growth rate of the world economy overall. Aside from the continued low level of interest rates, this growth was fueled primarily by government demand in the armaments sector.

Europe

     Economic development in Europe tended to be sluggish by comparison with the development of the world economy. While the two major economies, France and Germany, saw only modest economic improvement, the countries of Eastern Europe, in particular, posted strong growth rates. Europe saw a 2.4% change in gross domestic product for 2004.

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The noticeable upswing in Germany during the initial months of 2004 flattened in the third quarter. Moreover, the strong euro curtailed the upward trend of export business to countries outside the Euro Zone. Overall, there was a 1.7% change in gross domestic product.

Asia

     The growth of the world economy in 2004 resulted in particular from the development of the Asian economic region. Leaving out of consideration the Japanese economy, which grew at 2.9%, gross domestic product rose by 7.5% here. The market with the strongest growth continues to be the People’s Republic of China with growth of 9.1%.

Vacuum Industry

     As in the year 2003, the vacuum industry was dominated by the influence of the world economy in 2004. Overall, the industry posted modest growth year on year.

Purchasing

     Developments on the international energy market again impacted the Company in the field of purchasing in 2004. Prices for natural gas and electricity continued to rise, for example, having a negative impact on its profitability. The same also applies with respect to the development of steel and aluminum prices. However by entering into long-term framework agreements, Pfeiffer Vacuum succeeded in largely containing the price rises and assuring a supply of the raw materials required for manufacturing operations. Building upon the rigorous utilization of electronic aids — like the Internet, for example — that was begun last year, it was possible to achieve further cost savings in connection with sourcing processes.

For further trend information, please see item A. Operating Results, Management’s Discussion and Analyses of Financial Condition and Results of Operations.

     Not applicable.

Contractual Obligations

     The Company has entered into rental-, leasing- or maintenance-agreements which expire at various dates.

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The table below presents the maximum amount of the off-balance sheet contractual commitments (apart from convertible bonds payable, which are recorded on the balance sheet) as of December 31, 2004, classified by periods in which the contingent liabilities or commitments expire:

The Company did not have capital lease obligations at December 31, 2004.

General

     In accordance with the German Stock Corporation Law (Aktiengesetz), the Company has a supervisory board (Aufsichtsrat) and a management board (Vorstand). The two boards are separate, and no individual may simultaneously be a member of both boards.

In March 2003 the Company established an audit committee. All its individuals are members of the supervisory board.

The management board is responsible for managing the day-to-day business of the Company in accordance with applicable laws, the Articles of Association (Satzung) of the Company and the Internal Rules of Procedure (Geschäftsordnung) of the Company.

The principal function of the supervisory board is to supervise the management board. It is also responsible for appointing and removing the members of the management board. In addition to the requirements of the German Stock Corporation Law, the Articles of Association or the supervisory board may provide that certain major or unusual transactions, for example, those involving large capital expenditures or decisions regarding the strategy of the Company, require the prior consent of the supervisory board. The supervisory board is not, however, involved in the day-to-day business of the Company.

The audit committee supervises the management board and installed controls and procedures to examine the Company’s reporting and book-keeping system.

In carrying out their duties, the members of the supervisory board, the audit committee and the management board must exercise the standard of care of a diligent and prudent businessperson. In complying with this standard of care, the members of the supervisory board, the audit committee and the management board must take into account a broad range of considerations, including the interests of the Company and its shareholders, employees and creditors.

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Management Board (Vorstand)

     The management board of the Company presently consists of two members who are appointed by the supervisory board in accordance with the German Stock Corporation Law. Pursuant to the Articles of Association of the Company, any two members of the management board, or one member of the management board and the holder of a special power of attorney (Prokura), may legally bind the Company.

The management board must report regularly to the supervisory board and the audit committee, in particular, on proposed business policy, budgets and strategy, profitability and on the current business of the Company as well as on any exceptional matters that arise periodically.

Initially in 1996, the members of the management board were appointed by the supervisory board for a term of five years. Later on the members of management board were appointed for terms of up to five years. The normal retirement age for members of the management board is sixty-five, though it is possible for a member of the management board to continue in office beyond this age with the approval of the supervisory board.

Under certain circumstances, such as a serious breach of duty or a bona fide vote of no confidence by the shareholders, a member of the management board may be removed by the supervisory board prior to the expiration of such term. A member of the management board may not deal with, or vote on, matters relating to proposals, arrangements or contracts between himself and the Company.

According to the articles of association of the Company, decisions of the management board are approved by a simple majority of the votes. In the event of a tie, the chairman of the management board (Vorstandsvorsitzender) or, in his absence, the Deputy Chairman, has the deciding vote. Currently, no deputy chairman of the management board has been appointed.

The present members of the management board of the Company are as follows:

Wolfgang Dondorf

     Wolfgang Dondorf (age 61), Chairman of the management board, responsible for Development, Manufacturing, Sales & Marketing and Public Relations, was appointed Managing Director of the Company in July 1994 and has been a member of the management board since 1996 for a five-year term, renewed in 2001. From 1989 to 1994, Mr. Dondorf served as Managing Director of King Plastic GmbH, a plastic components manufacturing company. He has also served as Managing Director of Pulsotronic GmbH from 1982 to 1989, Starkstrom Gummersbach GmbH from 1979 to 1982, and Sprague Electric Inc. from 1971 to 1979. Mr. Dondorf received a master’s degree in electrical engineering (Dipl.-Ingenieur) from RWTH Aachen.

Manfred Bender since April 1, 2004

     Manfred Bender (age 39), was appointed at April 1, 2004 as Chief Financial Officer and responsible for Finance/Controlling, Information Technology, Customer Service, Logistics and Human Resources. He graduated with a degree in business economics (Dipl.-Betriebswirt) from Fachhochschule Giessen-Friedberg, joint the Company in 1998 and was responsible for the Finance and Controlling Department through March 31, 2004. From August 2001 through March 2004 the management board granted Mr. Bender a special power of attorney (Prokura), which grants him the authority to bind the Company with any other member of the management board. Prior to 1998, he served as Controller, Internal Auditor and IT-Manager for Schunk GmbH, a multinational industrial group.

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Amandus Waterkamp through March 9, 2004

     Amandus Waterkamp (age 52), joined the Company in January 2003 and was appointed in April 2003 as Chief Financial Officer (member of the management board). From July 1, 2003 through his dismissal at March 9, 2004 Mr. Waterkamp assumed the duties as Chief Financial Officer of Pfeiffer Vacuum Technology AG. He holds a master degree in Telecommunication Engineering from Fachhochschule Köln and a further master degree in Business Administration and Finance from University of Köln. Prior to 2003 Mr. Waterkamp served with international responsibility at various German companies (Siemens AG, Moeller GmbH) most recently as member of the management board responsible for finance, controlling and IT at an internationally operating corporate group (Harting).

Supervisory Board (Aufsichtsrat)

     In accordance with the Company’s articles of association, the supervisory board consists of six members, four of whom are elected by the shareholders at a general meeting in accordance with the provisions of the German Stock Corporation Law, and two of whom are elected by the employees in accordance with the Labor Management Relations Act (Betriebsverfassungsgesetz 1952).

A member of the supervisory board elected by the shareholders may be removed by the shareholders by a majority of the votes cast at a general meeting of shareholders or for cause by court order of the municipal court (Amtsgericht) upon motion by a simple majority of the members of the supervisory board. Upon request of the works council or at least twenty percent of the employees entitled to elect members of the supervisory board, a member of the supervisory board elected by the employees may be removed by at least three-quarters of the votes cast by the employees entitled to vote. In addition, such member may be removed for cause by a court order of the municipal court upon motion by a simple majority of the members of the supervisory board. The supervisory board appoints a chairman and a deputy chairman from among its members. At least half the members of the supervisory board must be present to constitute a quorum. Resolutions are passed by a simple majority of the supervisory board.

The members of the supervisory board are each elected for a term of five years (the term expires at the end of the general meeting of shareholders in which the shareholders discharge the supervisory board member for the fourth fiscal year following the year in which such member was elected). The terms of the current members of the supervisory board will end as of the date of the general shareholder‘s meeting to be held within the first eight months of the year 2006.

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The following individuals are members of the supervisory board:

Committees of the Supervisory Board:

     The supervisory board has established and maintains the following committees responsible for audit and compensation matters:

Audit Committee:

     In accordance with the Sarbanes-Oxley-Act the Company installed in March 2003 an audit committee. The following individuals are members of the audit committee:

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The audit committee recommends the appointment of independent auditors to be elected by the Company’s shareholders at the annual general meeting. The audit committee also engages the independent auditors, determines their compensation and reviews the scope of the external audit. The audit committee reviews the Company’s quarterly and annual reports and financial statements, taking into account the results of the audits and/or reviews performed by the independent auditors.

Administration Committee:

     The administration committee deals for example such issues as “consent to contracts with members of the supervisory board”.

Management Board Committee:

     The management board committee is responsible for personnel matters relating to the members of the management board. It decides totally independently and without influence as to whether the members of the management board receive a variable compensation element in addition to the fixed element. The management board committee currently uses the following procedure in stipulating the variable salary element (which is closely linked to the management board member’s performance and the Company’s success):

The percentage change in sales and income before and after taxes relative to the year before is determined. The variable element from the previous year is then multiplied by this combined factor.

     The aggregate amount of compensation paid by the Company during the year ended December 31, 2004 to all members of the management board of the Company, as a group, for services in all capacities, was € 1.3 million, including a fixed component amounting to € 0.8 million and a variable component amounting to € 0.5 million. Benefits upon termination of employment of the management board members do not exist.

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The fixed compensation paid to the members of the supervisory board (including the audit committee), as a group, during the year ended December 31, 2004, amounted to K€ 75 (without any variable component).

The aggregate amount set aside or accrued by the Company during the year ended December 31, 2004 to provide pension, retirement or similar benefits for all members of the supervisory board and the management board of the Company, as a group, was € 0.3 million.

     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. See also Item 6. A. Directors, Senior Management and Employees.

     As of December 31, 2004, the Company employed 745 people, 563 of which are in Germany and 182 of which are in other countries. In Germany, employment agreements for employees below management level are generally collectively negotiated between the regional association of the companies within a particular industry and the respective unions. The agreement for “metal workers”, which covers most of the Company’s employees, went into effect on January 1, 2004. Beginning March 1, 2004 the salaries of the Company’s employees increased by 2.2% for 12 months; beginning March 1, 2005 an additional increase by 2.7% for further 12 months was stipulated. Employees at the Asslar facility are represented by a works council. The Company has not experienced any work stoppages during the last ten years. The Company considers its labor relations to be good.

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     The following table includes certain information known to the Company with respect to beneficial ownership of the Company’s Ordinary Shares as of December 31, 2004 by all members of the supervisory board and the management board:

Stock-based Compensation Plans

Employee Participation Program, Term: 2000 through 2005

     On July 10, 2000, the Company issued € 0.6 million in convertible bonds to members of management and key employees of the Company and its subsidiaries at a purchase price equal to 100% of their principal amount. Each convertible bond with a par value of € 128 is convertible into 50 no-par value ordinary shares upon payment of a conversion price. Each holder of convertible bonds may convert up to 30% two years after issuance beginning July 2002, up to 60% three years after issuance beginning July 2003 and up to 100% four years after issuance beginning July 2004, subject to certain closed periods. The last date of conversion is December 9, 2005.

The convertible bonds bear interest at 6% per annum and will be redeemed at 100% of their principal amount on December 10, 2005 unless previously converted. The bonds must be repurchased in the case of termination of employment.

The Company financed the employees’ purchase of such convertible bonds with an interest bearing loan. The loans must be repaid at the execution of conversion rights and are classified as other long-term assets on the balance sheet.

Through December 31, 2004, 2,000 convertible bonds totaling par value approximately € 256,000 were repurchased from employees voluntarily exiting the plan.

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Employee Participation Program, Term: 2002 through 2007

     On July 7, 2002, the Company issued € 0.6 million in convertible bonds to members of management and key employees of the Company and its subsidiaries at a purchase price equal to 100% of their principal amount. Each convertible bond with a par value of € 128 is convertible into 50 no-par value ordinary shares upon payment of a conversion price. Each holder of convertible bonds may convert up to 30% after the annual general meeting of the shareholders in 2004, up to 60% after the annual general meeting of the shareholders in 2005 and up to 100% after the annual general meeting of the shareholders in 2006, subject to certain closed periods. The last date of conversion is December 9, 2007.

The convertible bonds bear interest at 6% per annum and will be redeemed at 100% of their principal amount on December 10, 2007 unless previously converted. The bonds must be repurchased in the case of termination of employment. The Company financed the employees’ purchase of such convertible bonds with an interest bearing loan. The loans must be repaid at the execution of conversion rights and are classified as other long-term assets on the balance sheet.

Through December 31, 2004, 800 convertible bonds totaling par value approximately € 102,400 were repurchased from employees voluntarily exiting the plan.

     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:

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These shareholders have the same voting rights as any other holder of the Company’s ordinary shares.

     The Company did not enter into transactions with related parties in the year ended December 31, 2004, and is not presently proposing to enter into transactions with related parties, that are material either to the Company or any related party, or that are unusual in their nature of conditions. In addition, there are no related party loans outstanding at December 31, 2004.

     Not applicable.

     See Item 18 “Financial Statements.”

Export Sales

     In 2004, the Company exported approximately € 33.1 million or 21.2% of its products manufactured in Germany to the United States and € 76.1 million or 48.7% to other countries. For detailed information please see Item 5. A. Operating Results — Management Discussions and Analyses of Financial Condition and Result of Operations — Net sales.

Legal Proceedings

     In the normal course of business, the Company is subject to various legal proceedings and claims. The Company believes that the matters the Company is aware of will not have a material effect on its financial condition or results of operations. The Company it not aware of any unasserted claims that may have an adverse effect on its financial condition or results of operation.

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Policy on Dividend Distributions

     The management board proposes dividends based on Pfeiffer Vacuum Technology AG’s year-end unconsolidated financial statements. Aggregate cash dividend of € 0.40 per ordinary share and an additional bonus dividend of € 0.30 per ordinary share was approved and paid in 2004. In 2003 an aggregate cash dividend of € 0.56 per ordinary share was approved and paid. A similar cash dividend of € 0.40 per ordinary share and an additional bonus dividend of € 0.50 per ordinary share has been proposed and is expected, upon final approval by the shareholders of the Company, to be paid in 2005. The Company has declared an annual dividend since 1998.

     Not applicable.

     Items 9.A.1-3, and 5-7, B, D, E, and F are not applicable.

Trading of ADRs on the New York Stock Exchange since July 1996
(International Securities Identification Number: ISIN US7170671025 — Stock Symbol: PV)

     The table below sets forth, for the periods indicated, the high and low closing sales prices in U.S. dollars for the ADRs on the NYSE, as reported on the NYSE Composite Tape.

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On January 31, 2005, the closing sales price per ADR was $ 47.00 as reported on the NYSE Composite Tape. This price was equivalent to € 36.06 per ADR, translated at the noon buying rate for euros on that date. For additional information regarding rates of exchange between the U.S. dollar and the euro, please refer to “Exchange Rate Information” in “Item 3. Key Information.”

Trading of Ordinary Shares on the Frankfurt Stock Exchange since April 1998
(International Securities Identification Number: ISIN DE0006916604 — Stock Symbol: PFV)

     The Ordinary Shares are listed and principally traded outside the United States on the Frankfurt Stock Exchange, where high and low closing sales prices have been expressed in euros since January 1, 1999.

The table below presents, for the periods indicated, the high and low closing sales prices in euros for the Ordinary Shares on the Frankfurt Stock Exchange, based on the exchange from euros to U.S. dollars at the Noon (Buying) Rate, in each case as in effect on the last trading day of the periods presented.

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