Pfeiffer Vacuum Technology AG — Audit Report / Information 2002

Jul 23, 2003

Pfeiffer Vacuum Technology AG 2002 Exempting Consolidated Financial Statement ( § 292a HGB)

Pfeiffer Vacuum Technology AG Berliner Strasse 43 · D-35614 Asslar English Translation of:

Independent Auditors` Report

We have audited the consolidated financial statements, comprising the balance sheet, the income statement and the statements of changes in shareholders´equity and cash flows as well as the notes to the financial statements, prepared by the Company Pfeiffer Vacuum Technology AG for the business year from January 01, 2002 to December 31, 2002. The preparation and the content of the consolidated financial statements are the responsibility of the Company´s executive board. Our responsibility is to express an opinion whether the consolidated financial statements are in accordance with United States Generally Accepted Accounting Principles based on our audit.

We conducted our audit of the consolidated financial statements in accordance with German auditing regulations and generally accepted standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer (IDW). Those standards require that we plan and perforn the audit such that it can be assessed with reasonable assurance wether the consolidated financial statements are free of material misstatements. Knowledge of the business activities and the economic and legal environment of the Group and evaluations of possible misstatements are taken into account in the determination of audit procedures. The evidence supporting the amounts and disclosures in the consolidated financial statements are examined on a test basis within the framework of the audit. The audit includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements give a true and fair view of the net assets, financial position, results of operations and cash flows of the Group for the business year in accordance with US-GAAP.

Our audit, which also extends to the goup management report prepared by the executive board for the business year from January 01, 2002 to December 31, 2002, has not led to any reservations. In our opinion, on the whole the group management report together with the other disclosures in the consolidated financial statements provides a suitable understanding of the Group´s position and suitably presents the risks of future development. In addition, we confirm that the consolidated financial statements and the group management report for the business year January 01, 2002 to December 31, 2002 satisfy the conditions required for the Company´s exemption from its obligation to prepare consolidated financial statements and the group management report in accordance with German law.

Frankfurt am Main, February 3rd, 2003

Ernst & Young Deutsche Allgemeine Treuhand AG Wirtschaftsprüfungsgesellschaft

gez. Wallenborn gez. Havas

Wallenborn Havas Wirtschaftsprüfer Wirtschaftsprüfer

PFEIFFER VACUUM TECHNOLOGY AG CONSOLIDATED STATEMENTS OF INCOME

	Year ended December 31,
	2002	2001	2000
	€	€	€
	(in thousands, except per share data)
Net sales Cost of sales. Gross profit	150,942 (80,318) 70,624	170,140 (93,117) 77,023	184,678 (101,765) 82,913
Selling and marketing expenses. General and administrative expenses . Research and development expenses. Depreciation Goodwill amortization	(23,215) (11,213) (10,400) (4,627) −	(24,682) (11,413) (8,064) (4,569) (120)	(24,025) (10,925) (7,631) (3,805) (1,038)
Operating profit	21,169	28,175	35,489
Interest expense Interest income Foreign exchange gain (loss).	(525) 2,228 1,946	(605) 2,440 (610)	(582) 1,790 (2,635)
Income before income tax Income taxes:	24,818	29,400	34,062
Current. Deferred	(7,513) 230	(10,510) (19)	(15,917) 937
	(7,283)	(10,529)	(14,980)
Net income	17,535	18,871	19,082
Earnings per ordinary share and ADR:
Basic	1.99	2.16	2.24
Diluted .	1.99	2.16	2.21

PFEIFFER VACUUM TECHNOLOGY AG CONSOLIDATED BALANCE SHEETS

		December 31,
	2002	2001
	€	€
		(in thousands)
ASSETS
Cash and cash equivalents .	72,264	65,035
Trade accounts receivable – net (Note 3)	21,937	24,788
Other accounts receivable .	3,164	3,714
Inventories - net (Note 4)	22,403	20,448
Prepaid expenses .	562	1,186
Deferred tax assets - net (Note 12)	775	274
Other current assets.	713	205
TOTAL CURRENT ASSETS	121,818	115,650
Property, plant and equipment - net (Note 5)	28,434	30,184
Deferred tax assets – net (Note 12)	2,731	2,783
Goodwill .	1,037	1,037
Other assets (Note 6).	1,476	950
TOTAL LONG-TERM ASSETS	33,678	34,954
TOTAL ASSETS	155,496	150,604
LIABILITIES AND SHAREHOLDERS' EQUITY
Current portion of long-term debt	1,291	1,291
Trade accounts payable	5,752	7,608
Accrued other liabilities (Note 10) .	9,188	10,436
Income tax liabilities .	2,317	5,414
Customer deposits.	1,938	1,840
TOTAL CURRENT LIABILITIES.	20,486	26,589
Long-term debt (Note 7) .	7,746	9,037
Convertible bonds (Note 8) .	1,011	563
Accrued pension (Note 9) .	33,615	30,883
Minority interests	130	130
TOTAL LONG-TERM LIABILITIES	42,502	40,613
SHAREHOLDERS' EQUITY (Note 11)
Share capital (8,790,600 shares authorized, issued and
outstanding at December 31, 2002 and at December 31, 2001). .	22,504	22,504
Additional paid-in-capital.	2,821	2,821
Retained earnings .	65,870	53,258
Accumulated other comprehensive income.	1,313	4,819
TOTAL SHAREHOLDERS' EQUITY.	92,508	83,402
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	155,496	150,604

PFEIFFER VACUUM TECHNOLOGY AG CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

	Share capital	Additional paid-in capital	Retained earnings	Minimum pension liability	Cumulative translation adjustment	Unrealized on hedges	Total gain/(loss) shareholders' equity
				(in thousand €)
Balance at January 1, 2000. .	21,635	1,560	22,951	-	2,297	(486)	47,957
Dividends paid .			(3,327)				(3,327)
Bonds converted.	430	624					1,054
Net income			19,082				19,082
Components of other
comprehensive income .				(19)	1,243	1,117	2,341
Comprehensive income.							21,423
Balance at December 31, 2000	22,065	2,184	38,706	(19)	3,540	631	67,107
Dividends paid .			(4,319)				(4,319)
Bonds converted.	439	637					1,076
Net income			18,871				18,871
Components of other
comprehensive income .				19	1,088	(440)	667
Comprehensive income.							19,538
Balance at December 31, 2001	22,504	2,821	53,258	-	4,628	191	83,402
Dividends paid .			(4,923)				(4,923)
Net income			17,535				17,535
Components of other
comprehensive income				(656)	(3,068)	218	(3,506)
Comprehensive income.							14,029
Balance at December 31, 2002	22,504	2,821	65,870	(656)	1,560	409	92,508

PFEIFFER VACUUM TECHNOLOGY AG CONSOLIDATED STATEMENTS OF CASH FLOW

	Year ended December 31,
	2002	2001	2000
	€	€	€
		(in thousands)
Cash flow provided by operating activities:
Net income.	17,535	18,871	19,082
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation	4,627	4,569	3,805
Goodwill amortization	−	120	1,038
Loss (gain) on disposal of fixed assets	(35)	(116)	11
Deferred taxes.	(230)	19	(937)
Provision for doubtful accounts .	850	108	904
Effects of changes in operating assets and liabilities:
Trade accounts receivable.	2,001	3,309	(917)
Other accounts receivable.	550	529	(1,291)
Inventories.	(86)	4,073	(4,650)
Prepaid expenses	624	(443)	382
Other current assets.	(1,009)	433	(11)
Other long-term assets	101	(833)	(187)
Accrued pension liabilities .	2,732	1,425	1,515
Trade accounts payable	(1,856)	(2,014)	(1,437)
Income tax liabilities	(3,097)	(4,914)	2,011
Accrued other liabilities	(1,248)	(4,311)	5,444
Customer deposits	98	(1,131)	197
Net cash provided by operating activities	21,557	19,694	24,959
Cash flow used in investing activities:
Proceeds from disposal of fixed assets .	194	290	79
Capital expenditures.	(2,502)	(9,091)	(13,691)
Acquisition of business assets.	(2,403)	−	(688)
Net cash used in investing activities	(4,711)	(8,801)	(14,300)
Cash flow provided by (used in) financing activities:
Proceeds from (repayments of) borrowings.	(1,291)	4,192	6,136
Dividend payment .	(4,923)	(4,319)	(3,327)
Bonds payable (issuance) .	103	−	26
Bonds payable converted.		1,076	1,054
Net cash provided by (used in) financing activities. .	(6,111)	949	3,889
Foreign currency translation and other comprehensive income adjustments .	(3,506)	667	2,340
Net increase in cash and cash equivalents	7,229	12,509	16,888

PFEIFFER VACUUM TECHNOLOGY AG CONSOLIDATED STATEMENTS OF CASH FLOW -CONTINUED -

	Year ended December 31,
	2002 2001		2000
	€	€	€
		(in thousands)
Net increase in cash and cash equivalents	7,229	12,509	16,888
Cash and cash equivalents at beginning of the year	65,035	52,526	35,638
Cash and cash equivalents at end of the year	72,264	65,035	52,526
Non-cash transactions:
Bonds payable (issuance of employee loans)	448	-	537
Supplemental disclosures:
Cash paid for interest	453	360	443
Cash paid for taxes	7,033	13,016	10,976

1. Basis of Presentation

The consolidated financial statements of Pfeiffer Vacuum Technology AG (hereinafter called "the Company") have been prepared in conformity with accounting principles generally accepted in the United States ("United States Generally Accepted Accounting Principles" or "U.S. GAAP"). All amounts are presented in euros (€).

The German and United States accounting systems are based upon differing views. Accounting under German law (German Commercial Code or "HGB") emphasizes the principle of conservatism and protection of creditors, while the primary objective of the U.S. accounting system is to provide the shareholder with relevant decision-making information. In order to reflect the major differences in various areas, the Company has recorded certain adjustments in its financial statements, principally relating to fixed assets, hedging transactions, goodwill and pension accruals.

Pfeiffer Vacuum is one of the leading full−line suppliers of vacuum technology. With its broad product portfolio, the Company offers solutions for a wide variety of customer applications related to the generation, control and measurement of vacuum. The products developed and manufactured at the main production facility in Germany include turbomolecular pumps, a range of backing pumps, such as rotary vane, Roots and dry pumps, complete pumping stations, as well as customized vacuum systems. Since January 2002, the Company has been developing and manufacturing components and systems at a second manufacturing facility in Aschaffenburg, Germany, for the production of equipment used in the manufacturing of compact and digital video disks (i.e. "CDs and DVDs). The product portfolio is complemented by components used for measuring and controlling vacuum systems, as well as other components.

Pfeiffer Vacuum distributes its products through a network of its own sales offices and subsidiaries, as well as independent marketing agents. Moreover, there are also service support centers in most major industrial locations throughout the world. The Company's primary markets are located in Europe, the United States and Asia.

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 glass and metal, can be bonded to one another in a vacuum chamber. Using 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. These include, for example, architectural glass, coated eyeglass lenses, computer monitors, mobile phone displays, CDs and DVDs, as well as analytical instruments and electron microscopes. Vacuum technology is also required in scientific research and space simulation.

2. Summary of Significant Accounting Policies

Consolidation Principles

The accompanying consolidated financial statements include the financial position, results of operations and cash flow of the Company and its subsidiaries. All significant effects of intercompany transactions have been eliminated.

The financial statements of the Company's foreign operations are measured in the currency in which that entity conducts its business (the functional currency). The functional currency of all the Company's foreign operations is the applicable local currency. When translating foreign functional currency financial statements year-end exchange rates are applied to the asset and liability accounts, while average annual rates are applied to income statement accounts. Adjustments resulting from this process are recorded in a separate component of shareholder's equity.

Foreign currency translation gains and losses resulting from the settlement of amounts receivable or payable denominated in a currency other than the functional currency are credited or charged to income.

Adoption of New Accounting Rules

In June 2001, the Financial Accounting Standards Board issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." Under SFAS No. 142, goodwill acquired within the context of business combinations will no longer be amortized; instead, the value of the goodwill must be subjected to an annual fair value-based test, and any impairment reflected in the annual income statement. Other intangible assets acquired must be valued at cost of acquisition and, insofar as their utilization is limited over time, amortized on a straight-line basis over their estimated useful operational lives. These accounting principles were adopted by the Company effective January 1, 2002.

The Company performed the first required fair value-based test on the carrying value of goodwill at June 30, 2002; no adjustment was necessary. Goodwill amortization was € 120,000 in 2001 and € 1,038,000 in 2000.

Effective January 1, 2002, the Company also adopted the rules set forth in SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." Under SFAS No. 144, an impairment loss must only be recognized if the book value of the asset is no longer covered by the total of the anticipated future undiscounted cash flow from its further utilization. SFAS No. 144 requires that an asset to be abandoned, an asset to be exchanged for a similar productive asset or an asset to be returned to owners in connection with a spinoff must be considered held and used until it is disposed of. Moreover, an asset's remaining useful life must be adjusted if this asset is to be abandoned. The adoption of SFAS No. 144 did not have any impact on the Company's financial position or results of operations.

SFAS No. 148, "Accounting for Stock-Based Compensation, Transition and Disclosure", was issued on December 31, 2002. Statement 148 amends SFAS No. 123, "Accounting for Stock-Based Compensation", to provide alternative methods of transition to Statement 123's fair-value method of accounting for stock-based employee compensation. Statement 148 also amends the disclosure provisions of Statement 123 and APB Opinion No. 28, "Interim Financial Reporting". Statement 148's amendment of the transition and annual disclosure requirements of Statement 123 are effective for fiscal years ending after December 15, 2002, with earlier application permitted. The adoption of SFAS No. 148 did not have any impact on the Company's financial position or results of operations.

New Accounting Standards

In June 2001, the FASB issued Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations" ("SFAS No. 143"), which addresses the financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs.

The provisions of this Statement are effective for the Company beginning fiscal year 2004, with early application encouraged. Management does not expect the adoption of this Statement to have a material impact on the Company's financial position or results of operations.

In April 2002, SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections" ("SFAS No. 145") was issued. SFAS No. 145 rescinds SFAS 4 and 64, which required gains and losses from extinguishment of debt to be classified as extraordinary items. SFAS 145 also amends SFAS 13, eliminating inconsistencies in certain sale-leaseback transactions. The provisions of SFAS No. 145 are effective for fiscal years beginning after May 15, 2002. The Company does not expect that the adoption of SFAS No. 145 will have a material effect on the Company's financial position or results of operations.

SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities", was issued in July 2002. SFAS No. 146 replaces current accounting literature and requires the recognition of costs associated with exit or disposal activities when they are incurred rather than at the date of commitment to an exit or disposal plan. The provisions of the Statement are effective for exit or disposal activities that are initiated after December 31, 2002. The Company does not anticipate the adoption of this statement will have a material effect on the Company's financial position or results of operations.

Derivatives and Hedging Transactions

Effective January 1, 1999, the Company adopted the provisions of SFAS No. 133 issued by the Financial Accounting Standards Board in accounting for its forward currency hedging activities as cash flow hedges. SFAS No. 133 requires the Company to recognize derivative financial instruments as either assets or liabilities at their fair values. Derivatives that are not hedges must be adjusted to fair value through current income. If the derivative is a hedge, depending on the nature of the hedge, changes in fair value are either offset against current income or recognized in other comprehensive income until the hedged item is recognized in earnings. Changes in the fair market value of the derivative transactions (hedging contracts) will continue to be recognized in the corresponding asset or liability items of the balance sheet until the forecasted transaction is recognized in earnings.

Trade Accounts Receivable

Trade accounts receivable are recorded when related revenue is recognized, which is generally at the time of shipment of goods or when installation is completed at the customer's facility. The Company periodically assesses the adequacy of the allowance for doubtful accounts receivable and makes adjustments as approriate based on both specific identification and aging distribution of receivables. The Company charges off uncollectable accounts only when all means of collection are exhausted.

Inventories

Inventories are valued at the lower of cost or market, with cost principally determined on an average cost basis. Allowances are established for slow-moving and obsolete inventories based on historical and projected sales activity.

Property, Plant and Equipment

Property, plant and equipment are carried at cost of acquisition or production and depreciated over the estimated useful lives of the assets on a straight-line basis. The following useful lives are assumed:

Buildings	20-50 years
Machinery and equipment	3-15 years

The Company regularly evaluates the carrying value of property, plant and equipment for impairment on an ongoing basis.

Accrued Liabilities

The valuation of pension and postretirement benefit liabilities is based upon the projected unit credit method in accordance with SFAS No. 87, "Employers Accounting for Pensions".

Other reserves and accrued liabilities are recorded when an obligation to a third party has been incurred and payment is probable and reasonably estimable. Liabilities are shown at amounts payable, which estimate fair market value.

Accounting for Stock-Based Compensation

As permitted under SFAS 123, "Accounting for Stock-Based Compensation", the Company applies the intrinsic value-based method in accordance with APB 25 for its employee convertible bonds stock-based compensation plans. Under APB 25, the Company records no expenses relating to the convertible bonds since the conversion price is equal to or greater than the market price of the Company's ordinary share on the date of grant.

Research and Development

All research and development costs are expensed as incurred.

Repair and Maintenance

All repair and maintenance costs are expensed as incurred.

Advertising

Advertising and promotional costs are expensed as incurred.

Taxes

The Company accounts for certain income and expense items differently for financial reporting purposes than for tax purposes. Income tax and the provisions for deferred taxes are formed in accordance with Financial Accounting Standards Board Statement No. 109, "Accounting for Income Taxes."

Revenue Recognitions

Currently the Company recognizes revenue upon the shipment of its products to the customers, upon provision of service, or when installation is completed at the customer's facility, provided that the Company received a purchase order, the price is fixed, the title has been transferred, collection of resulting receivables is probable, product returns are reasonably estimable, there are no customer acceptance requirements and there are no remaining significant obligations. Revenues under long-term major contracts are recognized using the percentage-ofcompletion method, based on the contract costs incurred to date compared with total estimated contract costs.

Shipping and Handling Costs

Shipping and handling costs are included in net sales as sales reductions.

Warranty Costs

Warranty accruals are established in the period the related revenue is recognized. The estimate is based on managements' estimate and historical experience by specific product type.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.

Use of Estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States (U.S. GAAP) necessitates that estimates and assumptions be made that affect the amounts reported in the financial statements and accompanying notes. These estimates and assumptions could differ from the actual results.

Reclassifications

Certain prior-year amounts have been reclassified to provide comparability with the presentation of the current-year financial statements.

3. Trade Accounts Receivable

Trade accounts receivable consist of the following:

	December 31,
	2002 (€ in thousands)	2001
Trade accounts receivable Allowance for doubtful accounts . Total trade accounts receivable – net .	23,675 (1,738) 21,937	25,948 (1,160) 24,788

A summary of activity in the allowance for doubtful accounts is as follows:

		December, 31
	2002	2001	2000
	(€ in thousands)
Balance at beginning of year. Provision for uncollectible accounts	1,160 850	2,374 108	1,564 904
Collection of previously reserved balances. Accounts written off . Balance at end of year	(240) (32) 1,738	(675) (647) 1,160	- (94) 2,374

Trade accounts receivable have a remaining term of less than one year.

4. Inventories

Inventories consist of the following:

	December 31,
	2002	2001
	(€ in thousands)
Raw materials.	7,078	6,726
Work-in-process	10,018	7,449
Finished products .	10,501	10,999
Reserves.	(5,194)	(4,726)
Total inventories – net	22,403	20,448

A summary of the activity in the inventory reserves is as follows:

	December, 31
	2002	2001	2000
		(€ in thousands)
Balance at beginning of year.	4,726	6,511	5,436
Provisions.	1,567	343	1,153
Inventory written off	(1,099)	(2,128)	(78)
Balance at end of year	5,194	4,726	6,511

5. Property, Plant and Equipment

Property, plant and equipment consist of the following:

	December 31,
	2002	2001
	(€ in thousands)
Land .	980	980
Machinery and equipment.	45,892	44,356
Buildings and improvements .	29,617	29,514
Construction in progress	−	142
Accumulated depreciation.	(48,055)	(44,808)
Total property, plant and equipment – net.	28,434	30,184

6. Other Long-Term Assets

Other long-term assets consist primarily of accounts receivable from loans to employees in connection with acquisition of the Company's convertible bonds.

7. Long-Term Debt

The Company has received a loan amounting to € 10.3 million from Kreditanstalt für Wiederaufbau, which promotes special research and development projects. The loan amount outstanding was € 9.0 million as of December 31, 2002, and € 10.3 million as of December 31, 2001. The current portion of this loan amounts to € 1.3 million. The loan bears interest at a rate of 4.25%, which is applicable throughout its entire term. Quarterly payments of principal and interest are due during the period from March 31, 2002, through September 30, 2009.

In addition, the Company and its subsidiaries have various lines of credit available for operating purposes of approximately € 10.2 million. No amounts were used on these lines during 2002 or 2001.

The annual maturities on long-term debt as of December 31, 2002 were as follows:

	(€ in thousands)
2003 .	1,291
2004 .	1,291
2005 .	1,291
2006 .	1,291
2007 .	1,291
Thereafter	2,582
Total	9,037

8. Convertible Bonds

Employee Participation Program, Term: 1996 through 2001

On July 15, 1996, the Company issued € 1.5 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 principal amount of € 511 is convertible into 200 non-par value ordinary shares upon payment of a conversion price. The conversion price is based upon market price per share at date of grant. Accordingly, the conversion price for the July 1996 issue was set at € 6.27 and includes the bond par value per equivalent share of € 2.56. There were no option shares, related to the convertible bonds for the 1996 issue, outstanding at December 31, 2002 and December 31, 2001, respectively. Fair value at the date of grant was € 2.25 per common share option.

Each holder of convertible bonds could convert up to 40% of such bonds three years after issuance, in July 1999, up to 70% of such bonds four years after issuance, in July 2000, and up to 100% of such bonds five years after issuance, in July 2001.

The convertible bonds bore interest at 6% per annum and were redeemable at 100% of their principal amount on July 14, 2001, unless previously converted. The bonds were to be repurchased in the case of termination of employment.

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

In July 2001, all remaining bonds under this program were called in and converted. During 2001, bondholders converted 857 bonds with an aggregate principal value of € 438,784 into 171,400 non-par value ordinary shares. The shareholder's contribution, amounting to € 637,307, is included in the additional paid-in capital.

During 2000, bondholders converted 840 bonds with an aggregate principal value of € 430,080 into 168,000 non-par value ordinary shares. The shareholder's contribution amounting to € 624,665 is included in the additional paid-in capital.

Employee Participation Program, Term: 2000 through 2005

Within the scope of an employee participation program, in July 2000 the Company issued 4,400 convertible bonds valued at € 0.6 million at an issue price of 100% to members of management and salaried employees of the Company and its subsidiaries in Germany and other countries. The conversion feature entitles the bearer to convert each bond into 50 non-par value shares of the Company. The conversion price is based upon 110% of the average closing price on the Frankfurt Stock exchange for the last ten trading days prior to the resolution by the Management Board to issue the convertible bonds. Accordingly, the conversion price for the July 2000 issue was set at € 48.03 per share and includes the bond par value per equivalent share of € 2.56. There were 180,000 and 220,000 option shares, related to convertible bonds for the 2000 issue, outstanding at December 31, 2002 and December 31, 2001, respectively. Fair value at the date of grant was € 10.64 per common share option.

Beginning in July 2002, each holder of convertible bonds can convert up to 30% of such bonds to common stock, in July 2003 up to 60% and in July 2004 up to 100%. The final conversion date is December 9, 2005. Conversion is only possible during specific periods of time.

The convertible bonds bear interest at 6% p.a. and are redeemable at par on December 10, 2005, unless previously converted. The bonds are to be returned at par upon termination of employment. Employees were given the opportunity to finance the purchase of the convertible bonds with interest-bearing employee loans. These loans are classified as other long-term assets in the balance sheet and are repayable upon conversion or return.

As of December 31, 2002, former employees had returned 800 of these convertible bonds having a par value of € 102,400 and correspondingly repaid the related employee loans.

Employee Participation Program, Term: 2002 through 2007

Within the scope of a further employee participation program, on July 7, 2002, the Company issued 4,600 convertible bonds valued at € 0.6 million at an issue price of 100% to members of management and salaried employees of the Company and its subsidiaries in Germany and other countries. The conversion feature entitles the bearer to convert each bond into 50 non-par shares of Company stock. The conversion price is based on 110% of the average closing price on the Frankfurt Stock Exchange for the last ten trading days prior to issuance. The conversion price for the July 2002 issue was set at € 42.86 per share and includes the bond par value per equivalent share of € 2.56. There were 215,000 option shares, related to the convertible bonds for the 2002 issue, outstanding at December 31, 2002. Fair value at the date of grant was € 10.35 per common share option.

Each holder of convertible bonds can convert up to 30% of such bonds to common stock for the first time following the Annual Shareholders Meeting in 2004, up to 60% following the Annual Shareholders Meeting in 2005 and up to 100% following the Annual Shareholders Meeting in 2006. The final conversion date is December 9, 2007. Conversion is only possible during specific periods of time.

The convertible bonds bear interest at 6% p.a. and are redeemable at par on December 10, 2007, unless previously converted. The bonds are to be returned at par upon termination of employment. Employees were given the opportunity to finance the purchase of the new convertible bonds with an interest-bearing employee loan. These loans are classified as other long-term assets in the balance sheet and are repayable upon conversion or return.

As of December 31, 2002, former employees had returned 300 of these convertible bonds having a par value of € 38,400 and correspondingly repaid the related employee loans.

Accounting for Stock Based Compensation

A summary of option shares related to the convertible bonds is as follows:

	Number of Shares Outstanding	Weighted Average Exercise Price per Share
Convertible shares outstanding January 1, 2000	341,200	6.27
Granted	220.000	48.03
Exercised	(168,000)	6.27
Forfeited	(1,800)	6.27
Convertible shares outstanding December 31, 2000	391,400	29.77
Granted	0	0
Exercised	(171,400)	6.27
Forfeited	0	0
Convertible shares outstanding December 31, 2001	220,000	48.03
Granted	230,000	42.86
Exercised	0	0
Forfeited	(55,000)	46.65
Convertible shares outstanding December 31, 2002	395,000	45.23

Shares exercisable at December 31, 2002, 2001 and 2000 totaled 54,000, 0 and 171,400, respectively.

SFAS 123 requires disclosure of pro forma information regarding net income and earnings per share as if the Company had accounted for its stock-based compensation to employees using the fair value method.

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions used for grants in 2002, 2000 and 1996: Risk-free interest rates ranging from 4% to 5%; expected lives ranging from 4.5 to 6 years; expected dividend yield of 1% to 2%; and expected volatility ranging from 30% to 40%.

For pro forma purposes, the estimated fair value of the Company's stock-based awards is amortized over the vesting period. For the years 2002, 2001 and 2000, the fair value method did not materially impact net income or earnings per share.

9. Pension Commitments

United States and Germany

Most employees in the United States and Germany have pension entitlements against the Company, which are covered by defined benefit plans in their respective countries. In the U.S., the Company maintains a pension fund for all employees and a supplemental pension fund for executives (SERP), a non-qualified, non-funded pension plan for certain officers. In Germany, the Company sponsors two pension plans covering most employees.

Total pension expense for the U.S. and German plans included the following components:

		December 31,
	2002	2001	2000
	(€ in thousands)
Service cost.	902	910	948
Interest cost.	2,123	2,075	1,973
Return on assets.	78	43	4
Net other	(634)	136	204
	2,469	3,164	3,129

The U.S. pension fund assets are invested in a pooled investment fund. As of December 31, 2002, the fund held 33,639 shares having a market value of € 969,000 (US\$ 1,015,000). The objective of the fund is to generate interest and dividend income in order to provide sufficient assets to cover future benefit payments, and to conform to the requirements of laws and regulations in the United States.

Consistent with German practice, the Company's German plans are not funded. Pension accruals have been determined on the basis of independent actuarial valuations. In Germany, future pension benefits are based upon the employee's compensation and years of service with the Company.

The following table sets forth the funded status and amount recognized in the consolidated financial statements for the U.S. and German defined benefit pension plans:

	December 31,
	2002 2001 (€ in thousands)
Change in benefit obligation
Beginning projected benefit obligation .	34,509	32,288
Service cost.	902	910
Interest cost.	2,123	2,075
Assumption change	185	83
Plan change.	(2)	−
Benefit payments .	(1,407)	(1,327)
Liability (gains)/losses.	2,073	373
Impact of foreign currency exchange rate differences.	(371)	107
Ending projected benefit obligation.	38,012	34,509
Change in plan assets
Fair value at beginning of year	1,241	1,061
Return on plan assets.	(87)	(43)
Company contributions.	1,432	1,489
Benefits paid .	(1,407)	(1,327)
Impact of foreign currency exchange rate differences	(190)	61
Fair value at end of year	989	1,241

	December 31,
	2002	2001
	(€ in thousands)
Funded status of plan (underfunded). Unrecognized actuarial (gain)/loss . Unrecognized prior service cost. Unrecognized transition obligation Minimum liability adjustment .	(37,024) 4,397 371 2 (1,361)	(33,269) 2,023 452 4 (93)
Accrued benefit obligation.	(33,615)	(30,883)
Amounts recognized in balance sheet Intangible assets – minimum pension liability .	287	92
Accrued pension . Minimum pension liability in excess of unrecognized	(33,615)	(30,883)
prior service cost	656	−
Net amount recognized in balance sheets	(32,672)	(30,791)

Significant actuarial assumptions used are as follows:

	December 31,
	2002	2001	2000
Germany
Weighted average discount rate .	5.75%	6.25%	6.50%
Rates of increase in compensation levels .	3.00%	3.00%	3.00%
United States
Weighted average discount rate .	6.75%	7.50%	7.75%
Rates of increase in compensation levels .	3.50%	4.00%	4.00%
Expected long-term rate of return on assets	8.50%	8.50%	8.50%

Due to a change in certain actuarial assumptions and as is required by Financial Accounting Standards Board Statement No. 87, "Employers' Accounting for Pensions", for plans where the accumulated benefit obligation exceeds the fair value of the plan assets, the Company has recognized a minimum liability equal to the amount of the unfunded accumulated benefit obligation in the accompanying consolidated balance sheets as a long-term liability with an offsetting intangible asset and decrease to equity at December 31, 2002. No corresponding adjustment to equity was required at December 31, 2001.

Supplemental Retirement Benefit Corporation

New legislation in Germany enables employees to participate in a government-sponsored, self-financed old-age pension benefit program. A limited amount of income is not subject to income tax or social security contributions if the employee pays this portion of his or her income to the supplemental retirement benefit corporation. The Company's supplemental retirement benefit corporation was established in January 2001 and covers retirement, survivors' and disability pension benefits.

Other Countries

Employees of the Company in certain other countries are covered by defined contribution benefit plans. Generally, contributions are based upon a percentage of the employee's wages or salary. The costs of these plans charged to operations amounted to € 620,000 for 2002, € 598,000 for 2001 and € 659,000 for 2000.

10. Accrued Other Liabilities

Accrued other liabilities is comprised of the following:

	December 31,
	2002	2001 (€ in thousands)
Warranty	3,774	4,351
Personnel expenses .	4,635	5,336
Other.	779	749
	9,188	10,436

11. Shareholders' Equity

As of December 31, 2002, 8,790,600 authorized, issued and outstanding shares of non-par value stock represented the Company's share capital. Each ordinary share is entitled to one vote. The shares are traded on the German Stock Exchange (Deutsche Börse) in Frankfurt and the New York Stock Exchange (NYSE) as American Depository Receipts (ADR), each of which represents one share and is entitled to one vote.

Dividend distributions may only be declared based upon the retained earnings shown in the German corporation's annual unconsolidated financial statements adopted in accordance with the German Commercial Code (HGB). These amounts differ from the amounts calculated and presented in the consolidated financial statements in accordance with U.S. GAAP. As of December 31, 2002, a total of € 24.5 million was available for dividend distributions.

The Company's Management Board proposed a dividend in the amount of € 0.56 per share be paid in 2003 for the year 2002. This dividend requires the additional consent of the shareholders at the Annual Shareholders Meeting. A dividend in the amount of € 0.56 per share was paid in 2002 for the year 2001.

12. Income Taxes

Effective January 1, 2001, the German corporation tax rate for consolidated domestic companies was reduced to 25%. Prior to January 1, 2001, distributed earnings were taxed at 30% and undistributed earnings at 40%. Including the solidarity surtax and trade taxes, a statutory tax rate of 38.9% results for the German companies for the year 2002 (38.9% for 2001 and 57.2% for 2000).

Under German corporation tax law, the imputation method for taxing corporations was applied for the last time for the 2000 fiscal year. Retained earnings were initially taxed at a corporation tax rate of 40% (plus the solidarity surtax of 5.5% on the corporation tax liability). This resulted in an effective corporation tax rate of 42.2%. In the case of distributions to shareholders of earnings generated in Germany, the corporation tax rate was reduced to 30% (plus the solidarity surtax of 5.5% on the corporation tax of 30% paid) by refunding the amount in excess of the effective tax rate of 31.65%. Under the tax law applicable since January 1, 2001, a corporation tax credit or those portions of the applicable shareholders' equity not burdened with corporation tax was determined as per December 31, 2000, for the consolidated domestic companies. For distributions made within a transitional period of 15 years, income can continue to be produced through the refund of corporation tax credits still resulting from the old corporation tax system.

Effective January 1, 2002, a corporation and trade tax entity with corresponding profit and loss transfer agreements was established for the consolidated German companies.

Income before income tax for the years ended December 31, 2002, 2001 and 2000 was taxable in the following jurisdictions:

	December 31,
	2002	2001	2000
	(€ in thousands)
Germany	18,048	18,972	17,215
Other.	6,770	10,428	16,847
	24,818	29,400	34,062

The components of the provision for income taxes are as follows:

December 31,
2002	2001	2000
(€ in thousands)
4,679		9,219
2,834		6,698
7,513	10,510	15,917
		(598)
(650)		(339)
(230)	19	(937)
7,283	10,529	14,980
	420	5,142 5,368 (90) 109

The Company had net deferred tax assets as follows:

	December 31,
	2002	2001
	(€ in thousands)
Deferred tax assets
Pensions	2,381	2,399
Inventory	519	356
Intangible assets	1,025	1,180
Other	364	301
	4,289	4,236
Deferred tax liabilities:
Property, plant & equipment .	675	734
Other	108	445
	783	1,179
Net deferred tax assets	3,506	3,057

The reconciliation of income taxes determined using the statutory rate to actual income taxes provided is as follows:

December 31,

	2002	2001	2000
	(€ in thousands)
Income tax expenses at German statutory rate .	9,648	11,437	19,483
Higher (lower) foreign tax rates	149	(78)	(3,148)
Tax credit on distributed earnings	(865)	(857)	(874)
Tax credits due to prior years' tax filings	(449)	-	(889)
Lower German tax rate due to change to unified tax structure	(1,023)	-	-
Other.	(177)	27	408
Provision for income taxes	7,283	10,529	14,980

13. Rents and Leases

The Company has entered into rental/leasing agreements which expire at various dates, however not beyond the year 2008, some of which are renewable. Certain of these agreements contain rental escalation clauses.

As of December 31, 2002, these long-term, non-cancelable obligations were as follows:

	€ (in thousands)
2003 .	1,946
2004 .	1,461
2005 .	953
2006 .	374
2007 .	195
Thereafter	372
Total	5,301

Rental expenses amounted to € 1.7 million for the year 2002, € 1.3 million for the year 2001, and € 1.2 million for 2000.

14. Contingent Liabilities

Management is not aware of any material obligations that could have a material adverse effect on the Company. Entrepreneurial risks are continuously compiled and monitored under the Company's risk management system.

15. Segment Information

The Company evaluates the success and performance of its subsidiaries on the basis of their income before income tax. The accounting principles used in regional reporting are identical to those described in Note 2.

The Company's business activities include the development, manufacture, sale and service of vacuum pumps, vacuum components and instruments, as well as vacuum systems and production equipment used in the manufacturing of DVDs. The subsidiaries in the individual countries are independent legal entities with their own management. Consequently, segment reporting is therefore country-based.

Information concerning the Company's geographic locations is summarized as follows:

	December 31,
	2002	2001	2000
		(€ in thousands)
Net Sales
Germany
Unaffiliated .	68,219	72,298	70,413
Intercompany .	45,975	49,116	59,731
	114,194	121,414	130,144
Europe	44,655	52,404	50,489
United States	35,936	44,553	63,018
Rest of World	3,999	2,467	1,840
	198,784	220,838	245,491
Intercompany eliminations .	(47,842)	(50,698)	(60,813)
Total	150,942	170,140	184,678

	December 31,
	2002	2001	2000
		(€ in thousands)
Operating profit
Germany	13,797	17,415	19,573
Europe	2,674	3,375	3,496
United States	3,412	7,026	12,228
Rest of World	771	239	286
	20,654	28,055	35,583
Intercompany eliminations .	515	120	(94)
Total	21,169	28,175	35,489
Interest income – net.	1,703	1,835	1,207
Foreign exchange gain (loss) .	1,946	(610)	(2,634)
Income before income tax.	24,818	29,400	34,062
Total assets
Germany	119,816	110,600
Europe	22,698	23,513
United States	10,625	14,903
Rest of World	2,357	1,588
Total	155,496	150,604

The Company's property, plant and equipment and capital expenditures by geographic area are summerized as follows:

Property, plant and equipment:

	December 31,
	2002 (€ in thousands)	2001
Germany	26,424	27,271
Europe	1,371	1,878
United States	408	729
Rest of World	231	306
Total	28,434	30,184

Capital expenditures:

	December 31,
	2002	2001	2000
	(€ in thousands)
Germany	2,064	7,466	12,098
Europe	392	1,350	951
United States	0	71	565
Rest of World	46	204	77
Total	2,502	9,091	13,691

Intercompany sales are valued at list price, less country-specific rebates.

Exports from Germany to unaffiliated third parties amounted to € 27.7 million in the year 2002, € 24.3 million in the year 2001 and € 26.7 million in 2000. Exports from other countries are insignificant.

16. Financial Instruments

Fair value

The carrying value of financial instruments such as short-term cash on hand, as well as trade accounts receivable and payable, approximate their fair value based on the short-term maturities of these instruments or reference to similar instruments. The fair market value of investments is determined based upon quoted market prices.

The carrying value of the Company's long-term debt to Kreditanstalt für Wiederaufbau at December 31, 2002, approximates the fair value based on current market interest rates for similar loans. The fair value at December 31, 2001 was € 9,788,000.

Concentration of Credit Risks

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of accounts receivable and foreign exchange contracts. The Company's cash and cash equivalents are principally denominated in euros and are maintained principally with financial institutions in Germany.

The Company provides credit in its normal course of business to a wide variety of customers. The Company did not have sales exceeding 10% to any individual customer in the years ended December 31, 2002, 2001 and 2000. The Company performs ongoing credit evaluations of its customers and maintains allowances for potential credit risks.

Foreign Currency Exchange Hedging

The Company enters into foreign currency forward contracts to hedge the exposure of its forecasted sales to fluctuations in foreign currency exchange rates. Approximately 36% 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 that are denominated in foreign currencies (primarily U.S. dollars and British pounds) and are designed to protect specifically against the impact of changes in exchange rates on these sales.

The Company has assessed these contracts to be highly effective hedges of the impact of foreign exchange rate changes on its sales. The Company does not engage in speculative hedging for investment purposes. The maturities for all forward contracts are aligned with the date the sales are anticipated to occur. As of December 31, 2002 and December 31, 2001, no contracts held by the Company had a maturity date greater than six month from the contract dates. The Company's derivative contracts result in little to no ineffectiveness due to the nature of the foreign currency forward hedging activities.

All of the Company's contracts are marked to market at period end using quoted forward rates. The fair value recorded in other assets for the period ending December 31, 2002 and December 31, 2001 was € 670,000 and € 313,000, respectively, and recognized a gain of € 409,000 and € 191,000, respectively, net of income tax effect of € 261,000 and € 74,000, respectively, in other comprehensive income.

The Company reclassed into earnings realized gains/losses for foreign currency hedges, previously recorded in other comprehensive income (net of tax), at December 31, 2001, 2000 and 1999 maturing in the subsequent periods ending December 31, 2002, 2001, and 2000 under foreign exchange gain (loss) in the amounts of € 191,000, € 631,000, and (€ 486,000), respectively.

As of December 31, 2002 and 2001, the notional amount of the forward contracts was € 8.9 million and € 13.3 million, respectively. All realized gains and losses upon settlement of foreign currency forward contracts are recorded in the income statement as foreign exchange gains/(losses).

The Company performs ongoing credit evaluations of the parties to these contracts and enters into contracts only with well-established financial institutions.

17. Earnings per Share

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

	2002 Ordinary Shares	2001 Ordinary Shares	2000 Ordinary Shares
Numerator:
Net income (€ in thousands) . Denominator:	17,535	18,871	19,082
Denominator for basic earnings per share - weighted-average shares	8,790,600	8,719,507	8,526,312
Effect of dilutive securities: Convertible bonds (Note 8) Denominator for diluted earnings per share - adjusted weighted average shares and	−	−	104,293
assumed conversions	8,790,600	8,719,507	8,630,605
Basic earnings per share (€)	1.99	2.16	2.24
Diluted earnings per share (€) .	1.99	2.16	2.21

18. Acquisition

In January 2002, the Company formed Pfeiffer Vacuum Systems GmbH, domiciled in Aschaffenburg, Germany, for the development, production and marketing of vacuum systems for manufacturing DVDs. In addition, the Company acquired various business assets, consisting of fixed assets and inventories, in consideration for payment of a purchase price of € 2.4 million.

Pfeiffer's consolidated earnings were impacted by start-up costs (primarily research and development costs) in the amount of € 6.0 million, which were expensed as incurred. Pfeiffer Vacuum Systems (International) AG (formerly Memex Optical Media Solutions AG) in Zuzwil, Switzerland, whose purpose is also the development, manufacture and marketing of vacuum systems, had already been acquired in the year 2000. The manufacture of metalizers and DVD lines was centralized in Aschaffenburg.

Due to the adoption of SFAS No. 142, "Goodwill and Other Intangible Assets," effective January 1, 2002, goodwill is no longer being amortized over its anticipated useful life; instead, an annual review is being conducted on its carrying value within the context of a fair value-based test. Goodwill due to previous acquisitions in the amount of € 1.2 million at December 31, 2001, had been amortized on a straight-line basis in 2001 and 2000. The Company performed the first required review of the carrying value of the goodwill as of June 30, 2002. No impairment adjustment was necessary.

19. Related Party Transactions

The aggregate amount of compensation paid by the Company during the year ended December 31, 2002, to all members of the Management Board of the Company, as a group, for services in all capacities, was € 0.8 million, including a fixed component amounting to € 0.5 million and a variable component amounting to € 0.3 million.

The fixed compensation paid to the members of the Supervisory Board, as a group, during the year ended December 31, 2002, amounted to € 0.1 million (without any variable component).

20. Other statements

Management Board

The present members of the Management Board of the Company are as follows:

Wolfgang Dondorf (Chairman of the Management Board), graduate engineer Wilfried Glaum (Chief Financial Officer), Business administrator

The members of the Management Board are members of the control committee of the following companies:

Mr. Wolfgang Dondorf: ELSA AG, Aachen, Germany (until March 2002) (Chairman of the supervisory board) Pfeiffer Vacuum Belgium N.V., Zaventem/Belgium (Member of the management board) Pfeiffer Vacuum India Ltd. , Secunderabad/India (Member of the supervisory board) Pfeiffer Vacuum Italia S.p.A., Milano/Italy (Member of the supervisory board) Pfeiffer Vacuum Systems International AG, Zuzwil/Switzerland (yore Memex Optical Solutions AG)

continued:

	Mr. Wolfgang Dondorf: (Chairman of the management board) PVA Tepla AG, Asslar, Germany (since June 4, 2002) (Member of the supervisory board)
Mr. Wilfried Glaum:	Pfeiffer Vacuum (Schweiz) AG, Zürich/Switzerland (Chairman of the management board) Pfeiffer Vacuum Belgium N.V., Zaventem/Belgium (Member of the management board) Pfeiffer Vacuum India Ltd., Secunderabad/India (Member of the supervisory board) Pfeiffer Vacuum Italia S.p.A., Milano/Italy (Member of the supervisory board)

Supervisory Board

Members of the supervisory board in the year 2002:

Dr. Michael Oltmanns (Chairman) Attorney at Law and Tax Advisor Further supervisory board posts: HPC AG, Weinheim, Supervisory Board Chairman; HyChem AG, Steinau an der Strasse, Supervisory Board Vice Chairman; Jetter AG, Ludwigsburg, Supervisory Board Chairman; Scholz AG, Esslingen, Supervisory Board Chairman

Michael Anderson Investment Banker

Edgar Keller Commercial Staff Member

Prof. Dr. Klaus-Jürgen Kügler (Vice Chairman) Professor at the Giessen/Friedberg Technical University

Günter Schneider Chairman of the Employee Council

Götz Timmerbeil Certified Public Accountant and Tax Advisor

Share capital

The share capital of the Pfeiffer Vacuum Technology AG amounts as per December 31, 2002 € 22.503.936,00, divided in 8.790.600 non-par-value-shares.

The Board of the Management is authorized, with the approval of the Supervisory Board, to increase the capital stock on or before June 5th 2005 by the issue of new shares against cash contribution in one or several tranches up to a total of Euro 8,640,000.00 (Authorized Capital I). Shareholders shall be granted pre-emptive subscription rights. However the Board of Management is authorized, with the approval of the Supervisory Board, to exclude fractional amounts from the pre-emptive subscription right of the shareholders.

The Board of Management is authorized, with the approval of the Supervisory Board, to increase the capital stock on or before June 5th, 2005 by the issue of new shares against cash contribution, in one or several tranches up to a total of Euro 2,160,000.00. The Board of Management is entitled, with the approval of the Supervisory Board to exclude the pre-emptive subscription rights of the shareholders

• in order to be able to issue the new shares up to a nominal amount of Euro 1,660,000.00 at an issue price which is not substantially lower than the stock market price,
• in order to issue the new shares up to a nominal amount of Euro 500,000.00 to employees.

To the extent that the Board of Management does not make use of the said authorizations to exclude pre-emptive subscription rights, only fractional amounts may be excluded, with the approval of the Supervisory Board, from the pre-emptive subscription rights of shareholders.

The capital is increased conditionally by up to Euro 1,152,000.00 through the issue of up to 450,000 bearer share certificates (ordinary shares). The purpose of the conditional capital increase is to allow the granting of conversion rights to the bearers of convertible bonds issued by Pfeiffer Vacuum Technology AG pursuant the Annual General Meeting from June 6th, 2000.

The conditional capital increase is effected in the same scope as the bearers of the issued convertible bonds avail themselves of their right of conversion.The new shares will participate in the profit from the start of the fiscal year in which they come into being through the exercise of conversion rights.

Statement to the share holdings in accordance with § 25 WpHG (Securities Trading Law)

Publications in according with § 25 WpHG

Date	Medium	Wordings of the Publication
April 26/27, 2002	Handelsblatt	Die Union-Fonds-Holding AG hat uns am 5. April 2002 gemäß § 41 Abs. 2 Satz 1 WpHG mitgeteilt, dass der Union Investment Luxembourg S.A. am 1. April 2002 insgesamt 5,5 Prozent (Stück 484.133 Aktien) der Stimmrechte an der Pfeiffer Vacuum Technology AG zustehen.
June 14/15, 2002	Handelsblatt	Die Harris Associates L.P. mit Sitz in Chicago, USA, hat uns am 22. Mai 2002 gemäß § 41 Abs. 2 Satz 1 WpHG mitgeteilt, dass der Gesellschaft am 13. Mai 2002 insgesamt 5,04 Prozent (Stück 443.200 Aktien) der Stimmrechte an der Pfeiffer Vacuum Technology AG zustehen.
August 16/17, 2002 Handelsblatt		Die Union Asset Management Holding AG hat uns am 9. August 2002 gemäß § 21 Abs. 1 WpHG i.V. mit § 15b Abs. 2 AuslInvestmG mitgeteilt, dass der Union Investment Luxembourg S.A. am 6. August 2002 nunmehr insgesamt 4,83 Prozent (Stück 424.632 Aktien) der Stimmrechte an der Pfeiffer Vacuum Technology AG zustehen und damit die Meldeschwelle von 5 Prozent unterschritten wird.
		Die Janus Capital Management LLC mit Sitz in Denver, USA hat uns am 13. August gemäß § 41 WpHG mitgeteilt, dass der Gesellschaft am 7. August 2002 insgesamt 5,15 % (Stück 452.477 Aktien) der Stimm rechte an der Pfeiffer Vacuum Technology AG zustehen.

Declaration in accordance with § 161 AktG (German Stock Corporation Law) with regard to the Corporate Governance Code

Pfeiffer Vacuum Technology AG has issued the prescribed declaration for 2002 according to § 161 AktG. The declaration was made publicly available to the shareholders.

Employees

The average number of employees in 2002 was 824.

Asslar, February 3, 2003 Pfeiffer Vacuum Technology AG

Pfeiffer Vacuum Technology AG

Direct Participations	Nominal value (in thousands)		Equity (in thousands)		Net income (in thousands)		%
Pfeiffer Vacuum GmbH Asslar/Germany	€	7,700		€ 35,333	€	12,422 **	100.00 *
Pfeiffer Vacuum Holding B.V. De Meern/Netherlands	€	454	€	2,635	€	(3)	100.00 *
Pfeiffer Vacuum France SAS BUC/France	€	1,291	€	686	€	(246)	< 0.01
Pfeiffer Vacuum Belgium N.V., Temse/Belgium	€	62	€	1,399	€	180	0.04

The results have been prepared in accordance with United States Generally Accepted Accounting Principles (U.S. GAAP) Exception: Pfeiffer Vacuum GmbH and Pfeiffer Vacuum Holding B.V. – in accordance with local law.

* = percentage of ownership is equal to voting rights

** = before profit and loss transfer agreement (after allocation of trade tax of K€ 2.362).

Pfeiffer Vacuum Technology AG

	in thousands Nominal value		in thousands Equity		in thousands Net income 2002		in %
Indirect Participation
Pfeiffer Vacuum Austria GmbH, Wien/Austria	€	146	€	972	€	204	100.00
Pfeiffer Vacuum Belgium N.V., Temse/Belgium	€	62	€	1,399	€	180	99.96
Pfeiffer Vacuum France SAS, BUC/France	€	1,291	€	686	€	(246)	99.99
Pfeiffer Vacuum Ltd., Newport/Great Britain	GBP €	100 154	GBP €	767 1,176	GBP €	127 202	100.00
Pfeiffer Vacuum Nederland B.V., De Meern/Netherlands	€	1,584	€	2,796	€	556	100.00
Pfeiffer Vacuum Scandinavia AB, Upplands Väsby/Sweden	SKR €	100 11	SKR €	17,711 1,927	SKR €	4,979 543	100.00
Pfeiffer Vacuum (Schweiz) AG, Zürich/Switzerland	CHF €	500 344	CHF €	2,670 1,841	CHF €	604 412	99.40
Pfeiffer Vacuum Inc., Nashua/USA	USD €	11,550 11,024	USD €	17,151 16,348	USD €	1,891 2,001	100.00
Pfeiffer Vacuum Italia S.p.A., RHO (Mailand)/Italy	€	384	€	2,467	€	381	100.00
Pfeiffer Vacuum India Ltd., Secunderabad/India	INR €	10,056 210	INR €	19,267 400	INR €	2,995 69	73.00
Pfeiffer Vacuum Korea Ltd,, Yongin City/South-Korea	WON €	425,000 340	WON €	1,441,382 1,146	WON €	440,257 375	75.50
Pfeiffer Vacuum Systems International AG,	CHF	100	CHF	(3,961)	CHF	(1,156)	75.00
Zuzwil/Switzerland	€	69	€	(2,727)	€	(788)
Pfeiffer Vacuum Asia Ltd., Hongkong/China	HKD €	10 1	HKD €	734 90	HKD €	1,045 142	100.00
Pfeiffer Vacuum Systems GmbH., Aschaffenburg/Germany	€	25	€	(3,558)	€	(5,986)	100.00

Management's Discussion and Analysis

Economic Report

Significant corporate success in the face of a poor economy

We are not satisfied – yet we are nevertheless proud of having earned an operating profit of € 21.2 million in spite of the poor economic situation in the year 2002. While this does represent a decline of 24.8 % from last year's operating profit of € 28.2 million, it is still a good result, and thus a success that will lead to a further increase in our liquid assets and stability.

Fiscal 2002 was characterized by a difficult general economic environment in all major markets.

The current crisis in the semiconductor industry, a major market for vacuum products, began in late 2000 and has now lasted for the past two years. Experts had assumed that the market had bottomed out in 2001 and would begin advancing again in 2002. That did not happen.

Due to the market's persistent stagnation, the sales of our American subsidiary, in particular, declined from € 44.3 million to € 35.8 million. In addition to the weak economy in the United States, European economic growth was also sluggish. On balance, the sales of all European subsidiaries dropped from € 124.3 million to € 112.1 million.

Overall economic development

World economic growth was again low at 1.7 % (2001: 1.4 %), and the world economy did not see a recovery. Consequently, the vacuum industry, too, suffered considerable declines in both new orders and sales.

Europe

At 0.7 %, there was only a moderate rise in gross domestic product (GDP) for all of Europe (2001: 1.5 %).

Italy and the Netherlands hovered at the edge of stagnation in a situation that was similar to that in Germany, where the country's GDP growth of 0.2 % was down from the previous year's level of 0.6 %.

Another year of poor economic growth in Germany was reflected by the unsatisfactory situation on the capital market, by the poor labor market, as well as by the dismal mood of businesses and private households. As a result of noticeably depressed capital investments and sluggish consumer demand, the German economy is essentially not growing at all.

United States

At 2.3 %, American economic growth in 2002 was up moderately from last year (1 %). Nevertheless the U.S. economy continues to be on poor footing. American consumer confidence in the country's economic prospects is dwindling, and businesses are taking a noticeably hesitant stance in their capital investments.

Asia

The development of our important markets of South Korea, Taiwan and Thailand was encouraging. At 6 %, South Korea's economic growth was up significantly from last year's level of 3 %. With a GDP growth of 3 % (2001: – 2.2 %), Taiwan was also up sharply from the previous year. Thailand, too, succeeded in surpassing last year's economic growth of 1.8 % with a GDP growth of 3.7 % in 2002. The phase of stagnation and recession that has persisted in Japan since the early 1990s has still not yet been overcome.

Business in Fiscal 2002

Sales in the major markets

In spite of declining sales in 2002, there was no loss of market share.

Even though in retrospect we are not satisfied with the development of sales and new orders in fiscal 2002, this dissatisfaction must be put into perspective by comparison with the situation of our competitors. On balance, sales slumped by 11.3 % from € 170.1 million in 2001 to € 150.9 million in 2002.

This decline was attributable not to a loss of market share but to the poor overall economic situation in our markets. Given generally insecure economic development, the effect of investment hesitancy on the part of businesses, government and private households was clear to see.

Europe

In Europe (excluding Germany), sales declined by 10.1 % from € 56.6 million to € 50.9 million – this, too, stemmed from an economy that was stagnating or declining overall. In Germany, our largest market in Europe, sales dropped by 15.6 % from € 48.0 to € 40.5.

Europe as a whole represents 60.6 % of our total sales, thus making it the Company's largest sales engine.

As of January 1, 2002, the Company acquired the major assets of a company in Aschaffenburg, Germany, and formed "Pfeiffer Vacuum Systems GmbH". This subsidiary develops and sells machines and systems for the production of prerecorded and rewritable DVDs. This new line of business did not generate any significant sales, as its products still have to be developed for series production and marketing activities were not able to commence until the second half of the year.

United States

In the U.S., we suffered the greatest slump in sales, where sales declined by 20.1 % from € 44.8 million to € 35.8 million.

The reason for this was the persistent slump in the semiconductor industry and the poor overall economic situation in the United States. What is encouraging, though, is that some of the declines in sales in our traditional markets were able to be offset by moving into new markets.

The U.S. represents 23.7 % of our total business, thus making it a significant factor for the Company as a whole.

Asia and the rest of the world

The Asian region developed on a positive note. We succeeded in growing sales by 5.1 % to € 18.6 million (2001: € 17.7 million).

Within the Asian market, South Korea, in particular, advanced sharply. Sales in South Korea rose by 14.8 % from € 2.7 million to € 3.1 million.

In over 20 additional countries, including Israel, South Africa, Australia, Brazil, Argentina and Mexico, Pfeiffer Vacuum enjoys a presence through marketing agents.

Sales by product

As in previous years, the turbopump was again our best seller in 2002. With sales of € 56.7 million, it accounted for 37.6 % of total sales. 2002 saw a rise in demand for small turbopumps, in particular. Accounting for 27.6 % of total sales, measurement and analysis equipment and vacuum components now rank second, with this product segment declining from € 48.0 million to € 41.7 million. Ranking third was service business, which accounted for 17.3 %. Sales in this segment declined by 3.0 % from € 26.9 million to € 26.1 million. The fourth-ranking product segment

consisted of backing pumps, i. e. rotary vane, Roots and dry pumps, accounting for 12.8 %. Sales in this line of business slumped by 13.5 % from € 22.3 million to € 19.3 million. Ranking fifth were sales of leak detection and coating systems, which accounted for 4.7 % of total sales. At € 7.1 million, sales of these products were down 21.1 % from the previous year's level of € 9.0 million.

New orders and orders on hand

At € 145.5 million, new orders were down € 13.0 million from the previous year's level of € 158.6 million. Orders on hand declined from € 26.3 million in 2001 to € 20.9 million in 2002.

These two figures illustrate that a recovery cannot be expected in the near future. In times of economic difficulty, customers tend to run their stocks down to the lowest possible limit. At the same time, they expect fast responses to their orders. Consequently, new orders can fluctuate greatly during the course of a given month. We anticipated this trend years ago and aligned our organizational structure, manufacturing operations and materials management accordingly. This is reflected by our modern machinery and equipment, faster cycle times, modular component design and manufacturing operations ("more of the same"), close ties to key suppliers and flexible worktime models.

Earnings

In 2002, we again achieved our goal of wanting to be highly profitable:

Operating profit: € 21.2 million = 14.0 % of sales

Income before taxes: € 24.8 million = 16.4 % of sales

These are very good numbers by international comparison. Nevertheless, it should be noted that these numbers were down 24.9 % and 15.6 %, respectively, from last year.

We were able to reduce manufacturing costs by increasing the effectiveness of our manufacturing processes and through more favorable purchasing. With selling prices remaining roughly unchanged, our gross margin rose moderately from 45.3 % to 46.8 % of sales. In absolute terms – resulting from the 11.3 % decline in sales – gross profit dropped from € 77.0 million in 2001 to € 70.6 million in 2002.

Selling, general and administrative expenses were able to be reduced by 4.7 % from € 36.1 million to € 34.4 million. At € 10.4 million, research and development expenses were € 2.3 million higher than the previous year's level of € 8.1 million and represent an investment in the future.

These cost items include € 4.8 million in additional expense for our new subsidiary Pfeiffer Vacuum Systems GmbH, which were not offset by any material sales during its first year of business. In other words:

Without this new line of business, general and administrative, selling and research & development expenditures would have actually declined by 9.5 %.

Our operating profit of € 21.2 million was down € 7.0 million from the previous year. Reasons for this decline include the previously mentioned development of sales, gross margin, selling, general and administrative expenses, as well as research and development costs.

At € 24.8 million, income before taxes was down € 4.6 million from the previous year's level of € 29.4 million. Income after taxes declined by 7.4 % from € 18.9 million to € 17.5 million. Amounting to 29.3 %, the tax rate was down 6.5 percentage points from the previous year's level of 35.8 %.

This results in earnings per share of € 1.99 (2001: € 2.16 ). At the Annual Shareholders Meeting, the Management and Supervisory Boards will propose that our shareholders participate in the Company's success in the form of a dividend of € 0.56 per share (2001: € 0.56).

Capital expenditures and financing

Capital expenditures in 2002 declined from € 9.1 million to € 2.5 million. Following higher capital spending for new construction and conversion work in 2000 and 2001 at the Asslar facility in Germany, capital expenditures have thus now returned to their normal level. In 2002, we invested a total of € 1.9 million in modernizing our machinery and equipment, as well as € 0.6 million in software and buildings. The capital expenditures in 2002 came from cash assets.

Cash flow from operating activities increased by € 1.9 million to € 21.6 million. This increase is chiefly attributable to the reduction in accrued liabilities and income tax liabilities.

Cash flow from investing activities improved by € 4.1 million to € – 4.7 million (2001: € – 8.8 million). This improvement stemmed from lower capital expenditures for property, plant and equipment.

Cash flow from financing activities declined to € – 6.1 million. On balance, cash and cash equivalents rose by € 7.2 million.

A net total current asset ratio of 241.9 % is a manifestation of our high level of credit-worthiness (2001: 190.4 %).

Key balance sheet parameters largely stable

• The equity ratio rose to 59.5 % (2001: 55.4 %).
• The return on shareholders' equity declined to 19.0 % (2001: 22.6 %) as a result of lower income before taxes and a higher equity ratio.
• Total group inventories increased from € 20.4 million to € 22.4 million as a result of the acquisition of inventories from newly acquired subsidiary Pfeiffer Vacuum Systems GmbH. Adjusted for this special effect, there would have been a € 7.9 million reduction.
• Fixed assets remained largely constant at € 28.4 million (2001: € 30.2 million).
• Current liabilities declined to € 20.5 million (2001: € 26.6 million) chiefly as a result of lower income tax liabilities.
• Long-term liabilities rose to € 42.5 million (2001: € 40.6 million) chiefly as a result of higher pension accruals.

Risk Report

Risk management and risks

Poor economic growth, loss of market share, failure to identify new technologies, foreign exchange risks, loss of employee knowledge, quality problems, supplier and customer insolvencies, criminal acts, data losses and natural disasters are risks that could threaten our corporate success.

Risks have to be identified early on in order to be able to initiate suitable measures for minimizing or eliminating these risks. Our risk management system, which is being evolved from year to year, is of key importance in this connection. We are proud that our risk management system is not only being documented but is, first and foremost, being lived. The Management Board, our executives and staff perform their duties with an enormous sense of responsibility. A risk coordinator was appointed in 2002. He will regularly conduct risk analyses with the corresponding employees and compile timely reports.

Moreover, he he will initiate and monitor proper execution of adopted risk avoidance and containment measures, as well as expansion of the system. The objective is to heighten the awareness of everyone in the Company and to involve and commit them to implement the measures that have been adopted.

Risk reports are submitted to the Risk Committee, which comprises the Management Board, department heads and the risk coordinator, for information and decision. Known risks are categorized and assessed. This assessment is followed by a plan of action for minimizing risks. In the future, all department heads will be required to comment on risk development on a quarterly basis. The purpose of the risk inventory is to identify new and unknown risks early on.

Risks and action

World economic growth

Risk: As a globally operating enterprise, one major risk for Pfeiffer Vacuum is the development of the world economy. Declining world economic growth has a direct impact on our corporate success. This can result in lower sales and earnings.

Action: We have to respond to economic change with relatively swift cost-cutting measures. Cutting back on less urgent investments, making optimum use of existing resources and reducing overcapacities are several typical examples.

Market and competition

Risk: Loss of market share and name recognition.

Action: Ongoing customer contact and the market intimacy that this brings supplies us with important information about the needs of our customers. We utilize the information about technology needs that we gain from the marketplace to broaden our competitive edge and name recognition.

Value added and technology

Risk: Missing out on an innovation that is needed by the market, as well as a decline in the quality of our products and the resulting loss of market share to a substitute developed and marketed by a competitor.

Action: As a result of high barriers to market entry and our present market positioning, this risk is predictable. We have to sustain this good market positioning. Consequently, we continuously invest in the development of new products in order to be able to continue to satisfy our customers' needs in the future with innovative new products. Our research and development ratio, i.e. the ratio between development costs and consolidated sales, 6.9 %. With these development investments, we will continue to combat the risk of technology losses. As a manufacturer of quality high-tech products, it is especially important that we satisfy this quality standard. Our strict quality controls reduce the risk of quality shortcomings. Please also refer to the section entitled "Environment, Safety and Quality" in this connection.

Foreign exchange

Risk: Foreign exchange risks exist as a result of the high percentage of our sales that is accounted for by non-Germany business. This poses the risk of potentially negative influences on the percentage of our sales accounted for by the American and British markets, in particular. Action: We use our foreign exchange management system to minimize this risk. We do not engage in any speculative transactions.

Production

Risk: Production facility outages as well as our dependence on suppliers and the resulting potential for supply bottlenecks.

Action: We employ modern production machinery and qualified technicians to significantly reduce the risk of production facility outages. This reduces technically related downtimes to a low risk level. We primarily combat the risk of supply bottlenecks by continuously reviewing alternative suppliers. Further action to reduce these kinds of business risks consists of taking out suitable insurance coverage.

Loss of accounts receivable

Risk: Loss of accounts receivable from customers as a result of a customer's insolvency.

Action: Because of the current economic situation and the risk of insolvencies this entails, we are increasingly focusing on this risk. We reduce the risk of accounts receivable losses with the aid of our rigorous system of accounts receivable management and by monitoring our customers' payment patterns. Moreover, our dependence upon individual customers is very limited, as none of them accounts for more than 10 % of our total sales.

Loss of qualified employees

Risk: As a high-tech manufacturer, we are dependent upon the high level of training and education of qualified employees.

Action: Training and educating young, qualified employees is a method of strategic risk minimization. To minimize operative risks, we provide continuing training and education for our employees and foster self-direction in order to create incentives and gain ideas from our people. An attrition rate of less than 2 %, which is clearly below the industry average, represents a positive signal for us.

Information technology

Risk: Information technology risks in the form of data losses and system downtime.

Action: We minimize data losses by daily backups of our complete corporate data. Our corporate database, in particular, with which manufacturing operations, materials management, order handling, financial and cost accounting are handled, is subject to a high security standard. All files created by our employees within the server environment are also backed up on a daily basis. Our backup tapes are stored in secure locations that are protected against fire. The activities of our own support team reduce system downtimes to a low level.

Corporate Governance

What is the "German Corporate Governance Code" ("DCGK")?

The German Corporate Governance Code contains legal regulations relating to corporate management and supervision of companies listed on German stock exchanges. These regulations reflect both internationally and nationally accepted standards of good and responsible corporate governance. Definition of this code was prompted by the increasing number of irregularities at German companies in the past that weakened the confidence of existing and prospective investors.

The German Corporate Governance Code serves as a confidence-building instrument.

The German Corporate Governance Code contains recommendations and suggestions. In the Code itself, recommendations are formulated as "should" and the suggestions as "should" or "can". If an enterprise is in variance with a recommendation contained in the German Corporate Governance Code, it is obligated to disclose this variance in its annual financial statements. Disclosure is not required in the case of suggestions. Elements of the Code that contain neither "should" nor "can" are contained in applicable law. The full text of the Code is available at the following Internet address: www.corporate-governance-code.de

PFEIFFER VACUUM AND THE GERMAN CORPORATE GOVERNANCE CODE

We have incorporated the recommendations of the German Corporate Governance Code in our corporate governance policies. The investments made by our shareholders are a manifestation of their confidence in us. We are more than willing to employ any instrument aimed at increasing this confidence.

Indicated below are the recommendations contained in the Code, as well as our disclosure of how we are complying with them.

• Reports and documents for the annual shareholders meeting, including the annual report, should not only be made available and sent to shareholders upon request, they should also be published on the enterprise's Internet site together with the agenda. We will place both the agenda as well as the reports and documents of future Annual Shareholders Meetings on the Internet. In the past, we have already been making these items available and sending them to our shareholders upon request.
• Financial service providers, shareholders and shareholders' associations who have requested documents relating to the annual shareholders meeting within the previous twelve months should be informed of the convening of the annual shareholders meeting together with the documents relating to such convening, upon request in electronic form. We will institute this recommendation within the context of the preparatory work for the Annual Shareholders Meeting.
• The enterprise should facilitate the personal exercise of shareholder rights. The shareholders should be supported in the use of proxies. The management board should arrange for the appointment of a representative to exercise shareholders' voting rights in accordance with the instructions of the respective shareholders; this representative should also be able to be reached during the annual shareholders meeting. We will adopt this recommendation for the 2003 Annual Shareholders Meeting.
• Regular, timely and comprehensive sharing of information between management and super-visory boards with regard to planning, business development and risk management. We follow this recommendation in the quarterly meetings of the Supervisory Board as well as through special meetings or telephone conferences where required.
  • Specification of the Management Board's information and reporting obligation to the super-visory board and timely transmittal of the documents. We specify a monthly reporting system in collaboration with the Supervisory Board. Each member of the Supervisory Board receives documents relating to the entire Pfeiffer Vacuum Group that are required for decision-making purposes on a monthly basis – by the 15th of the subsequent month at the latest.
  • Agreement of a suitable deductible for Directors and Officers Liability Insurance (D & O insurance) In its meeting on November 7, 2002, the government commission decided, in particular, to deal with the definition of "suitable" at its next meeting. We will conduct concrete negotiations with our insurance broker as soon as the commission has taken a position with respect to the question of "suitability".
  • Annual report on the enterprise's corporate governance in its annual report. Including an explanation in the case of deviations from the recommendations. We are following this recommendation with this section of the Annual Report.
• The management board should comprise more than one person and have a chairman or a speaker. Rules of procedure should regulate the allocation of duties and collaboration. The Management Board consists of two persons. Rules of procedure and allocations of areas of responsibility have been in force since the corporate form of the Company was changed to a stock corporation ("Aktiengesellschaft") in 1996. These documents govern the duties, responsibilities and collaboration of the Management Board.
• The supervisory board should issue rules of procedure for itself. Rules of procedure for the Supervisory Board have been in force since 1996.
• The compensation of members of the management board should comprise a fixed salary and variable components. Variable compensation should be linked to success parameters. Retroactive modification of the success parameters should be excluded. The concrete details of a stock option plan or a comparable compensation system should be disclosed.

The compensation paid to members of the Management Board consists of a fixed salary and variable components. The variable compensation is stipulated and documented annually by the Supervisory Board. The success of the Company serves as the basis for stipulation of the variable compensation. No retroactive modification is made to the success parameters. No member of the Management Board participates in our current stock option plan.

• Report on the compensation of members of the management board in the notes to the consolidated financial statements, subdivided according to fixed and variable compensation components.

Information relating to this recommendation is contained in the section entitled "Notes to the Consolidated Financial Statements" on page 116.

• Conflicts of interest on the part of the management board toward the supervisory board and between members of the management board should be disclosed. Major transactions require the consent of the supervisory board. Is being observed and is defined in detail in the rules of procedure.
• Supervisory board mandates and other sideline activities of members of the management board outside the corporate group may only be taken on with the consent of the supervisory board. Is being observed and is defined in detail in the rules of procedure.
• Supervisory and management boards are jointly responsible for ensuring long-term successor planning. Reappointment prior to one year before the end of the appointment period with simultaneous termination of the current appointment should only take place under special circumstances. An age limit should be specified for members of the management board.

Successor planning is performed jointly with the Supervisory Board. There is no firmly specified age limit for members of the Management Board. Reappointment prior to one year before the end of the appointment period with simultaneous termination of the current appointment is prohibited.

• The chairman of the supervisory board should chair the committees that handle contracts with members of the management board and prepare meetings. All contracts with members of the Management Board are handled by the Management Board Committee. The Chairman of the Supervisory Board chairs the Management Board Committee. Committee and Supervisory Board meetings are organized by the Chairman of the Supervisory Board.

• Regular contact between the chairman of the supervisory board and the management board to deliberate strategy, business development and risk management. If necessary, convening a special meeting of the supervisory board.

The Management Board maintains regular personal, telephonic and electronic contact with the Supervisory Board. Deliberations relating to major business transactions are made in a timely fashion. Moreover, the Chairman of the Supervisory Board obtains important information from the minutes of the meetings of the Management Board.

• Establishment of professionally qualified committees for the treatment of complex matters by the supervisory board.

The Management and Supervisory Boards assure professional staffing in connection with the establishment of committees. The qualifications of the members of our Supervisory Board enable suitable committee members to be selected. The qualifications of the members of our Supervisory Board can be seen in the section entitled "Supervisory Board" on page 11.

• The supervisory board establishes an audit committee to deal with accounting, risk management, independence of the independent auditors, issuance of the auditing commission to independent auditors, stipulation of audit focal points and the fee arrangement.

The Supervisory Board will resolve the establishment of an Audit Committee in 2003. The Chairman of the Supervisory Board will not chair this committee. The audit commission for 2002 was issued to the independent auditors by the Annual Shareholders Meeting.

• The supervisory board should at all times be composed of members who are sufficiently independent and posses the required knowledge and abilities. Consideration should be given to the enterprise's international activities, conflicts of interest, as well as an age limit for members of the supervisory board.

Our Supervisory Board is composed of qualified members from differing professional fields and of differing nationality. See also the section entitled "Supervisory Board" on page 11. Conflicts of interest do not exist. The incumbent members of the Supervisory Board will be less than 65 years of age at the end of their current terms.

• To ensure independent deliberations and supervision of the management board by the supervisory board, not more than two former members of the management board should be members of the supervisory board. No member of the supervisory board should serve in an advisory capacity at or as a member of a body of any major competitor.

No former members of the Management Board are represented on our Supervisory Board. Moreover, no member of the Supervisory Board possesses an advisory capacity at or is a member of a body of any major competitor.

• The supervisory board should examine the efficiency of its activities on a regular basis. See section entitled "Report of the Supervisory Board" on page 9.
• In order to assure that sufficient time is available for exercising his or her mandate, no member of the management board of a listed enterprise should hold more than five supervisory board mandates in non-group enterprises. Management Board Chairman and Chief Executive Officer Wolfgang Dondorf holds one supervisory board mandate in a non-group enterprise. Member of the Management Board and Chief Financial Officer Wilfried Glaum does not hold any supervisory board mandate in a non-group enterprise.
• Compensation of members of the supervisory board is specified by a resolution of the annual shareholders meeting or in the articles of incorporation and bylaws. Such compensation is governed by the economic situation of the enterprise. Consideration

should be given to chairmanships and vice-chairmanships, as well as to membership in committees.

The compensation paid to members of the Supervisory Board was restipulated by the Annual Shareholders Meeting in 2001. It consists of a fixed compensation, with the Chairman receiving twice and the Vice-Chairman one and a half times the compensation of the other members of the Supervisory Board.

• The compensation paid to members of the supervisory board should contain fixed and performance-based components. Separate indication should be made in the notes to the consolidated financial statements of compensation paid by the enterprise or advantages extended in consideration of personally provided services, in particular for advisory and agency services.

The compensation paid to members of the Supervisory Board currently consists of a fixed component and does not contain a performance-based variable component. During the 2002 fiscal year, no member of the Supervisory Board performed a personal service for the Company, for example in an advisory capacity, with the exception of the Chairman of the Supervisory Board, whose legal firm consulted the Company with respect to individual minor special questions. The compensation is presented in the consolidated financial statements.

• If a member of the supervisory board has attended less than one half of the meetings of the supervisory board, this should be noted in the report of the supervisory board. All members of the Supervisory Board attended more than one half of the meetings of the Supervisory Board. See also "Report of the Supervisory Board" on page 9.
• Each member of the supervisory board should disclose any conflicts of interest to the supervisory board. Conflicts of interest can result from an advisory capacity to or serving in an organizational capacity at customers, suppliers, lenders or other business partners. Conflicts of interest are disclosed. There were no such conflicts of interest in 2002 or in past fiscal years.
• The supervisory board should report conflicts of interest of members of the supervisory board to the annual shareholders meeting. Material conflicts of interest which are not merely temporary in nature should result in the termination of the supervisory board mandate.Is being complied with.
• All information made known to financial analysts and similar addresses should be made available to shareholders. Transmittal of such information to shareholders should be made in a timely manner. Suitable communication media, such as the Internet, should be used. Compliance with this recommendation is an element of our investor relations work. Upon request, every shareholder can be included in an e-mail or fax distribution list. We view both the press as well as our Internet site as timely media for publication.
• Any information disclosed outside Germany pursuant to respective capital market regulations should also be disclosed in Germany. As a result of our listing on the New York Stock Exchange, we are obligated to report to the American Securities and Exchange Commission (SEC). These reports are compiled in conformity with U.S. Generally Accepted Accounting Principles (U.S. GAAP). Both the quarterly reports (6 K) as well as the annual report (20 F) are submitted simultaneously to the SEC and the Neuer Markt Stock Exchange. In parallel with these submittals, the respective reports are simultaneously published on the Internet.
• The dates of essential regular publications should be published sufficiently in advance in a financial calendar. The financial calendar is published in a timely fashion in the Annual Report and on the Internet.
• Information disclosed by the enterprise should be accessible on the enterprise's Internet site, which should be clearly structured. We are in compliance with this recommendation. All information can be accessed at any time on our Internet site at www.pfeiffer-vacuum.net under the Investor Relations department. Interested parties can obtain numerous items of interesting enterprise information on our Internet site. Its clear structure enables an overview of the information to be quickly obtained.
• The consolidated financial statements and interim reports for the fiscal year provide information to shareholders and third parties. The reports are to be prepared in conformity with internationally recognized accounting principles. Our consolidated financial statements and quarterly reports are prepared in conformity with U.S. Generally Accepted Accounting Principles (U.S. GAAP). The reports are available on the Internet or can be requested directly from Pfeiffer Vacuum.
• The consolidated financial statements will be prepared by the management board and examined by the independent auditors and the supervisory board. The consolidated financial statements must be publicly available within 90 days and the interim report within 45 days of the close of the reporting period. We are in compliance with the terms governing disclosure, which are an element of American accounting principles. The reports are simultaneously submitted to the SEC and the Neuer Markt Stock Exchange and published on the Internet.
• The consolidated financial statements should contain concrete information on stock option programs and similar incentive systems. We disclose detailed information about our convertible bonds in the financial portion of our Annual Report (see section entitled "Notes to the Consolidated Financial Statements" on page 94).
• Publication of a list of third-party enterprises in which it has a shareholding that is not of minor importance, indicating the headquarters of the enterprise, the amount of the shareholding, the amount of equity and the results of the past fiscal year. Pfeiffer Vacuum has no shareholding in any third-party enterprises.
• Relationships with shareholders who are considered to be related parties should be explained. We do not have any shareholders who are considered to be related parties.
• The supervisory board should obtain a statement from the independent auditors. In this statement, the independent auditors should explain whether financial or other relationships existed between the auditing firm, the employees of the auditing firm and the enterprise to be audited. This statement should evidence the independence of the independent auditors. Moreover, this statement should also contain further information about consulting services provided to the enterprise. The supervisory board and the ind ependent auditors will agree to make immediate notification of grounds for disqualification or impartiality unless such grounds can be eliminated. The statement of independence from the independent auditors for the 2003 audit year will be obtained for the first time prior to the Annual Shareholders Meeting in 2003.
• The supervisory board and the independent auditors will agree that the auditors will report without delay on special circumstances that arise during the course of the audit. The independent auditors should notify the supervisory board and/or make note in the audit report of misstatements by the management board relating to the Code.

Such an agreement has been reached between the Supervisory Board and the independent auditors. See the section entitled "Report of the Supervisory Board" on page 9 as well as the section entitled "Independent Auditors' Report" on page 117.

U.S. legislation

As a result of our U.S. listing, we are subject not only to the provisions of German law and of our own Articles of Association but also to the licensing requirements of the New York Stock Exchange. American capital market legislation – specifically, the Sarbanes-Oxley Act and the rules and regulations of the Securities and Exchange Commission (SEC) – also applies to our company. As soon as the SEC regulations are available in their entirety, we will further develop our corporate governance principles.

Outlook

The year 2002 clearly showed the extent to which sluggish world economic growth can impact our Company's results. The leading economic institutes are forecasting only moderate growth for the 2003 fiscal year. It will take some time until the markets recover. We will not be able to achieve significant increases in sales again until the world economy has made a clear recovery.

In spite of cautious forecasts, we intend to grow at a rate of 2 to 3 % in 2003. We do not anticipate any changes relative to the second half of 2002 during the first two quarters of 2003. Only in the second half of 2003 do we expect to see increased demand.

Thanks to the evolution of proven components as well as interesting new developments, we are excellently positioned for the future in our core business. New vacuum technologies are opening up more and more new fields of application. Both our component and systems business is benefiting from these emerging new fields of application.

Our systems business is experiencing increased demand and will increase further as the economy revives.

Market analyses suggest that demand for DVD-RW equipment will increase in the fourth quarter of 2003. Should these predictions materialize, we are outstandingly positioned with our products.

Pfeiffer Vacuum manufactures predominantly at corporate headquarters in Asslar, Germany. In recent years, the Asslar facility has been fully redesigned and today satisfies the highest demands. Through the acquisition of modern manufacturing and operations management technologies, it has been possible to shorten cycle times, reduce inventories and manu-facture more favorably overall. No further extraordinary capital expenditures are necessary. Our future capital spending needs will range between four and five million euros.