PVA TePla AG — Annual Report 2002

Apr 30, 2003

ANNUAL REPORT 2002

Be equipped for tomorrow's materials

At a glance

In EUR '000		2002	2001
Revenues		37,788	71,759
Vakuum Systems		22,160	n.a.
Crystal Growing Systems		11,459	n.a.
Plasma Systems*		4,169*	-
Gross Profit		6,871	21,304
R&D expenses		1,187	442
EBIT		-4,969	13,552
Result from ordinary activities		-4,990	13,868
Net income after minority interest		-3,722	7,271
Earnings per share (EPS)		-0.23	0.51
Capital expenditures		2,037	1,468
Total assets		49,484	35,000
Equity ratio		48.1%	37.7%
Employees (Annual average)		372	258
* only november – december 2002 Due to the merger between PVA and TePla in 2002, its presentation according to US-GAAP, there is limi ted comparability to the figures of the previous year

Contents

Overview
Foreword	4
Report of the PVA TePla AG Supervisory Board	6
PVA TePla shares	8
Corporate Governance	11
Group Management Report 2002
Introduction	12
Merger of PVA and TePla	12
Business environment	13
Sectoral trends	13
Restructuring	15
Revenues	16
Orders	17
Production	18
Research & development	18
Investments	21
Net worth and financial position	21
Income situation	22
Personnel development/changes on executive bodies	22
Risks	23
Significant events since the end of the financial year	25
Outlook	26
Group Financial Statement (US-GAAP)
Balance Sheet	28
Income Statement	30
Cash Flow Statement	31
Statement of changes in shareholders' equity	32
Notes to the Group Financial Statement	33
Statement of Changes in Fixed Assets	60

Foreword

Dear PVA TePla shareholders and business partners,

This report provides you with a very new picture of the company you previously knew as TePla AG. The merger of the latter with PVA Vakuum-Anlagenbau GmbH on 5 November 2002 created one of the world's largest suppliers of systems and facilities for producing and processing high-quality industrial materials using plasma and high-temperature vacuum – PVA TePla AG.

That said, the past year was fraught with difficulties for our renamed company. In a macroenvironment characterised by general economic malaise and a severe crisis in the semiconductor industry, PVA TePla faced the same uphill struggle as most companies, especially plant construction companies, in Germany and worldwide. During the past year, we forged PVA TePla AG from two companies that had been independent for two decades and comprised several subsidiaries – a major effort on the part of all concerned.

Revenues relative to the former TePla Group increased from 20.2 to 46.7 million Euros in the year as a whole. The regional strengths of the two Groups, as well as the technologies they apply and the markets they serve, complement each other very well. PVA TePla is present worldwide and excellently positioned on the world market thanks to its broad range of products and its greater selling power.

In the period since early November 2002, the merger to form PVA TePla AG has become legally effective, and at the beginning of December 2002 I took over the management of the company thus formed. In mid-January of the current business year, in mutual agreement with the Management Board and Supervisory Board. the former CEO of

TePla AG, Friedrich G. Meyer, resigned his office as director of the Plasma Systems division of PVA Te-Pla AG. His responsibilities have been assumed by Mr. Martin Gier, who is also responsible in the Group for the Crystal Growing division. Volker Lang, director in charge of the Vacuum Systems division, and Craig Walker as Chief Financial Officer, make up the rest of the four-member management team.

As early as mid-December 2002, we adopted a plan for radical restructuring of the entire Group. It includes not only optimisation of the production sites and the reduction of production areas, but also cutbacks in personnel capacities by around 20 percent that will affect all locations where the new company has a presence. As a consequence of restructuring expenses, the application of conservative valuation principles and conservative precautions, PVA TePla had to record a net annual loss in 2002 of EUR 3.7 million. The measures adopted are intended to have positive impacts on the operating profit within the current business year.

The restructuring plan is based on intensifying the market-centred and customer-centred approach that has been practised for years at the sites in Aßlar and Hanau. Rigorous cost management in all areas of activity will also assist PVA TePla to reach the operative breakeven point again during the current business year.

Our shareholders can also rely on the decades of experience that the former PVA management team has in the integration and realignment of companies. One of the secrets of success of the former PVA Group, which was always managed very profitably, lay in the acquisition and successful restructuring of business units disposed of by corporate groups as spin-offs or buy-outs.

Our firm objective for PVA TePla as well is to achieve profitable growth. Despite continued uncertainties on the economy front, we are cautiously optimistic for the new business year, yet determined at all times to respond actively and promptly to any adverse external changes. The sweeping changes necessary in the Plasma Systems division (former TePla AG) have largely been implemented and completed, and should soon bear fruit. A jolt has made the company sit up again, and our employees, who recognise the opportunities presented by the joint market presence of PVA TePla, are ready to tackle new challenges. With the parallel establishment of PVA MIMTech, USA and the stepby-step takeover of Elnik Systems, the Management Board has demonstrated that the company is ready and able to operate anti-cyclically and to buy up suitable companies and technologies for the product portfolio at the favourable prices currently available. At the same time, however, this also means that, with a watchful eye, we will abandon and divest from those activities which fail to provide a strategic benefit and profitability in the medium term.

We thank our employees, who have been through some difficult months but who nevertheless mastered the challenges faced in 2002 with much expertise and enormous dedication.

Special thanks are also due to our shareholders, who remained loyal in times of radical changes – the majority of our employees are now shareholders as well, by the way. We appreciate the confidence you have shown in the company and will do everything in our power to ensure that you are not disappointed. Our aim is to return the company to profitability in the near term, and to enhance the value of our company on a sustainable basis through organic and external growth.

Peter Abel Chairman of the Management Board

Report of the PVA TePla AG Supervisory Board for the 2002 financial year

With the election of Messrs. Hartmut Böhle and Wolfgang Dondorf as additional members of the Supervisory Board by the Annual Shareholders' Meeting in 2002, and following the resignations of Messrs. Roger McDaniel and Rudolf Ruppert, the Board could discharge its responsibilities with all positions filled in accordance with the articles of incorporation.

In the course of the 2002 financial year, the Supervisory Board held four ordinary and one extraordinary meeting. Discussions conducted between the Management Board and the Supervisory Board centred on the merger of PVA Vakuum-Anlagenbau GmbH with TePla AG and the subsequent integration of the two companies to form today's PVA Te-Pla AG. With regard to the reasons and framework for the merger, the Supervisory Board focused in particular on the impacts of the merger on earnings and cash flow, on the one hand, and on the opportunities and risks associated with the merger, on the other. The share exchange ratio proposed by the executive bodies of both companies was also

the subject-of intensive discussions. After the merger had been executed, the Management Board and the Supervisory Board also conducted joint discussions on the incoming order situation resulting from an increasingly difficult market environment, and the response that the company should take. These consultations led to an extensive restructuring programme that the Management Board and the Supervisory Board unanimously adopted in connection with the plans for the 2003 business year.

In the reporting year, the Supervisory Board established an Audit Committee in accordance with the German Corporate Governance Code, which comprises the Supervisory Board members Dr. Peter Friedemann (Chairman), Hartmut Böhle and Michael Daniel. This Audit Committee commenced its work on presentation of the annual financial statements for the 2002 financial year. A Personnel Committee was also established for the current business year.

The accounting records for the year under review, the annual financial statements dated 18 March 2003, including the Management Report and Notes, and the consolidated annual financial statements dated 03 April 2003, including the Group management report and the Notes on the Consolidated Accounts, as at 31.12.2002, respectively, were

audited by the KMPG Deutsche Treuhand-Gesellschaft Aktiengesellschaft Wirtschaftsprüfungsgesellschaft, Munich, a public limited auditing firm, and were granted unqualified notes of confirmation. The annual financial statements, management reports and the respective audit reports were circulated to all members of the Supervisory Board and discussed in detail at the meeting of the Audit Committee on 10 April 2003 and at the Supervisory Board meeting on 11 April 2003. At the latter meeting, the auditor also reported on the key findings of his audit.

The independent examination of the annual financial statements, management report and consolidated financial statements by the Supervisory Board on the basis of the audit reports and the verbal report by the auditor gave no occasion for objections. The annual financial statements of PVA TePla AG and the consolidated annual financial statements of the PVA TePla Group prepared by the Management Board, as at 31.12.2003 in each case, were therefore approved by the Supervisory Board. The annual financial statements of PVA TePla AG are therefore formally adopted pursuant to Section 172, sentence 1 of the Stock Corporation Act (Aktiengesetz – AktG).

The Supervisory Board expresses its gratitude to the Management Board and the employees of the company, in particular for their work to integrate the two companies affected by the merger, and for their performance during the past business year.

Feldkirchen, 11 April 2003

Dr. Dietmar Kubis Chairman of the Supervisory Board of PVA TePla AG

PVA TePla shares

2002 was yet another bearish year for high-tech equities. The Neuer Markt segment of the Frankfurt Stock Exchange, in which PVA TePla shares were listed until the end of the year, plummeted in 2002 to even lower lows. Recessionary trends, anxieties about a looming war in the Middle East, in addition to bankruptcies and corporate scandals were disastrous for investor confidence and prompted a flight to safer investments such as bonds and precious metals. Although the PVA TePla was hit by this trend, its performance was significantly better than that of the Nemax All Share and indeed of the Nemax 50. This is particularly the case since announcement of the merger. At the beginning of June and November, as well as early December 2002, the share price actually reached a level higher than that at the beginning of the year. It was not until after the announcement of restructuring measures and hence greater losses in 2002 than originally expected that the price fell again to just above the all-time low of mid-October, when the entire market reached record depths.

New shareholder structure

The merger of TePla AG (TePla) with PVA Vakuum-Anlagenbau GmbH (PVA), approved at the Extraordinary Shareholders' Meeting on 28 August 2002, was executed in the form of a share capital increase against PVA assets as contribution in kind. The former shareholders of PVA received new shares in PVA TePla AG in exchange for their PVA shares at a ratio of 1:4.5. In effect, the capital stock was increased from EUR 3,900,000 in the former TePla AG to exactly EUR 21,449,988. The market capitalisation as at the end of the year was just under EUR 37 million (previous year:

Share price development 2002

Data per share (Abstract)		2002	2001*
Earnings per share (EPS) (Basis 16,502,793)	EUR	-0.23	-0.51
Highest price	EUR	4.6	15.20
Lowest price	EUR	1.65	1.90
Year-end price	EUR	1.71	3.00
Price development PVA TePla share	%	-41.6	-62.5
Price development – Nemax All Share	%	-63.21	-60.19
Number of shares at year end	Mio.	21.5	3.9
Free-float percentage	%	22	67
Market capitalization at year end	Mio. EUR	36.77	11.7
Weighting in Nemax All Share	%	0.08	0.02
Weighting in Nemax Technology	%	0.26	0.1

Opening price 02.01.2002 = EUR. 2.93 Basis: Xetra

EUR 11.7 million). In the consolidated annual financial statements in accordance with US-GAAP, an average of 16,502,793 shares is computed over the year as a whole on account of the so-called 'reverse acquisition'. The largest shareholder, with 29.9% of the total, is the CEO Peter Abel, who displaces DEWB AG (12.9%) from that position. Furthermore, Group employees have owned more than one third of the shares since the merger was accomplished. The motivation from sharing the company's success and advancing the company's fortunes is accordingly high, therefore.

Listing in the Prime Standard segment from 2003 onwards

The decision of the Deutsche Börse AG to eliminate the Neuer Markt segment doubtlessly prompted a degree of uncertainty among investors, who feared further losses from falling share prices . However, players in the financial markets were quickly convinced by the new index concept, with the Prime Standard and General Standard segments. The Management Board of PVA TePla decided as early

* With the exception of EPS, all previous year figures relate to the former TePla AG

as December 2002 to seek listing in the Prime Standard segment, and admission was granted that same month. PVA TePla AG considers this new segment, which according to the Deutsche Börse AG meets the highest requirements for transparency in Europe, to be the proper trading platform for its shares. PVA TePla shares are included in the Tec All Share index and the Advanced Industrial Equipment index.

Creating confidence through reliable communication

Investor Relations work at PVA TePla will continue to play a major role within the Group – although our activities are focused first and foremost on the core operative business. IR activities will centre on providing reliable, facts-based communication on financial matters, far removed from any kind of exaggerated press release euphoria. Our aim in this regard is to win and hold the long-term confidence of our shareholders and to enhance shareholder value on a sustained basis.

PVA TePla shares

Directors' holdings and stock options

Management Board

no. of shares held as of		options held as of
31.12.02	31.12.01	31.12.02	31.12.01
6,432,185	0	0	0
429,027	0	0	0
0	0	0	0
71,060	71,060	0	30,000
69,500	69,500	0	8,333

Supervisory Board

	no. of shares held as of		options held as of
	31.12.02	31.12.01	31.12.02	31.12.01
Dr. Dietmar Kubis	0	0	0	0
Prof. Heiner Ryssel	0	0	0	0
Hartmut Böhle	375	0	0	0
Michael Daniel	2,800	2,800	0	0
Wolfgang Dondorf	0	0	0	0
Dr. Peter Friedemann	0	0	0	0
Roger D. McDaniel	0	0	0	0

Corporate Governance

Joint declaration of the Management Board and Supervisory of PVA TePla AG in line with Article 15 EGAktG in connection with Article 161 German Stock Corporation Act (dated December 2, 2002)

The Management Board and Supervisory Board of PVA TePla AG, with its headquarters in Feldkirchen declare that both corporate bodies intend to conform to the Government Commission German Corporate Governance Code in its currently published version

For the current declaration of adherence to the German Corporate Governance Code and any deviations, access our homepage www.pvatepla.com

Group Management Report 2002

1. Introduction

This management report provides the first-ever account of the business development of PVA TePla AG (hereinafter the 'company') and its subsidiaries (together referred to as 'PVA TePla' or the 'Group'). PVA TePla was formed by the merger of PVA Vakuum-Anlagenbau GmbH ('PVA') with TePla AG ('TePla'), in the context of which the latter company changed its name.

Today, PVA TePla operates worldwide as a supplier of systems for the production of high-quality (high-tech) materials – such as metals, ceramics and glass –, for controlled treatment of surfaces and for crystal growing.

The majority of these materials and their surfaces must be produced under stable, reproducible conditions – often at high temperatures –; during such production processes, it is also necessary to exclude air, the components of which have damaging effects on the products made. Worldwide, the market for such systems is associated at all times with cutting-edge developments, and will exist as long as high-tech materials are needed.

The Group also supplies UV lamps and systems for treating water and surfaces with UVC radiation.

The goal pursued by merging PVA and TePla in 2002 was, and continues to be, the pooling of global activities and hence:

• enhancement of presence on markets worldwide,
• access to new markets, thus reducing exposure to fluctuations in single markets,
• new perspectives in the development of innovative systems and processes,
• optimisation of capacity use,
• rapid growth, in order to exploit market opportunities more intensively as one of the largest systems producers worldwide in this field.

In order to achieve and utilise synergies efficiently, the Management Board draws supported from workgroups beyond company confines.

2. Merger of PVA and TePla

The Extraordinary Shareholders' Meeting held by TePla on 28 August 2002 adopted a resolution to merge PVA with TePla with retroactive financial effect from 1 January 2002. The merger obtained legal effect on 5 November 2002, when the relevant entry was made at the Commercial Registry for TePla, the assimilating company.

Merger-related disclosures in the consolidated financial statements according to US-GAAP differ significantly from those made in separate financial statements in accordance with German accounting legislation as defined in the Commercial Code (Handelsgesetzbuch – HGB). Whereas HGB views TePla as the company taking over, US-GAAP sees PVA as the acquiring company due to the changes in ownership involved (making the merger a 'reverse acquisition').

The figures provided in the PVA TePla consolidated financial statements for 2002 thus contain the annual totals for the former PVA Group as well as the figures for the former TePla Group from 5 November 2002 onwards – a period of only two months. However, the comparative figures from the preceding year relate exclusively to the former PVA Group. The figures for the reporting year are therefore comparable to only a limited extent with those for the preceding year.

Following the merger, PVA TePla reorganised its reporting to reflect its three main divisions:

• Vacuum Systems,
• Crystal Growing Systems and
• Plasma Systems

The Vacuum Systems division includes the activities of the former PVA Group, except those performed by the subsidiary Crystal Growing Systems GmbH. The latter are subsumed under the division 'Crystal Growing Systems'. The activities of the former Te-Pla Group are now represented by the Plasma Systems division.

3. Business environment

Economies stagnated worldwide in 2002, and their recovery is unlikely within the short term. Although the slight growth in global production noticeable at the beginning of the year lost pace towards the middle of the year – mainly due to a downturn in the US economy – severe declines in global equity markets and uncertainties about the consequences and risks of military conflicts do not permit any reliable economic forecasts to be made.

Germany's economy continues to perform poorly. Corporate investment activity went into sharp decline in response to shortfalls in capacity utilisation. The switch to the Euro led – at least in people's perception – to rising prices and hence to consumer restraint on the part of private households. A substantial increase in unemployment figures caused a further decrease in consumer confidence.

4. Sectoral trends

From today's vantage point, the year 2001 marked a historical turning point for the semiconductor and microelectronics markets. The boom experienced in 2000 ended a 40-year period in which the sector achieved consistent growth at an annual average rate of 16%. The severe downturn in the semiconductor market by more than 30% in 2001 made loss-makers of many companies. The recession intensified during the year under review, inducing all participants in the market to reduce their forecast earnings on repeated occasions in the course of the year. Fundamental regional shifts have also occurred. By October 2002, the USA – which once dominated the chip market – became the world region with the lowest consumption of microelectronics, in contrast to which the Asia/Pacific region was able to boost its market share to almost 40% by mid-2002, primarily in China and Taiwan.

Group Management Report 2002

Investments in silicon crystal growing plant for the semiconductor industry fell to almost zero. This is compounded by 'second-hand' production facilities from closed-down US chip/wafer factories flooding the market and being offered at very low prices in Russia and Asia, especially. Investments on the part of our customers have meanwhile reached a very low level, and are mainly made to secure market positions already attained. In one case, this can mean upgrading existing 200mm plant to 300mm capability, for example, whereas in another case the response is to upgrade existing plant with components or to retrofit them with cutting-edge process control systems to increase productivity and reduce production costs.

Many market experts do not believe that the global semiconductor market will ever return to doubledigit growth rates; long-term growth rates of around 7% are thought to be more likely. Volumebased and dollar-based growth are no longer running parallel in the chip market. Prices now fall faster and the market reaches saturation. Stronger, renewed growth is not expected until 2004 and after. It is hoped that the automotive sector will provide impetus in this regard. For example, electronics could increase from today's 25% of vehicle manufacturing costs to 40%.

The optoelectronic/fibre optics industry suffered similar setbacks in the reporting year to those affecting the semiconductor sector. The market for optical components for steppers is directly linked to microelectronics. The market for lasers proved resilient, contrasting with steep declines in the fibre-optic market.

Besides familiar applications in optoelectronics and telecommunications, the market for substrate materials based on fluoridic or oxidic media (sapphire, silicon carbide) for lenses and prisms in high-performance optics in laser technology (with applications in microelectronics and chip production), or so-called compound semiconductors (gallium arsenide, indium phosphide) for producing white light using blue LEDs (applications: lighting technology, use of light bulbs) offer interesting growth prospects for the future.

In the photovoltaics field, the market growth evidenced in recent years continued at a constantly high level in 2002 as well. Driven not only by emergent niche markets for alternative energies, but also and especially by a plethora of governmental support programmes, global production capacities for silicon-wafer solar modules were expanded by approximately 35%. This industry is expected to achieve above-average growth in the medium term as well; price-based competition will intensify accordingly, leading to production capacities being increasingly relocated to low-wage countries.

The hard metal industry mainly produces for tool manufacturers. The growth of this sector closely parallels that of machine-tool and general mechanical engineering, but also that of the automotive and construction machinery industries. Here, too, declines of around 5% were recorded in 2002. However, at the end of the year there were signs of the market picking up pace slightly, especially in the precision tools and construction machinery segments. In the hard metal sintering field, capacities in Europe and the USA are not expected to be increased to any substantial extent. In the years ahead, investments will be confined here to replacements and modernisation. The sector currently anticipates strong growth in the Far East, above all in China, and in the medium term in eastern Europe and the former Soviet republics.

The electrical engineering and lamp industry, for which PVA TePla builds vacuum soldering plant, was also affected by a decline of around 5% in the year under review.

The industrial/medical applications of plasma technology are based on two key properties of plasma that are already well known in the semiconductor industry. The first is plasma's ability to clean organic residues from surfaces, the second relates to the 'activation' of particular surfaces. Activation refers here to enhancing the hydrophilic or hydrophobic character of the surface. These surface changes make it easier to bond, coat, foam surround or laminate surfaces. The market for industrial/medical plasma applications is still rather unspecific at present. Potential market segments include the automotive, electronic, medical and plastics industries, in general. However, these markets are still in the development phase as far as maturity and volume are concerned, so a noticeable upswing in demand is unlikely to materialise for another 2-3 years.

5. Restructuring

In the fourth quarter of the year 2002, persistent investment restraint and the postponement of major investment projects among our customers made it necessary to devise an ambitious restructuring programme. The precarious economic situation faced by TePla at that time, involving high operating losses, large amounts of depreciation and over-capacities at all sites, on the one hand, and a very tight cash-flow situation, on the other, meant that extensive measures had to be taken to rehabilitate the company's finances. These measures were approved by the Supervisory Board of the company on 11/12 December 2002. They included a change in management principles, reduction in workforce size, optimisation of company locations and modifications to the product portfolio. The relevant measures were put into effect at the end of 2002 and should essentially be completed by mid-2003.

Group Management Report 2002

6. Revenues

Group revenues in 2002 totalled EUR 37.8 million (previous year: EUR 71.8 million for the former PVA Group). Applying US-GAAP principles, this figure includes total revenues of EUR 33.6 million for the former PVA Group, and EUR 4.2 million in revenues generated by the former TePla Group in the months of November and December.

If the total annual revenues of the former TePla Group are taken into account, the resultant Group revenues of PVA TePla amount to EUR 46.7 million. This means that the EUR 50 million Group revenue target for 2002 set at the end of November was not quite reached, one reason being the postponed acceptance of some installations by customers until the new business year.

The following comments on the separate business units will provide a better understanding of these figures, particularly as they relate to the previous years' figures.

Vacuum Systems division

In 2002, the Vacuum Systems division booked sales totalling EUR 22.2 million – 57% lower than the previous year (EUR 52.2 million) and the first decline in ten years. This drop in sale was primarily due to postponed investments and the non-execution of planned investment projects on the part of our customers.

Special reference should be made to a special project that led to enormous sales growth in the 2000 and 2001 business years, accounting for around 50% of annual turnover in each case – and which, according to the planning framework, should have generated a substantial proportion of revenues in 2002 and subsequent years as well. This special project has been frozen by the customer in question on account of the general economic uncertainties.

Service work (maintenance, spare parts, fitting, repairs) amounted to around EUR 4.8 million (previous year: EUR 5.3 million), thus accounting for 21% of the business unit's revenue.

Crystal Growing Systems division

The Crystal Growing Systems division, comprising the activities of the Crystal Growing Systems GmbH subsidiary in Hanau, revenues generated in 2002 amounted to around EUR 11.5 million. In the previous year, this business unit achieved EUR 17.7 million in sales.

The bulk of 2002 sales (82%) were generated in the semiconductor industry. Another 14% of sales were achieved in the promising new field of solar energy, which made a significant contribution to revenues for the first time. All systems made by the business unit were sold in Europe.

The remaining 4% of sales were for spare parts.

Plasma Systems division

The Plasma Systems division generated EUR 13.1 million in revenue in the twelve months of 2002 – a disappointing figure compared to the previous year's sales of EUR 20.1 million. Of that total, only those sales achieved in the two months of November and December, at EUR 4.2 million, are recognised in the consolidated financial statements of PVA TePla. The latter figure is around 31% more than Q4/2001 sales (EUR 3.2 million).

Semiconductors (front-end semiconductor production), the product division with the strongest sales, recorded sales revenues of EUR 1.6 million. (whole year: EUR 4.6 million; year before EUR 8.7 million). The Metrology Wafertest systems manufactured at the Kahla factory generated very low turnover.

The percentage decline in sales was even greater in the Industrial/Medical product division, where revenues fell to EUR 0.8 million (whole year: EUR 1.3 million; previous year: EUR 6.8 million). This was caused, on the one hand, by the general backlog of investments in Europe and Germany, and on the other hand by problems relating to the launch of atmospheric plasma technology.

In view of the situation currently afflicting the sector, the PCB/Chip Packaging division (back-end semiconductor production) performed relatively well in 2002. Sales amounted to EUR 1.0 million (whole year: EUR 2.6 million; previous year: EUR 2.7 million), owing to a series of orders from the Asian region.

Sales contrasted markedly in the Service division, with sales of EUR 0,4 million (whole year: EUR 2.1 million; previous year: EUR 1.9 million); in economically difficult times, many customers prefer to extend the useful life of older equipment by means of repairs and spare parts rather than invest in new equipment.

7. Orders

In the year under review, the Group recorded incoming orders with a total volume of around EUR 33.1 million; a comparison with the previous year is of qualified use due to the influence of the merger. Nevertheless, it can be said that incoming orders in all divisions were well below expectations.

Total incoming orders can be broken down to around EUR 21.2 million in the Vacuum Systems division, around EUR 10 million in the Crystal Growing Systems division and approx. EUR 1.9 million (for November/December only) in the Plasma Systems division.

If the total incoming orders (EUR 13.5 million) received during the year by the Plasma Systems division is taken into account, the resultant Group figure for the year as a whole is EUR 44.7 million.

At the end of the year, the order backlog totalled EUR 18.7 million (10, 7.5 and 1.2 million, respectively, for the separate business units).

Group Management Report 2002

The hard metal industry continues to invest, above all in Far East (China) in expanding capacities and in replacing older facilities.

Some projects that were firmly expected to generate orders in 2002 were postponed.

8. Production

The production sites operated by the Vacuum Systems division in Aßlar and Jena, by the Crystal Growing Systems division in Hanau and by the Plasma Systems division in Feldkirchen, Kahla and Corona, USA exhibited divergent levels of capacity utilisation in the 2002 financial year.

With the production facilities in Aßlar and Hanau running at full capacity, approx. 90% of production capacity requirements for vacuum and crystal growing systems could be covered; the remaining requirements were purchased as contracted services, as far as possible from within the Group. Nevertheless, the over-dimensioned personnel capacities established at the Jena site for the aforementioned special project necessitated lay-offs being made. The depth of production for non-technological parts, up to and including complete construction modules with assembly services, was kept at a continued low level.

The production sites of the former TePla Group in Feldkirchen, Kahla and Corona, USA had previously expanded their capacities to cope with the higher volume of orders anticipated in 2001 and 2002. This meant that, given the downturn in the semiconductor industry and the failure of markets to recover, the Industrial/Medical business unit had considerable excess capacities. In response to this situation, it was agreed at the end of the year to close down the Kahla plant as part of the restructuring programme, with the result that Metrology products will be produced in future at other sites operated by the PVA TePla Group, and by farming out some production to other companies.

9. Research & development

Vacuum Systems Division

A core principle in plant development is to optimise and refine standard facilities on an order-by-order basis to meet customer requirements in specific projects, using new components available on the global market and new internal computation options.

For example, on the basis of the standard technology for vacuum melting plant and over-pressure plant for sintering or crystal growing, a laboratory melting plant was developed to develop materials for vacuum and over-pressure of up to 10 bar. The hitherto biggest high-temperature sintering furnace for sintering telescope mirror segments at 2200°C and with a 5000-litre capacity was developed. For a 300-kg induction melting plant for the production of special alloys, a die/mould moving system featuring a weighing device for displaying the current casting weight was developed and successfully put into operation at the customer's production plant.

Using a computation program implemented in 2000 (Computational Fluid Dynamics), a new COD rapid cooling system was developed in the previous year, with which the cooling time of production facilities can be reduced by approx. 50%, thus enabling a productivity increase of about 15% for average batch cycles. The management of gas flow in natural convection processes is internally optimised and fed, temperature-controlled, to an internal heat exchanger. The development of a pressure-proofed blower for controlling gas circulation resulted in further improvements to the rapid cooling systems of pressure sintering plant. This technological lead over competitors was successfully marketed in 2002 and translated into new orders for COD furnaces that expanded business volume in the hard metal sector.

In the field of electrical control systems and software, decentralised peripheral components for signal processing and control of plant modules using PROFIBUS are deployed. The user interfaces for visualisation were further improved and modernised, thus making them even more user-friendly. The software programs for control systems were ported to a standardised new structure in order to achieve greater efficiency in order processing.

In the year under review, following the developments in soldering methods for microbonding and fuel cell technology that dominated previous years, sintering technologies for refractory metallic alloys were developed and successfully tested in the highvacuum furnace in collaboration with various customers. In this way, an important contribution was made to the development of new powder-metallurgical production technologies for complex alloying systems. Other development activities focused on the sintering of fine-fibre structures and the soldering of complex component structures comprising different materials adapted for specific deployment conditions.

In the Vacuum Systems division, R&D operations are carried out in connection with customer orders, as a basic principle; for this reason they are not separately described. The services performed, which lead to generally reusable improvements or innovations to the product range, can be estimated as up to 50% of our entire design engineering output.

Crystal Growing Systems Division

High development costs, in particular for a 300mm silicon (Si) crystal growing facility with increased batch weights of up to 450kg, as well as plant for growing gallium arsenide (GaAs) and indium phosphide (InP) crystals using the vertical gradient freeze (VGF) method had a negative impact on 2002 earnings. We expect these facilities, especially, to generate substantial revenues and earnings when the semiconductor market recovers.

Group Management Report 2002

Parallel to these projects, which receive financial support from the Federal Ministry of Research, the range of plant accessories was continuously enlarged, e.g. with granulate feeders and handling systems for optimising customer productivity.

As a basic principle, development work in the Crystal Growing Systems division are carried out with a partner from the industry, in order that marketability and customer acceptance are ensured on a regular basis.

Plasma Systems Division

Accounting for EUR 1.5 million in R&D expenses (in all of 2002; previous year: EUR 2.1 million), the R&D activities in the Plasma Systems division remained at a level that makes sense over the long term and which is necessary to ensure future growth opportunities.

Development operations were primarily focused on the semiconductor field. The main source of revenue, the 300 series – a microwave plasma system mainly used in ashing – was continuously refined. Efforts were concentrated on optimising the microwave input and improving the plasma source.

The launch of series production of the 800 plasma system, a highly productive machine for removing photoresist masks on 200mm wafers did not occur until near the end of the year. Further development of the wafer transport unit and optimisation of the associated software took longer than originally expected. In the medium term, the Plasma System 800 is intended to replace the 300 series as a 'cash cow'. This machine, which features a low-wear ceramics chamber and a very fast loading system, achieves very high etching rates without

leaving photoresist residues behind, is eco-friendly, and reduces cost of ownership to a minimum by virtue of its minimal cleanroom 'footprint' and low operating costs.

The performance of the QuarzClean system was enhanced still further. This equipment is used for gentle cleaning of quartz wafer boats (frames for receiving up to 75 wafers) removes the impurities that arise during coating processes considerably faster and more efficiently than was previously the case. Contamination of the wafer boats with foreign metals was further reduced. The plasma works much more gently than hydrofluoric acid commonly used hitherto. This increases the useful life of the costly wafer boats and obviates any need to dispose of hazardous acids.

The laser-based SIRD and TWIN systems for detecting crystal defects in the wafer material were also refined. Implementation of so-called Pattern Recognition Software makes the system particularly userfriendly.

The division received financial assistance from the Federal Ministry of Research for the first time, namely for the 'paper thin wafers' project managed by the Fraunhofer Institute. The objective here is to develop paper-thin chips for use in bank notes, for example. PVA TePla's involvement in the project for developing a system for wafer thinning using plasma technology is a vivid demonstration of the company's pioneering role in this technological field.

In the PCB/Chip Packaging product division, further technological advances were achieved above all with respect to the Plasma System 80. This system, specially designed for inline production and the treatment of discrete substrates, is used for preparing surfaces prior to wire bonding and for packaging chips. The system can be integrated seamlessly into fully-automatic production lines, provides extremely short process times and, like the proven 400 System, is also suitable for Flip Chip and wafer sandwich applications.

Further development of the PlasmaPen atmospheric plasma system consumed most resources in the Industrial/Medical division. This product is deployed for selective surface treatment, in particular. Its applications range from the cleaning of contacts in the electronics field, through pre-printing treatment of packaging, to the preparation of textile fibres for dying. With regard to the PlasmaPen product group, development of the Xtension models was intensively advanced; this product is equipped with several parallel plasma outlets instead of the single nozzle in the PlasmaPen. By this means, surfaces of any width can be treated, such as metallic films in the packaging industry.

10. Investments

Gross investments posted in the schedule of fixed assets totaling € 13.6 million in 2002 are largely due to the merger. Additions of € 8.6 million related to the acquisition of assets of the TePla Group. Of these € 5.4 million relate to intangible assets and € 3.2 million to tangible assets.

A further € 2.7 million result from the goodwill acquired as part of the acquisition of the stake in Crystal Growing Systems GmbH.

The remaining gross additions of € 2.3 million related predominantly to additions of tangible assets.

11. Net worth and financial position

At as December 31, 2002 PVA TePla posted group current assets of € 25.5 million. These relate primarily to inventories (€ 9.6 million), trade receivables (€ 5.9 million) and liquid assets (€ 7.1 million).

As at December 31, 2002 fixed assets totaled € 24.0 million. In addition to tangible assets of € 10.3 million, this relates primarily to goodwill of € 7.6 million. Approx. € 4.9 million comes from the acquisition of the TePla Group and approx. 2.7 million from the acquisition of the stake in Crystal Growing Systems GmbH. The item also included € 4.6 million in long-term deferred taxation.

As at December 31, 2002 accruals and liabilities, including minorities totaled € 25.7 million. This figure included pension and other accruals of € 11.3 million.

Group Management Report 2002

As of December 31, 2002 the company reports shareholders' equity of € 23.8 million. On November 5, 2002 in the course of the merger between PVA and TePla the share capital was increased to approximately € 21.45 million by the issue of new shares against a contribution in kind.

After the merger the credit lines granted by banks to PVA and TePla and their subsidiaries are being renegotiated. At the end of the year short-term amounts due to banks at PVA TePla totaled € 4.8 million. Additional credit lines granted by the banks offer PVA TePla enough financial scope for handling its planned business from today's perspective.

12. Income situation

The net loss for the year 2002, at EUR 3.7 million, includes the consolidated result of the former PVA Group for the entire fiscal year 2002, as well as the result of the former TePla Group for the last two months of 2002.

Group losses from normal business operations are recorded at around EUR 5.0 million. These are partly due to what are probably once-only special factors:

	EUR '000
Result from normal
business operations:	-4,990
of which merger expenses	201
of which restructuring expenses	711
of which extraordinary
depreciation of inventories	1,802
Loss from normal business
operations, before special factors:	-2,276

The EUR 2.3 million loss from normal business operations, before accounting for special factors, is attributable to the shortfall in revenue relative to original estimates, coupled with high costs for personnel, sales operations, administration and R&D.

13. Personnel development/changes on executive bodies

In 2002, the PVA TePla Group employed an average of 372 people. This reflects a substantial increase compared to the previous year (258 employees in the former PVA Group) and results from the merger between PVA and TePla.

Following the merger of PVA and TePla, the company's activities were distributed among production sites in Feldkirchen, Kahla, Jena, Aßlar, Hanau and Corona, USA, as well as four other sales offices in Texas, New Jersey, New Hampshire (USA) and France.

In the course of restructuring measures, the company decided to close the Kahla production site and to cut the workforce size at the Feldkirchen site, in particular, following previous capacity-related layoffs at other sites (Jena, Corona, USA). Cut-backs in workforce size are also planned for 2003 at the sites in Aßlar and Hanau.

Due to the applicable notice periods, these reductions in the number of employees will be reflected in the company's figures in the course of 2003, but not before.

PVA TePla takes its social responsibilities seriously by training young people. In 2002, the Vacuum Systems division employed 7 trainees as well as several internship students in predominantly technical fields.

In the course of the business year, and on the basis of resolutions adopted at the Shareholders' Meeting on 4 June 2002, Messrs. Wolfgang Dondorf and Hartmut Böhle were elected to the six-member Supervisory Board. Prior to that , Mr. Roger D. McDaniel had resigned his post on the Supervisory Board with effect from 30 January 2002; Mr. Rudolf Ruppert had already retired from the Supervisory Board at the end of 2001 due to illness.

As announced at the Extraordinary Shareholders' Meeting to approve the merger of PVA and TePla, the Supervisory Board decided on 13 November

2002 – with effect from 2 December 2002 – to appoint Messrs. Peter Abel, Martin Gier and Volker Lang as additional members of the Management Board. Peter Abel was appointed Chairman of the Management Board, succeeding Friedrich G. Meyer.

14. Risks

As a technological company with worldwide operations, PVA TePla AG is confronted by many different risks.

The macroenvironment in which the company operates is characterised by global markets and continuously increasing complexity of technological applications. The risks of any developments within the company and its environment that might threaten the existence of the company are continuously monitored and evaluated by the company's management, and mitigated or offset wherever indicated and feasible. The evaluation of risk factors forms an integral part of corporate decision-making.

The primary objective of efficient and foresighted risk management is to identify any risks that may exist. To this end, employees are provided with a risk management manual containing procedural directives and a list of measures to be taken; in this way, business risks are controlled by continuous monitoring of the relevant procedures. In the commercial field, this function is assured by applying the 'four eyes principle'.

Group Management Report 2002

Market risks relate in particular to unexpected variations in investment activity on the part of customers and specific industries. This risk is reduced by diversifying our range of products and services across different sectors, such as chip production, machine tools and hard metal, production of highquality metals and ceramics, automotive and aerospace industries, as well as the electrical and electronic engineering sectors. Cyclical, foreseeable fluctuations in market volume are primarily offset by farming out or reducing externally contracted services. The PVA TePla Group also supplies highquality contracting work – such as plasma treatment or high-vacuum soldering and heat treatment of components; experience shows that when customers show little inclination to invest, demand for these services intensifies.

The semiconductor business, in particular, currently the most important within the PVA TePla Group, is highly cyclical in nature and for that reason involves major opportunities as well as risks. Although the chip industry in recent decades had average annual growth rates that were well above those of most Old Economy sectors, this average comprised years of both strong growth and recession. This risk situation is compounded by the high level of investment and development necessary in order to safeguard market positions.

The risk of declining orders due to a technology that appears unexpectedly on the market (from the side) is monitored and assessed by continuous observation of new research and technology work and published results specific to the various sectors, and by talks with key customers worldwide.

The high level of technical complexity in our products and rapid technological advances entail risks relating to research and development operations. Our medium- and long-term success is crucially dependent on PVA TePla continuing to (further) develop marketable products within appropriate timeframes that generate sufficient and timely revenues, such that the internal financing of the company is safeguarded by cash flow.

The cash flow and credit risks involved in financing business operations are substantially reduced in the case of major orders by means of customer/ supplier financing. In most cases, multi-phase advance payment arrangements are contractually agreed, commencing with up to 30% downpayment on receipt of order. This procedure is retained with special priority in order to check the creditworthiness of customers by this means, if need be. In contrast to the latter arrangements, the company itself must make downpayments to very few of its suppliers (the volume of purchases is around 50% of revenues!).

The company books a large proportion of its sales abroad. Billing of orders, including those from outside the EU, is predominantely in Euros. Otherwise, on a case-by-case basis, risks relating to currency fluctuations are hedged by means of forward foreign exchange transactions.

The personnel capacity risk consists primarily in the recruitment and integration of skilled management and technical personnel to replace managers and skilled staff leaving the company on account of age, in particular, and for coping with growth and the introduction of new technologies. At present, however, there are also risks associated with preventing the desire to leave the company in response to the restructuring phase. On the whole, recruiting highly qualified personnel tends to be difficult on account of scarcities on the labour market. Contacts are maintained and intensified with various training centres and higher education establishments in order to find suitable personnel. In recent years, however, there has been no significant fluctuation of personnel.

All companies, in which the Group has a participation in excess of 50% have quality management systems that are certified according to ISO 9001/2000. Maintaining a quality system tailored to each specific company within the group is supported and monitored by a central quality department. The taking out of appropriate insurance policies in order to cover the various operational risks is also coordinated by a central department for all companies within the Group.

The risk of own machines breaking down is of subordinate importance, because there are few machine tools (production is focused on assembly and commissioning activities) and also because sufficiently suitable machines are available from associated subcontractors. Preventive maintenance to our own plasma systems and vacuum soldering plant, as well as a rapid response to machine failure can be effected by the company itself. The risk of IT equipment failures and the threat posed by software viruses is reduced by regular backups and firewalls.

The risk of suppliers defaulting is substantially reduced by deliberately encouraging alternative suppliers, also in other countries. Care is taken to ensure that all major suppliers operate a suitable quality management system.

15. Significant events since the end of the financial year

With effect from 14 January 2003, Mr. Friedrich G. Meyer retired from the Management Board of the company. Most recently the divisional manager for plasma systems and before that the CEO of TePla, Mr. Meyer transferred his divisional responsibilities to his fellow director Mr. Martin Gier, who now heads the Crystal Growing Systems and Plasma Systems divisions of the Group.

Deteriorating economic conditions led to Vakuum-Anlagen Service GmbH, a wholly-owned subsidiary of the Group, filing an application on 17 February 2003 for insolvency proceedings to be opened due to overindebtedness. From today's perspective, this will not involve any sustained financial drawbacks for PVA TePla.

Group Management Report 2002

16. Outlook

For the current 2003 business year, the Management Board is reserved in its expectations, given continued economic uncertainties and above all the threat of war and its unforeseeable consequences. On the whole, and despite a relatively small increase in revenues, the profit situation is expected to improve significantly relative to fiscal 2002. It is planned to reach breakeven point with regard to operational activities – also and especially in the plasma systems division (TePla), which has been making losses for years. Initial restructuring measures essential to this end – involving company locations and personnel reductions – were launched by the company at the end of 2002 and the beginning of 2003. As a result, overheads will be cut significantly from the second quarter of 2003 onwards. In the view of the Management Board, the potential for exploiting the scale effects made possible by the merger is by no means exhausted, so additional positive impacts from the merger will be achievable in the medium term as well.

2003 is expected to show fluctuation as far as the achievement of revenues, incoming order and hence also the utilisation of human resources is concerned. At the time of preparing this report, known postponements of orders compared to the original estimates for 2003 adopted by management – in particular the renewed delay of the special project – are intensifying the challenge to management and employees to attain the sales and earnings targets set for 2003.

Improving the cost structure with leaner organisation and other measures – to the necessary extent – is therefore the paramount requirement if the company is to be placed on a solid footing for the long-term future. However, it is essential that high priority remain attached to exploiting opportunities to expand on our role as technological pioneers: in 2003, for example, PVA TePla has the option of acquiring a further 25% of the shares in shares in the PVA MIMtech, LLC holding company, and hence to increase to 50% its share in a company with operations in the future growth industry for metal injection moulding (MIM) technology.

The Management Board will make every endeavour to improve corporate earnings by exploiting the enormous business potential for the products made by PVA TePla and its subsidiaries worldwide.

Feldkirchen, April 3, 2003

PVA TePla Management Board

Consolidated Balance Sheet (US-GAAP) as at 31 December 2002 and 2001

Assets	Notes	31.12.2002	31.12.2001
		EUR '000	EUR '000
Current assets
Liquid assets		7,077	13,180
Trade accounts receivable	(6)	5,851	5,130
Amounts due to associated companies		1	0
Other receivables		2,297	1,409
Inventories	(7)	9,561	5,310
Other current assets		460	469
Prepaid expenses and accrued income		103	8
Deferred tax assets	(18)	104	0
Total current assets		25,454	25,506
Fixed assets
Financial assets	(8)	203	98
Tangible assets	(9)	10,284	7,064
Intangible assets	(9)	8,917	976
Deferred tax assets	(18)	4,626	1,356
Total fixed assets		24,030	9,494
Total assets		49,484	35,000

Liabilities	Note	31.12.2002	31.12.2001
		EUR '000	EUR '000
Current liabilities
Bank notes payable (current)	(11)+(15)	4,797	842
Trade accounts payable		2,552	698
Advance payments received on orders	(12)	2,550	4,255
Other liabilities	(13)	1,589	1,332
Deferred tax liabilities	(18)	1,266	1,309
Tax provision		334	667
Other accrued expenses	(14)	4,223	3,346
Deferred income		7	0
Total current liabilities		17,318	12,449
Special item relating to subsidies	(10)	1,236	1,123
Long-term liabilities
Notes payable	(15)	1,054	1,153
Pension accruals	(16)	5,478	4,501
Negative goodwill from earlier acquisitions	(17)	0	21
Total long-term liabilities		6,532	5,675
Minority interest		615	2,550
Shareholders' equity	(4)
Share capital		21,450	1,534
Additional paid-in capital		0	365
Retained earnings		2,505	11,301
Other comprehensive income		-172	3
Total shareholders' equity		23,783	13,203
Total equity and liabilities		49,484	35,000
The following notes are an integral part of the Group financial statements.

Consolidated Income Statement (US-GAAP) for the years ended December 31, 2002 and 2001

	Notes	2002	2001
		EUR '000	EUR '000
Revenues		37,788	71,759
Cost of goods sold		-30,917	-50,455
Gross profit		6,871	21,304
Selling expenses		-3,468	-3,115
General administrative expenses		-4,346	-3,641
Research and development expenses	(19)	-1,187	-442
Restructuring and other non-recurring
expenses	(20)	-2,715	0
Amortization of goodwill		-10	0
Other operating income		861	409
Other operating expenses		-975	-963
Operating result		-4,969	13,552
Interest income		364	488
Interest expenses		-332	-172
Equity in losses of associated companies		-53	0
Net interest income and net income from
associated companies		-21	316
Result from ordinary activities		-4,990	13,868
Income tax	(18)	68	-4,995
Deffered tax	(18)	1,237	-348
Income from the change in accounting methods		21	0
Net loss (income) for the year		-3,664	8,525
Minority interests		-58	-1,254
Net loss (income) for the year after
minority interest		-3,722	7,271
The following notes are an integral part of the Group financial statements.

Consolidated Cash Flow Statement (US-GAAP) for the years ended December 31, 2002 and 2001

		2002	2001
		EUR '000	EUR '000
	Group net loss (PY: Group net income)	-3,722	7,271
	+/- Depreciation/ write-ups on fixed assets	2,057	1,861
	+/- Increase/ decrease of provisions	-369	-1,281
	+/- Decrease/increase in deferred taxes	-1,203	338
	+/- Increase/decrease of the special item for subsidies	113	225
	+/- Other income/expenses not impacting cash flow	46	18
	-/+ Gains/ losses from disposals of fixed assets	0	-33
	+/- Earnings relating to minorities	58	1,254
	-/+ Increase/ decrease of inventories, trade receivables
	and other assets	2,833	811
	+/- Increase/ decrease of trade payables
	and other liabilities	-2,332	2,803
=	Cash flow from operating activities	-2,519	13,267
+	Proceeds from disposals of financial assets	2	0
-	Purchases of investments in financial assets	-97	-99
+	Net cash acquired in business combinations	237	0
-	Purchases of associated companies	-93	0
+	Proceeds from disposals of intangible assets	76	49
-	Purchases of tangible and intangible assets	-2,037	-1,468
=	Outflows from investment activity	-1,912	-1,518
+	Proceeds from increase of share capital	170	0
+	Proceeds from payments into additional paid-in capital	3,829	0
-	Payments to shareholders (dividends, capital repayment,
	other payments)	-2,556	-3,579
	+/- Proceeds/payments from/to minorities (capital increases,
	dividends, capital repayments, other payments)	-787	-464
-	Principal repayments of bonds and other financial loans	-102	-102
+	Change of short-term financial liabilities	-2,227	-1,198
=	Outflows from financing activity	-1,673	-5,343
	Change of liquid assets	-6,104	6,406
	+/- Currency translation effect and other value changes
	of liquid assets	-66	0
	+/- Changes to liquid assets resulting from consolidation	67	50
+	Liquid assets at the start of period	13,180	6,724
=	Liquid assets at the end of period	7,077	13,180
	The following notes are an integral part of the Group financial statements.

Statement of changes in shareholders' equity for the financial years ended December 31, 2002 and 2001

		Shares	Additional	Retained	Other compre- Shareholders'
		issued	paid-in capital	earnings	hensive income	equity
	Number	EUR '000	EUR '000	EUR '000	EUR '000	EUR '000
Status 01.01.2001	14,155,598	1,534	365	7,573	0	9,472
Distribution				-3,579		-3,579
Foreign currency
difference					3	3
Change to the scope
of consolidation/
participations				36		36
Net income/loss				7,271		7,271
Status 31.01.2002	14,155,598	1,534	365	11,301	3	13,203
Status 01.01.2002	14,155,598	1,534	365	11,301	3	13,203
Capital increase I	1,573,100	170	3,829			3,999
Capital increase II	1,821,290	198	3,746			3,944
Distribution				-2,556		-2,556
Acquisition TePla-Group	3,900,000	19,548	-10,227			9,321
Reclassification of
retained
earnings			2,487	-2,487		0
Foreign currency
difference					-175	-175
Change to the scope
of consolidation/
participations				-31		-31
Capitalization of
issue prospectus			-200			-200
Net loss of the year				-3,722		-3,722
Status 31.12.2002	21,449,988	21,450	0	2,505	-172	23,783
The following notes are an integral part of the Group financial statements.

1. General disclosures and accounting principles applied

Business activities

PVA TePla AG and its subsidiaries ("PVA TePla" or the "Company") are suppliers of systems and facilities for environmentally friendly production and processing of high-quality industrial materials. With their systems and services, PVA TePla supports key processes in industrial companies, particularly in the semiconductor, hard metals, electric/electronics and food industries as well as in the areas of photovoltaic and fuel cell technology. Furthermore, the company offers innovative components and solutions for cleaning fresh water, wastewater and surfaces with UV-C radiation. With its locations in Germany, the USA and France, PVA TePla maintains business relationships worldwide. The financial year is the calendar year.

Merger

PVA TePla, which is domiciled in Feldkirchen near Munich, Germany, was formed by a merger between two independent companies, namely PVA Vakuum-Anlagenbau GmbH, Aßlar (PVA) and TePla AG, Feldkirchen (TePla). PVA and TePla were merged with effect (under civil law) from 5 November 2002. The name of the company is now 'PVA TePla AG'. The merger was effected by transferring the entire assets as well as all rights and obligations of PVA (the transferring company) to TePla AG (the company taking over) in return for the issuance of TePla shares to the PVA shareholders, with PVA being dissolved without winding up procedures.

Basis of Presentation

The consolidated financial statements of PVA Te-Pla AG were prepared in accordance with the United States Generally Accepted Accounting Principles (US-GAAP). Pursuant to the regulations in the German Commercial Code (Handelsgesetzbuch – HGB), PVA TePla must prepare consolidated financial statements in accordance with the accounting legislation contained in the HGB Code. Pursuant to Section 292 a HGB, consolidated financial statements do not have to be prepared according to the laws of Germany if consolidated financial statements are submitted which comply with internationally recognised accounting principles such as US-GAAP. With the present consolidated financial statements, PVA TePla is utilising the option of exemption from Section 292 a HGB.

According to US-GAAP, and at variance with its legal structuring, the merger of PVA with TePla is a reverse acquisition pursuant to the SFAS (Statement of Financial Accounting Standards) No. 141 on 'Business Combinations' published by the Financial Accounting Standards Board ('FASB'), in that, after execution of the merger, the shareholders of PVA hold the majority of voting rights in PVA TePla (81.82%). For this reason, therefore, PVA is deemed to be the acquiring company and TePla the transferring company.

The accounting effects of the reverse acquisition are described in detail in Section 3 (Acquisitions).

In the balance sheet, the income statement and the consolidated cash flow statement, figures for the preceding financial year must be disclosed for the purposes of comparison. Amounts disclosed for the preceding year are those of the PVA Group,

which comprised, in addition to PVA as the parent company, the subsidiaries specified in Section 2 (consolidation principles), with the exception of TePla America Inc., TePla France S.A., PVA Löt- und Werkstofftechnik GmbH and PVA Control GmbH.

Preparation of the consolidated financial statements requires that estimates and assumptions be made by management. These have an influence on the disclosure of assets and liabilities, the disclosure of contingent liabilities as at the balance sheet date, and the disclosure of income and expenses in the reporting year. The actual amounts may deviate significantly from the estimates made by management.

2. Accounting and valuation

In preparing the consolidated financial statements, the following accounting and valuation principles were primarily applied:

Basis of Consolidation

These consolidated financial statements comprise PVA TePla and the wholly-owned and majorityowned subsidiaries. Companies in which PVA TePla hold a 20% or greater participation, but which are not under the common control of PVA TePla, are treated and valued in accordance with equity method accounting. All significant intercompany balances and transactions were eliminated in the consolidated financial statements. Minority interests in the companies in which the company holds the majority of shares are disclosed under 'Minority interests'.

The following companies were consolidated in the consolidated financial statements as at 31 December 2002:

Name	Domicile	Share of capital
PVA TePla AG (parent company)	Feldkirchen, Germany
TePla America Inc.	Corona/CA, USA	100.00%
TePla France S.A.	Saint Quentin en Yvelines, France	90.00%
UV Systec Gesellschaft für UV-Strahler
und Systemtechnik mbH	Jena, Germany	100.00%
PVA Vakuum-Anlagenbau Jena GmbH	Jena, Germany	100.00%
Crystal Growing Systems GmbH	Hanau, Germany	84.70%
PVA Löt- und Werkstofftechnik GmbH	Jena, Germany	100.00%
PVA Control GmbH	Aßlar, Germany	100.00%
Vakuum-Anlagen Service GmbH	Hanau, Germany	100.00%
PVA USA Corp.	Manchester/NH, USA	100.00%

The expenses and income of TePla, including those of its consolidated subsidiaries, TePla America Inc. and TePla France S.A., were taken into account in the consolidated financial statements as from 5 November 2002, the date of acquisition.

TePla America Inc. was formed by a merger in July 2001 of the former wholly-owned TePla subsidiaries MetroLine Industries Inc. and TePla Inc.

PVA Control GmbH and PVA Löt- und Werkstofftechnik GmbH were first included in the consolidated financial statements in 2002.

The participation in PVA Control GmbH was acquired in November 2001; however, PVA Control GmbH did not commence operations until the year 2002, with the consequence that it was not included in the consolidated financial statements of PVA in the year 2001. As at 31 December 2002, the shareholder equity of PVA Control GmbH amounted to EUR 74 thousand; revenues in 2002 came to EUR 313 thousand, and the net income for the year 2002 was EUR -23 thousand.

The participation in PVA Löt- und Werkstofftechnik GmbH was acquired by PVA when said company was founded in June 2002. The company commenced operations in October 2002. As at 31 December 2002, the shareholders' equity of PVA Lötund Werkstofftechnik GmbH amounted to EUR 9 thousand; sales revenue in the 2002 stub accounting period were EUR 163 thousand, while the net income for the stub accounting period was EUR -16 thousand.

The consolidated financial statements also include PVA MIMtech LLC, Cedar Grove/NJ, USA, an associated company in which the company holds a 25% participating interest. The latter participation was acquired by PVA USA Corp. in September 2002 when the company in question was founded. As at 31 December 2002, the shareholders' equity of PVA MIMtech LLC was USD 178 thousand, and the net income for the year 2002 (stub accounting period from 11 September to 31 December 2002) was USD -222 thousand.

Reporting currency and currency translation

The consolidated financial statements are denominated in Euro (EUR). As a basic principle, the balance sheet items of the foreign subsidiaries whose functional currency is not the Euro are translated using the exchange rate applying on the balance sheet date. However, the items in the income statement are translated using the average exchange rates for the business year as a whole. Translation adjustments arising from exchange rate fluctuations between different financial years are disclosed in the shareholder equity section under 'other comprehensive income'. Business transactions executed in foreign currencies by the German companies and their subsidiaries in the USA and France were converted to the respective national currencies. Foreign currency gains and losses were taken into account when calculating the financial results.

Liquid assets and receivables

Liquid assets and receivables are stated at their nominal value. Appropriate value adjustments are made to cover potential default risks in respect of trade receivables.

Inventories

Raw materials and supplies, as well as inventories are valued either at purchase costs on the basis of weighted average purchase prices, or at the lower market price. Production costs for finished goods and work in progress include directly attributable material and labour costs, as well as their proportionate share of overhead expenses. Reductions in value due to lower replacement costs or selling prices that fail to cover production costs were taken into account by making the respective value adjustments.

Leasing

PVA TePla is lessee of tangible assets. All leasing transactions in which PVA TePla is to be seen as the economic owner as lessee, are treated as financing leases in line with the Statement of Financial Accounting Standards ("SFAS") Nr. 13, "Accounting for Leasing" published by the Financial Accounting Standards Board ("FASB"), and are capitalized by PVA TePla as tangible assets. All other leasing transactions are treated as operating leases.

Tangible assets

Tangible assets are valued at purchase cost or manufacturing cost minus accumulated depreciation. Depreciations are calculated according to the straight-line or reducing balance method over the expected useful life; leasehold improvements are amortised over the remaining term of the lease, if shorter. Maintenance and repair expenses are booked as expenses in the respective period. Purchase and production costs, as well as the associated cumulative depreciation, are eliminated when assets are scrapped or sold, and any book profits or losses are disclosed in the income statement.

Depreciations are based on the following useful lives:

	Years
Buildings	25
Technical equipment and machinery	3-20
Other plant, operating and
office equipment	2-14

If the estimated fair value is less than the systematically depreciated purchase and production costs, extraordinary depreciations on said lower value were made.

Moveable assets are depreciated pro rata temporis in the year of acquisition.

Investment incentives and tax-exempted investment grants received in the reporting year and the preceding years are not deducted from purchase or production costs for the assets thus supported, but deferred as a separate balance sheet item entitled 'Special item relating to subsidies', and booked as income in the periods congruent to the corresponding expense items. Entitlement to government funding is disclosed in the balance sheet when the supported investments are actually made.

Intangible assets

Intangible assets mainly comprise goodwill generated in conjunction with corporate acquisitions as that portion of the purchase price that exceeded the market value of the net assets acquired. They result from the acquisition of TePla in November 2002 and the increase in participating interest in Crystal Growing Systems GmbH and in Vakuum-Anlagen Service GmbH in July 2002. In accordance with SFAS 142 ('Goodwill and other Intangible Assets'), which applies to financial years commencing after 15 December 2001, goodwill is no longer amortised over the prospective useful life, but must be subjected to an annual impairment test.

Taxes on income

Taxes on income are calculated using the liabilities method. Deferred tax assets and liabilities are recorded as other assets and as provisions, in order to take account of future taxation impacts due to temporary differences between the valuation of assets and liabilities for accounting purposes and valuation for tax purposes. In determining deferred tax assets and liabilities, the taxation rates at the time of their anticipated realisation are taken as the basis. Impacts resulting from changes in taxation rates are taken into account when the respective statutory regulations enter into force.

Value adjustments are made when it is necessary to reduce deferred tax assets to an amount equal to the expected tax benefit. Income taxes include tax payable or refundable for the respective period, plus or minus the change in deferred tax assets and liabilities during the period.

Liabilities

The payables are shown at the (discounted) repayment value.

Provisions

Provisions and accruals are valued at the amounts likely to be payable.

Pension accruals are based on actuarial principles in accordance with SFAS 87.

Recognition of revenues

Revenues are disclosed as soon as the goods or services are delivered and risk has been transferred. All revenues are booked on the date of delivery or performance, because the management views other services and sales agreements, such as training courses, as irrelevant with regard to the usability of the systems. Income from services and repair work is booked at the time the respective products are completed. Income from long-term production orders is recognised according to the percentage-of-completion method, because it is possible to make a reliable estimate of the income from orders, because the products to be delivered, the terms of payment and the manner in which the orders are to be executed are clearly defined in the relevant contracts, and because fulfilment of the contractual agreements is deemed to be likely by both the buyer and the seller. The percentage of completion is determined from the ratio of costs incurred up to the cut-off date and the estimated total costs (cost-to-cost method).

Research and development expenses

Research and development costs as well as software engineering expenses are booked as periodic expenses. SFAS 86 requires capitalisation of some software engineering expenses that are incurred between conclusion of the technological development phase and the time at which the product is available on the market. Based on the product development process, technological development is concluded when the working model has been completed. Until now, the time interval between completion of the technological development phase and the time at which such software products are available on the market is short, and software engineering expenses requiring capitalisation were negligible. For this reason, no software engineering expenses have been capitalised as yet.

Recent accounting pronouncements

In June 2001, the Financial Accounting Standards Board issued SFAS No. 143 'Accounting for Asset Retirement Obligations', which addressed accounting for obligations resulting from the retirement of long-lived assets and the associated costs for retirement. This standard is applicable to all obligations resulting from retirement of long-lived assets from acquisitions, design, development and/or normal use of the asset in question. SFAS No. 143 requires that these liabilities be recognised in the reporting period in which they incurred, as soon as it is possible to make a reasonable assessment of their fair value. The fair value of the liability is added to the book value of the respective asset. The additional book value resulting for this liability is amortised over the prospective useful life. This reduction is made at the end of each period by charging it to operating expenses. If the liability is recognised with a different value than the book value, the difference must flow into the consolidated income statement. PVA TePla will implement SFAS No. 143 as from 1 January 2003. To achieve this, PVA TePla must identify any eventual obligations and determine their fair value at the time the Statement is implemented. Determining these values is very complex; detailed market data are required and cash-flow models must be developed. In addition, procedures must be developed for identifying and tracking these obligations in future. The application of SFAS No. 143 is unlikely to have any material impacts on the net assets, liabilities, financial position and income of the Company.

In August 2001, the FASB published SFAS No. 144 'Accounting for the Impairment or Disposal of Long-Lived Assets'. SFAS No. 144 keeps to the existing rule that value adjustments be made only when future undiscounted cash flows are not sufficient to recover the residual value of the assets. Goodwill is not included in the scope of SFAS No. 144. In the case of assets to be abandoned, exchanged or distributed to owners in a spinoff, SFAS No. 144 requires that such assets be considered held as assets until they are actually disposed of. However, the useful life of an asset to be abandoned must be revised. SFAS No. 144 requires that all assets to be sold are disclosed at their residual value or at the lower fair value, minus costs of sale. Depreciations are no longer made. Furthermore, activities to be discontinued are no longer assessed on the basis of the fair value to be achieved, and future losses are not recognised until they are incurred. PVA TePla must implement SFAS No. 144 from 1 January 2003 onwards. The application of SFAS No. 144 is unlikely to have any material impacts on the net assets, liabilities, financial position and income of the Company.

In June 2002, the FASB issued SFAS No. 146 'Accounting for Costs Associated with Exit or Disposal Activities', which addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force ('EITF') Issue No. 94-3, 'Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)'. SFAS No. 146 requires that a liability that arises from the sale of parts of a company are initially recorded at the time and assessed with the fair value when the liability was incurred. According to EITF No. 94-3, a liability for exit costs as defined therein was recorded at the time that the sales become legally binding. SFAS 146 is applied to disposals of company parts that were initiated after 31 December 2002. Accordingly, the application of SFAS No. 146 is unlikely to have any material impacts on the net assets, liabilities, financial position and income of the Company.

3. Acquisitions

The merger is intended to provide PVA and TePla with synergies, in particular by exploiting their existing distribution channels. In this way, both companies can accelerate their penetration of markets in Europe and the USA. The acquisition was treated according to the purchase method, with the special feature that the assets and liabilities of TePla were recognised at fair value in this reverse acquisition, whereas the book values of PVA were maintained.

For accounting purposes, the reverse acquisition is recorded as follows in the consolidated balance sheet: the first step is to set the purchase cost of the participation against the total net assets of TePla, which are assessed at their fair value. In accordance with EITF 99-12, the purchase costs of the participation were calculated on the basis of the average share price of the period two days before until two days after the announcement of the merger, and the agreed conditions (20 July 2002) of EUR 2.39 per bearer share. On the basis of 3,900,000 shares, the resultant purchase costs amounted to EUR 9.321 million. The fair values of the TePla net assets amounted to EUR 4.471 million on the date that the merger took effect. The resultant difference of EUR 4.850 million was recorded as goodwill.

Whereas the registered share capital of PVA TePla as at 31 December 2002 was equal to that of the legal acquirer (TePla), the remaining items within shareholders' equity essentially result from the financial statements of the company deemed to be the accounting acquirer (PVA). For this reason, reallocations and set-offs of the various components of shareholders' equity were necessary, details of which can be seen from the consolidated statement of changes in shareholders' equity.

The abridged balance sheet of the acquired TePla Group at the time of acquisition, based on fair value assessment, is as follows:

	EUR '000
Current assets	10,267
Tangible assets	3,188
Intangible assets	538
Goodwill	4,850
Other long-term assets	1,362
Total acquired assets	20,205
Short-term liabilities	-10,317
Long-term liabilities	-567
Total liabilities taken over	-10,884
Total net acquired assets	9,321

On a pro-forma basis, the income statements for 2002 and 2001 are shown in the following as if the merger had already become effective at the beginning of 2002 and 2001, respectively:

	PVA TePla Group	PVA TePla Group
	01.01.-31.12. 2002	01.01.-31.12. 2001
	EUR '000	EUR '000
Revenues	46,672	91,943
Result from ordinary activities	-9,478	9,117
Net loss (income) for the year after minority interest	-7,991	4,604
Elimination of goodwill amortisation	0	465
Adjusted Net Profit/loss for the year	-7,991	5,069
Adjusted earnings per share
(based on 21,449,988 bearer shares)	-0.37	0.24

On 11 July 2002, PVA acquired an additional 32.11% of the shares in Crystal Growing Systems GmbH, thus increasing its participating interest from 51.15% to a current 83.26%. After deducting own shares amounting to 1.70% of the subscribed capital, the participation held by PVA in Crystal Growing Systems GmbH is 84.70%. Crystal Growing Systems GmbH operates within the Crystal Growing division of the Group; it develops and procures processing plant and systems for crystal growing in order to market these in Germany and, to an increasing degree, in other countries. The takeover was treated as a stepwise acquisition in accordance with the purchase method. The purchase costs were paid in full by issuing shares. The purchase price of EUR 3.900 million was derived from other transactions in shares in PVA GmbH, which transactions were executed in close conjunction with acquisition of the participation. Since there were no significant hidden reserves in the assets of Crystal Growing Systems GmbH at the time of acquisition, the difference between the purchase price and the residual value of the acquired assets and debts of EUR 2.734 million was recognised as goodwill.

On 11 July 2002, PVA also acquired an additional 42.70% of the shares in Vakuum-Anlagen Service GmbH, thus increasing its participating interest from 50.20% to a current 92.70%. After deducting own shares amounting to 7.10% of the subscribed capital, the participation held by PVA in Vakuum-Anlagen Service GmbH is 100.00%. The objects of

the company are consultancy, servicing and services in the field of technology for the systems and vacuum equipment industry; a large proportion of the services performed by Vakuum-Anlagen Service GmbH are for companies within the Group. The takeover was treated as a stepwise acquisition in accordance with the purchase method. The purchase costs were paid in full by issuing shares. Goodwill amounting to EUR 10 thousand resulted from valuation of the net assets acquired; this goodwill was written off fully as at the balance sheet date, due to the fact that Vakuum-Anlagen Service GmbH applied in February 2003 for insolvency proceedings to be opened.

In June 2002, PVA established a subsidiary, PVA Löt- und Werkstofftechnik GmbH, in Jena. PVA holds a 100% participating interest in the company. The purpose of establishing the company was to take over and operate the PVA vacuum soldering and vacuum heat treatment service division in Jena and Aßlar.

The original capital contribution of EUR 25 thousand was paid in cash by PVA.

In 2001, PVA established PVA Control GmbH, a wholly-owned subsidiary in Aßlar. The latter company is engaged in the planning, construction and marketing of electronic switching equipment and control systems, as well engineering such equipment and systems for vacuum and crystal growing installations, in particular. PVA Control GmbH did not commence operations until 1 January 2002. The capital stock of PVA Control GmbH is EUR 100 thousand.

In accordance with SFAS 142, goodwill is no longer amortised, but is reviewed at least once a year for any impairment of value.

4. Share capital

As at 31 December 2002, PVA TePla has issued 21,449,988 bearer shares, each bearer share representing one Euro of the share capital.

Capital measures

Prior to the merger into TePla, PVA performed two share capital increases (Share Capital Increases I and II). The increase in subscribed capital amounted in total to EUR 368 thousand, with the premium totalling EUR 7.575 million.

TePla increased its share capital in order to execute the merger with PVA. At the Shareholders' Meeting on 28 August 2002, a resolution was adopted to increase the share capital by EUR 17,549,988.00 from EUR 3,900,000.00 to EUR 21,449,988.00.

Approved and contingent capital

The TePla Shareholders' Meeting on 9 June 1999 approved the creation of up to EUR 100,000 in contingent capital (Contingent Capital I). The purpose of the contingent share capital increase is to grant stock option rights to members of the Management Board and executive employees of the company. As part of a stock option scheme, 100,000 stock options entitling the respective holder to purchase no-par value bearer shares have accordingly been issued. Each option entitles the holder to purchase one share of the company at a subscription price determined by a specific calculation. The development in the share price and the change in pre-tax earnings are factors used to determine the difference between the subscription price and the current share price.

The deadline for exercising the options expired in 2002. The options were not exercised by the beneficiaries.

The TePla Shareholders' Meeting held on 6 June 2000 approved a the creation of up to EUR 100,000 in contingent capital (Contingent Capital II). Half of that total, or 50,000 stock options, have already been issued. The second half has not been issued as yet. The acquisition period ended on 31 December 2001. The subscription rights may only be exercised in the period from the 11th to the 15th trading day, inclusive, after publication of the formally adopted annual financial statements of the company for the 2002 financial year.

No additional contingent capital has been subsequently created.

By resolution of the TePla Shareholders' Meeting on 28 August 2002, the Management Board was authorised, contingent on the approval of the Supervisory Board, to increase the share capital of the company on one or several occasions until 5 November 2007 by up to EUR 10,724,994.00 against cash contributions or contributions in kind (authorised capital), and to exclude shareholders from subscribing.

No new shares were issued in 2002 in respect of this authorised capital.

5. Earnings per share

The consolidated net loss for the year after minority interests amounted to EUR 3.722 million. During the financial year, an average of 16,502,793 no-par value bearer shares were in circulation. This figure takes into account that the subscribed capital of PVA GmbH as at 1 January 2002 was converted to 14,155,597 shares in conjunction with the merger with TePla AG. The share capital increases I and II carried out by PVA GmbH led, based on the share exchange ratio, to the number of shares increasing by 1,573,100, and by 1,821,290 no-par value bearer shares. The acquisition of the TePla Group is disclosed in the computation of shareholder equity changes as an increase of 3,900,000 shares. This corresponds to the subscribed capital of TePla AG prior to execution of the merger with PVA GmbH. Earnings per share are calculated from the result divided by the weighted average of the outstanding shares during the year. The diluted earnings per share figure is calculated from the result divided by the weighted average of the outstanding shares during the year, plus the shares that would be outstanding if the potentially diluting shares had been issued.

Calculation of earnings per share and diluted earnings per share for 2001 and 2002:

	2002	2001
Numerator
Group net income (net loss)	(3,722)	7,271
Denominator
Weighted number of outstanding shares – undiluted	16,502,793	14,155,598
Earnings (loss) per share (in euro):	(0.23)	0.51

The exercise period for stock options issued to employees and entitling the holders to purchase up to 50,000 shares may dilute the earnings per share in future years. As at the balance sheet date, the options did not have a dilutive effect.

6. Trade accounts receivable

Value adjustments amounting to EUR 525 thousand (previous year: EUR 55 thousand) were made to cover against bad debts.

7. Inventories

Inventories are composed as follows:

	December 31, 2002	December 31, 2001
	EUR '000	EUR '000
Raw materials, supplies and purchased goods	3,926	2,558
Work in progress	1,135	543
Costs and earnings in excess of billings
on uncompleted contracts	3,315	2,186
Finished goods	1,185	23
	9,561	5,310

As at December 31, 2002/2001 valuation adjustments on inventories of EUR 1,873 thousand and EUR 222 thousand respectively were made.

8. Financial assets

The 25% participation in PVA MIMtech LLC is disclosed under financial assets as shares in associated companies. Valuation is performed in accordance with the equity method, in which the participation is initially valued at the amount invested. Profits or losses subsequently incurred are set-off against the book value of the participation.

In September 2002, the purchase costs for the participation amounted to EUR 96 thousand. No difference arose between the purchase costs and the underlying shareholders' equity. The share in losses for 2002, at EUR 53 thousand, was written off from the participation; the counter-booking in the income statement was booked to 'equity in losses of associated companies' account.

Financial assets are composed as follows:

	December 31, 2002	December 31, 2001
	EUR '000	EUR '000
Shares in group companies	0	98
Shares in associated companies	43	0
Loans to associated companies	95	0
Other current assets	65	0
	203	98

9. Intangible and tangible assets

The development of intangible and tangible assets in the reporting year is shown in the consolidated statement of changes in fixed assets at the end of these Notes.

The book values of tangible and intangible assets break down as follows:

	December 31, 2002	December 31, 2001
	EUR '000	EUR '000
Intangible assets
Goodwill	7,584	0
Other intangible assets	1,333	976
	8,917	976
Tangible assets
Land and buildings	5,203	3,218
Technical equipment and machinery	3,217	1,897
Other equipment, office furniture and equipment	1,854	1,807
Assets under construction	10	142
	10,284	7,064

10. Special item relating to subsidies

PVA TePla has received financial assistance under government business development programmes from various public agencies, including funding to construct production facilities.

The special item relating to subsidies developed as follows in 2002:

	Total	Land	Technical	Other plant,
		and	equipment and	operating and
		buildings	machinery	office equipment
	EUR '000	EUR '000	EUR '000	EUR '000
Status as at 01.01.2002	1,123	606	437	80
Additions	222	72	144	6
Reversals	-109	-30	-57	-22
Status as at 31.12.2002	1,236	648	524	64

11. Current financial liabilities

Current financial liabilities relate to amounts owed to banks from taking out loans under short-term loan agreements.

12. Payments on account received for orders

The PVA TePla- Group produces, inter alia, large, special machines to order. The company requires that advance payments on account be made prior to commencement of production; these amounts are disclosed in the balance sheet under 'Other liabilities'.

Advance payments received break down as follows:

	31.12.2002	31.12.2001
	EUR '000	EUR '000
Billings in excess of costs
and estimated earnings
on uncompleted contracts
and related advances	1,856	3,648
Other advance payments
received	694	607
	2,550	4,255

13. Other liabilities

Other liabilities, at EUR 1.589 million, include EUR 510 thousand in tax liabilities (wage, salary and church taxes) and social insurance liabilities of EUR 371 thousand.

14. Other accruals

Other accruals of TEUR 4,223 (PY: TEUR 3,346) are made up predominantly of the following items:

	December 31, 2002	December 31, 2001
	EUR '000	EUR '000
Warranties	930	1,303
Holiday	554	341
Restructuring	484	0
Overtime/flexitime	341	156
Annual financial statements and audit	317	152
Contingent losses	227	43
Commissions	225	44
Listing of new shares	200	0
Outstanding commission	0	416
Bonuses	15	366

Provisions were formed exclusively for commitments to third parties where there is a real probability of them having to be honoured. Provisions were valued at the amount that probable claims would involve. The lower of equally probable values was recognised.

15. Long-term financial liabilities

As at the balance sheet date, long-term liabilities comprised the following items:

	December 31, 2002 EUR '000	December 31, 2001 EUR '000
KfW loans (ERP) for nominal EUR 511,291.88; repay
ments from 30.09.2004 in 30 semi-annual instalments
of EUR 17,043.40; term runs to 31.03.2019; Fixed
interest rate of 3.75% p.a. until 30.09.2009; secured
by transfer of ownership and certified land charges	511	511
KfW loans (ERP) for nominal EUR 818,067.00; repay
ments from 30.09.2001 in 16 semi-annual instalments
of EUR 51,129.19; term runs to 31.03.2009; Fixed
interest rate of 3.75% p.a.; secured by transfer of
ownership and certified land charges	645	744
Long-term financial liabilities	1,156	1,255
less portion of long-term financial liabilities with a
term to maturity of up to one year	-102	-102
Long-term financial liabilities less current portion	1,054	1,153

Future minimum payments in respect of long-term financial liabilities are broken down as follows:

Financial year	EUR '000
2003	102
2004	119
2005	136
2006	136
2007	136
2008 onwards	527
	1,156

16. Pension accruals

Pension commitments in the form of defined benefit plans have been made to beneficiary employees of PVA TePla, Crystal Growing Systems GmbH and Vakuum-Anlagen Service GmbH.

The projected unit credit values are calculated on the basis of assumptions regarding the expected growth of pension expectancies (2.5%-2.60% p.a.), pension growth (1.5%-2.0% p.a.) and interest rates (5.75% - 6.00% p.a.).

Development of pension accruals:

	EUR '000
Status as at 1 January 2002	4,501
Expenses based on years of service	189
Interest expense	275
Pensions paid	-54
Aquisition TePla	567
Status as at 31 December 2002	5,478

Development of Projected Benefit Obligations (PBOs):

	EUR '000
PBOs as at 1 January 2002	4,505
Expenses based on years of service	204
Interest expense	275
Pensions paid	-54
Aquisition TePla	567
profit/loss	84
PBOs as at 31 December 2002	5,581

The Accumulated Benefit Obligation (ABO) as at 31 December 2002 was EUR 4.750 million.

17. Negative goodwill from previous acquisition of shares

The negative goodwill resulting from the acquisition of the participating interest in PVA USA Corp. in December 2000 (100.00%) was derived after full set-off against the long-term, non-monetary assets acquired. In accordance with the rules contained in SFAS 141 ('Business Combinations'), which were applied to the company for the first time as from the 2002 financial year, this negative goodwill was booked as extraordinary income, and separately recorded in the consolidated income statement as 'Income from changes in accounting methods'.

18. Taxes on income

In October 2000, the German federal government reduced the rate of corporation tax to a standard 25%, with effect from 1 January 2001. In addition, a solidarity supplement of 5.5% and municipal trade tax at 12% is charged, resulting in a total tax burden of 38%. The increase in corporation tax to 26.5%, adopted on 19 September 2002 under the Flood Victims Act, is confined to the year 2003. The impacts of this one-year charge will be eliminated again in the following year.

The actual tax burden is based on the probable future tax payments or refunds resulting from future utilisation of assets and future fulfilment of obligations.

Tax expenses (benefit) break down as follows:

	2002	2001
	EUR '000	EUR '000
Current	-68	4,996
Deferred
Income from tax loss carryforwards	-1,374	0
Other deferred taxes	137	348
Total tax expenses (-income)	-1,305	5,343

The following reconciliation of tax expense (benefit) is based on a taxation rate of 38%:

	2002	2001
	EUR '000	EUR '000
Expected tax	-1,888	5,270
Difference in taxation rates for foreign companies	16	-38
Share issuance costs	-76	0
Profit distributions	28	0
Change of valuation allowance	102	0
Other influences	513	112
Tax expense (benefit)	-1,305	5,344

The deferred taxes from tax rate differentials of foreign subsidiaries result from the fact that companies outside Germany in the PVA TePla Group are subject to taxation at different tax rates to those applying in Germany.

Deferred tax assets and liabilities relate to:

	31.12.2002		31.12.2001
	EUR '000	EUR '000	EUR '000	EUR '000
	Deferred	Deferred	Deferred	Deferred
	tax assets	tax liabilities	tax assets	tax liabilities
Receivables		3
Inventories	76	1,104		979
Fixed assets	697	244	741
Losses carried forward (gross)	4,138
Liabilities		52
Other provisions		118		330
Special item relating to subsidies	148		168
Pension accruals	471		447
Other	47	4
	5,577	1,525	1,356	1,309
Value adjustment for losses carried forward	-588
	4,989	1,525	1,356	1,309
Net deferred tax assets	3,464		47
In the consolidated balance sheets of December 31, 2002 and December 31, 2001 deferred taxes are posted as follows:
	31.12.2002			31.12.2001
	EUR '000	EUR '000	EUR '000	EUR '000
	Deferred	Deferred	Deferred	Deferred
	tax assets	tax liabilities	tax assets	tax liabilities
Current
Germany	61	1,262	0	1,309
International	43	4	0	0
	104	1,266	0	1,309
Non-current
Germany	3,940	0	1,356	0
International	686	0	0	0
	4,626	0	1,356	0
Total deferred taxes	4,730	1,266	1,356	1,309
Net deferred tax assets	3,464		47

The future tax relief of the German companies (with the exception of Vakuum-Anlagen Service GmbH) on the tax loss of the 2002 financial year of EUR 7.4 million was fully capitalized, as the losses can be carried forward without any time limit and according to current planning it can be assumed that the loss carryforwards will be used. A full valuation adjustment was taken on the deferred tax assets from the tax loss at Vakuum-Anlagen Service GmbH of approx. EUR 0.2 million, as after the application for opening insolvency proceedings in February 2003, it is unlikely that the loss carryforward will be used.

According to French tax laws, the loss carryforward of TEUR 185 at TePla France S.A. can only be carried forward for a period of four more years. A full value-adjustment has been made on the deferred tax assets which resulted. The loss carryforwards of TePla America Inc. (USD 3.6 million federal tax; USD 2.0 million state tax) are lost – if they are not used beforehand – successively from the year 2020 (federal tax) and from the year 2005 (state tax). Value adjustments of EUR 0.3 million were made on the deferred tax assets at TePla America Inc.

19. Research and development expenses

When calculating the research and development expenses in 2002 and 2001, as disclosed in the income statement, received government funding of EUR 714 thousand and EUR 572 thousand, respectively, were deducted from the totals.

20. Restructuring and other nonrecurring expenses

Restructuring costs incurred in 2002, and expenses relating to the merger between PVA and TePla were separately recorded in the income statement as 'Restructuring and other non-recurring expenses'.

They were comprised of the following items:

	EUR '000
Expenses for merger	201
Expenses for restructuring and
other non-recurring expenses
Devaluation of inventories at Kahla
and Feldkirchen	1,802
Settlements and other expenses
relating to lay-offs	484
Pending losses from rental agreements	227
	2,714

21. Contingent liabilities

TePla America Inc. had a line of credit for a maximum of USD 1,500 million, which expired on 30 May 2002. This credit line was extended until 15 August 2003. Interest at a current rate of 10.25% is charged for availing of the credit line; from 24 January 2003 onwards, the interest rate is 6.25% p.a. The loan is secured by assets owned by TePla America Inc. USD 595 thousand of the credit line had been availed of as at 31 December 2002. PVA TePla has provided a guarantee for the bank loans to TePla America Inc., to the amount of loan utilised (max. USD 2,000 million).

In 2000 and 2001, PVA Vakuum-Anlagenbau Jena GmbH was awarded investment grants totalling EUR 714 thousand by the European Regional Development Fund; the grants were disbursed through the Thüringer Aufbaubank. Besides the recipient of the grants, PVA TePla and UV Systec Gesellschaft für UV-Strahler und Systemtechnik mbH are personally obligated to repay the approved investment grants (EUR 530 thousand and EUR 184 thousand, respectively) if the intended aim of the support (generation of more than 50% of total revenues through the development and production of high-vacuum processing plant and the vacuum soldering service) is not achieved within the period that the funds are earmarked, or if the secondary provisions governing project funding payments (Allgemeinen Nebenbestimmungen for Zuwendungen zur Projektförderung – ANBest-P) are infringed against (in particular the creation of nine full-time jobs). The first tranche of EUR 530 thousand is earmarked until 31 December 2003; the monitoring period for the creation of full-time jobs ends on 31 December 2005. The earmarking period for the second tranche of EUR 184 thousand ends on 30 June 2006; the monitoring period for the creation of full-time jobs also ends on 30 June 2006. As security for any repayment obligations, PVA Te-Pla and UV Systec GmbH have each declared an assumption of debt under public law.

Crystal Growing Systems GmbH received grants from the Federal Ministry for Education and Research (BMBF) and the Federal Ministry for Economics and Technology (BMWT). In line with the grant conditions, grants for 43.75 % (BMBF) and 50.0 % (BMWT) of the company costs for the relevant projects are have provided. As of December 31, 2002 total costs of TEUR 2,956 and TEUR 476 had been accrued.

22. Other financial obligations

PVA TePla has leased premises for production and administration in Feldkirchen and Aßlar from third parties. The monthly leasing instalment for the site in Feldkirchen is EUR 46 thousand, and EUR 53 thousand for the site in Aßlar. Premises in Hanau are used on a leasing basis by Crystal Growing Systems GmbH and Vakuum-Anlagen Service GmbH. The monthly leasing instalments are EUR 37 thousand and EUR 9 thousand, respectively.

TePla America Inc. conducts its business from leased premises at two sites in Corona, California, USA. The monthly leasing instalments are USD 11 thousand and USD 13 thousand. The facilities of TePla America Inc. in Marlton, New Jersey, USA are leased for USD 3 thousand per month. The site in Hayward, California, USA was abandoned in the course of the 2001 financial year. The monthly leasing instalment in Carrollton, Dallas, USA is USD 3 thousand.

The various companies within the PVA TePla Group have concluded rental or leasing agreements as well as service-level agreements with third parties for office equipment, factory equipment and vehicles.

The following amounts are expected to be due for other financial obligations arising from the aforesaid agreements:

Financial year	Rental and leasing agreements
	EUR '000
2003	2,447
2004	2,234
2005	2,095
2006	1,204
2007	893
2008 onwards	2,761
	11,634

23. Segment reporting

The company develops, produces and markets products that are related almost exclusively to the fields of vacuum, crystal growing and plasma systems. The Vacuum Systems division covers the activities of the former PVA Group, excluding the subsidiary Crystal Growing Systems GmbH, which forms the Crystal Growing Systems division. The Plasma Systems division covers the activities of the former TePla Group. The segment report is in line with internal control and reporting.

In the 2002 financial year, no single customer accounted for more than 10% of total Group revenues.

Divisions	Revenues	Costs of	Gross	Assets
		sales	profit
	EUR '000	EUR '000	EUR '000	EUR '000
Vacuum Systems	24,766	22,188	2,578	28,720
Crystal Growing Systems	11,459	8,584	2,875	11,839
Plasma Systems *	5,125	3,864	1,261	32,582
Consolidation	-3,562	-3,719	157	-23,657
Group	37,788	30,917	6,871	49,484
* as from 05.11.2002

Locations	Revenues	Costs of	Gross	Assets
		sales	profit
	EUR '000	EUR '000	EUR '000	EUR '000
Germany	38,214	32,430	5,784	62,511
USA	2,899	2,038	861	9,801
France	237	168	69	829
Consolidation	-3,562	-3,719	157	-23,657
Group	37,788	30,917	6,871	49,484

24. Supplementary information concerning the cash flow statement

Liquid assets are stated as cash and cash equivalents.

As at the balance sheet date, EUR 191 thousand are pledged as security for bank guarantees.

Interest income payments amounted in the 2002 financial year to EUR 364 thousand; interest expense payments were EUR 332 thousand. The dividends paid to owners of the company and minority interests totalled EUR 3.327 million.

Business transactions that did not lead to a change in funds were not included in the cash flow statement. Non-cash transactions in 2002 related primarily to:

• Share capital increase II: increase in participations in Crystal Growing Systems GmbH and Vakuum-Anlagen Service GmbH against newlyissued shares in PVA.
• Acquisition (in financial terms) of the TePla Group by the PVA Group in a reverse acquisition (only the liquid assets of the TePla Group, amounting to EUR 237 thousand at the time of acquisition, were recognised).
• First-ever inclusion of PVA Control GmbH in the entities to be consolidated.

25. Executive bodies

The members of the Management Board are as follows:

- Peter Abel, Wettenberg Chief Executive Officer of PVA TePla AG (since 2 December 2002); Graduate engineer

Director of the following Group companies: PVA Control GmbH, Aßlar PVA Vakuum-Anlagenbau Jena GmbH, Jena UV Systec Gesellschaft für UV-Strahler und Systemtechnik mbH, Jena PVA USA Corp., Manchester, NH, USA and of the following non-affiliated companies: Messtechnik Wetzlar GmbH, Wetzlar PA Beteiligungsgesellschaft mbH, Wettenberg

Memberships on supervisory bodies: Crystal Growing Systems GmbH, Hanau (Chairman of the Supervisory Board) Biologie-Gesellschaft Mittelhessen mbH, Gießen (Vice- Chairman of the Supervisory Board)

- Volker Lang, Bad Endbach

Member of the PVA TePla AG Management Board (since 2 December 2002); responsible for the Vacuum Systems division Graduate engineer

No memberships on supervisory bodies.

- Martin Gier, Offenbach

Member of the PVA TePla AG Management Board (since 2 December 2002); responsible for the Crystal-Growing Systems and Plasma Systems divisions (the former since 15 January 2003) Graduate engineer

Director of the following Group companies: Crystal Growing Systems GmbH, Hanau

No memberships on supervisory bodies.

- Craig A. Walker, Munich Member of the PVA TePla AG Management Board; Chief Financial Officer MBA

No memberships on supervisory bodies.

- Friedrich G. Meyer, Berg

Member of the PVA TePla AG Management Board (until 14 January 2003); Plasma Systems division; Chief Executive Office (until 1 December 2002)

Graduate physicist

No memberships on supervisory bodies.

Total emoluments paid to Management Board members in the 2002 financial year amounted to EUR 698 thousand, of which EUR 426 thousand have been recognised in the consolidated income statement.

Stock options were not granted to members of the Management Board in the 2002 financial year.

The members of the Supervisory Board are as follows:

- Dr. Dietmar Kubis, Jena (Chairman) Member of the Management Board of JENOPTIK AG (until 30 December 2002) and Spokesman of the Management Board of the Deutsche Effecten and Wechsel-Beteiligungsgesellschaft AG, Jena

Further memberships on supervisory bodies: 4MBO International Electronic AG, Plochingen (Chairman of the Supervisory Board) JENOPTIK Leasing GmbH & Co. KG, Jena (Supervisory Board) Frauenthal Keramik AG, Wien (Vice-Chairman of the Supervisory Board) CERAM Holding GmbH, Jena (Vice-Chairman of the Supervisory Board)

- Prof. Dr. Heiner Ryssel, Erlangen (Vice- Chairman)

Director of the Fraunhofer Institute for Integrated Systems and Component Technology, Erlangen

Other memberships on supervisory bodies: Steag Electronic Systems GmbH, Pliezhausen (member of the Scientific Advisory Board)

• Hartmut Böhle, Iffeldorf (since 4 June 2002) Managing Director of Klaus Kleinmichel GmbH, Bernried

No further memberships on supervisory bodies.

- Michael Daniel, Jena Chief Legal Officer, Jenoptik AG, Jena

No further memberships on supervisory bodies.

- Wolfgang Dondorf, Gummersbach (since 4 June 2002) Chief Executive Officer of Pfeiffer Vacuum Technology AG, Aßlar

No further memberships on supervisory bodies.

- Dr. Peter Friedemann, Königsbrunn Spokesman at Annual Shareholders' Meetings for the Retail Shareholders' Association (SdK), Munich

No further memberships on supervisory bodies.

- Roger D. McDaniel , Wildwood, MO, USA (until 30 January 2002) former CEO of IPEC Inc., Chandler, AZ, USA

Further memberships on supervisory bodies: Veeco Instruments Inc., Plainview, NY, USA (member of the Board of Directors) Entegris Inc., Chaska, MN, USA (member of the Board of Directors)

Emoluments paid to members of the Supervisory Board totalled EUR 37 thousand in the 2002 financial year.

A D&O insurance policy was taken out to cover the civil-law liabilities of executive body members. The premiums paid in 2002 for said insurance totalled EUR 12 thousand.

26. Additional notes on operating expenditure

Personnel expenditure in the 2001 and 2002 financial years are made up as follows:

	2002	2001
Wages and salaries	13,047	12,620
Social security	2,648	2,539
Pensions	524	388
	16,219	15,547

During the year, the group employed a total of 372 employees (previous year 258) on average.

27. Related parties

PVA TePla has supplier and customer relations with companies in the Pfeiffer Vacuum Technology AG Group (Pfeiffer), the CEO of which is Wolfgang Dondorf, a member of the PVA TePla supervisory board; PVA TePla is also a tenant of Pfeiffer at the Aßlar site.

In the 2002 financial year, net payments to Pfeiffer by PVA TePla amounted to approx. EUR 0.2 million Goods and services with a volume of approx. EUR 1.6 million net were procured from Pfeiffer; of that total, around 55% were for material and contracted services, and around 45% for rental and ancillary expenses.

28. Supplementary notes made in accordance with the requirements of Section 292a HGB to the notes to the consolidated financial statements prepared in accordance with US-GAAP

Reporting in accordance with German accounting legislation includes, in addition to the consolidated financial statements in accordance with US-GAAP, additional disclosures and the Group management report.

29. Significant differences between German GAAP and US GAAP

Fundamental differences

Accounting in accordance with US-GAAP differs from accounting according to the legislation in the German Commercial Code (HGB) in respect of its aims and objectives. Whereas US-GAAP emphasises the provision of material information of relevance for investors' decision making, HGB accounting rules are characterised by a greater emphasis on the precautionary principle.

Financial statement presentation

The presentation of financial statements pursuant to US-GAAP centres on the planned liquidation of assets and the maturity of debts within the framework of normal business operations. The basic principles governing the presentation of financial statements under German commercial law is defined for corporate enterprises in Section 266 HGB. The presentation is based here on the planned duration that assets and sources of funding, such as debts and shareholder equity, are held in the Company.

The following section summarises the main differences of particular relevance for the Company.

Capital consolidation

Company acquisitions are valued using the purchase method pursuant to both US-GAAP and German accounting principles. Whereas, under HGB rules, the legal transaction must be recorded in its contractually agreed form, the financial content of the transaction may lead under US-GAAP rules to the company that was taken over in the legal sense must be viewed as the buyer in financial terms (reverse acquisition), This possibility of reverse acquisition is not yet permissible under German accounting principles.

Goodwill

This is posted in line with US-GAAP according to SFAS No. 141 "Business Combinations" in connection with SFAS No. 142, "Goodwill and other intangible assets". Accordingly after June 30, 2001 in capital consolidation goodwill using the purchase method is no longer to be written off on a scheduled basis over the useful life, but is to be retained unchanged in the balance sheet until an impairment test, which is to be made at least once a year, requires an unscheduled write-down. According to German according principles, scheduled depreciation over the period of useful life is planned. According to US-GAAP, goodwill on the balance sheet of an acquired company at the time of acquisition is no longer presented in the new consolidated financial statements, as is the case with HGB.

Negative goodwill

If the market value of the acquired assets is greater than the purchase price, the difference is referred to as negative goodwill. According to US-GAAP, such negative goodwill is attributed proportionately to the assets acquired (with some exceptions) and impairs their residual value. If this impairment reduces the valuations of assets to zero, the remaining amount must be booked as extraordinary income and included in the income statement. According to German accounting regulations, the treatment of negative goodwill in corporate accounts is dependent on the cause that gave rise to it.

Partial recognition of profits in the valuation of inventories

According to US-GAAP, partial profits must be recognised in the case of long-term production orders (beginning and ending of a specific order are in different accounting periods) when it is possible to make reliable estimates about the total costs and the percentage of completion. According to German accounting legislation, the partial recognition of profits in the valuation of inventories is conditional on other conditions being met.

Deferred taxes

According to German accounting principles, deferred tax assets deriving from a loss carried forward for tax purposes are not stated. According to US-GAAP, deferred taxes on losses (including losses carried forward) must be recognised. Value adjustments must be made to deferred tax assets that are unlikely to be realised.

Pension accruals

According to US-GAAP, valuation of pensions accruals must take expected salary trends into account using the projected unit credit method. This method is also possible under HGB rules.

Foreign currency translation

Pursuant to HGB rules, foreign currency receivables and liabilities are valued using the exchange rate at the time the business transaction was recorded, or at the less favourable exchange rate on the balance sheet date, whereby any losses not realised are recorded in the income statement. According to US-GAAP, receivable and liabilities denominated in foreign currencies are translated using the exchange rate applying on the balance sheet date, whereby unrealised profits and losses calculated on this basis are included in the income statement.

PVA TePla AG

Feldkirchen, 03 April 2003

Peter Abel Chief Executive Officer	Craig A. Walker Chief Financial Officer
Volker Lang	Martin Gier

Consolidated Statement of Changes in Fixed Assets

	Acquisition and manufacturing costs
		Additions	Reclassifi-		Disposals Foreign currency
	01.01.2002	2002	cation	2002	difference	31.12.2002
	EUR '000	EUR '000	EUR '000	EUR '000	EUR '000	EUR '000
Intangible
assets
1. Goodwill	0	7,594	0	0	0	7,594
2. Other intangible
assets	1,936	788	0	0	0	2,724
	1,936	8,382	0	0	0	10,318
Tangible assets
1. Land and leasehold rights
and buildings, including
buildings on
third-party land	3,625	1,639	581	0	-34	5,811
2. Technical equipment,
plant and machinery	4,590	1,850	191	65	-147	6,419
3. Other equipment, operational
and office equipment	3,915	809	0	93	-34	4,597
4. Work in progress	142	677	-772	37	0	10
	12,272	4,975	0	195	-215	16,837
Financial assets
1. Shares in
group companies	98	0	0	98	0	0
2. Shares in
associated companies	0	96	0	0	0	96
3. Loans to
associated companies	0	95	0	0	0	95
4. Other fixed
assets	0	67	0	2	0	65
	98	258	0	100	0	256
	14,306	13,615	0	295	-215	27,411

	Book value
	Additions	Disposals	Foreign currency
01.01.2002	2002	2002	differences	31.12.2002	31.12.2002	31.12.2001
EUR '000	EUR '000	EUR '000	EUR '000	EUR '000	EUR '000	EUR '000
0	10	0	0	10	7,584	0
960	431	0	0	1,391	1,333	976
960	441	0	0	1,401	8,917	976
407	205	0	-4	608	5,203	3,218
2,693	622	46	-67	3,202	3,217	1,897
2,108	736	75	-26	2,743	1,854	1,807
0	0	0	0	0	10	142
5,208	1,563	121	-97	6,553	10,284	7,064
0	0	0	0	0	0	98
0	53	0	0	53	43	0
0	0	0	0	0	95	0
0	0	0	0	0	65	0
0	53	0	0	53	203	98
6,168	2,057	121	-97	8,007	19,404	8,138

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 PVA TePla AG, Feldkirchen, for the business year from January 1 to December 31, 2002. The preparation and the content of the consolidated financial statements in accordance with Accounting Principles Generally Accepted in the United States of America (US-GAAP) are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit of the consolidated financial statements in accordance with German auditing regulations and German generally accepted standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer (IDW). Those standards require that we plan and perform the audit such that it can be assessed with reasonable assurance whether 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 is 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 Accounting Principles Generally Accepted in the United States of America.

Our audit, which also extends to the group management report prepared by the Company's management for the business year from January 1 to December 31, 2002, has not led to any reservations. In our opinion on the whole the group management report 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 from January 1 to December 31, 2002, satisfy the conditions required for the Company's exemption from its duty to prepare consolidated financial statements and the group management report in accordance with German law.

Munich, April 3, 2003

KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft Wirtschaftsprüfungsgesellschaft

Wolfs Rahn Wirtschaftsprüfer Wirtschaftsprüfer

Publication Notes

PVA TePla AG

Hans-Riedl-Str. 5
85622 Feldkirchen
Phone:	+49 (0)89 / 905 03 - 0
Fax:	+49 (0)89 / 905 03-100
Internet:	http://www.pvatepla.com
Investor Relations: Peter Banholzer
Phone:	+49 (0)89 / 905 03 -106
E-Mail:	info@pvatepla.com
Published by:	PVA TePla AG
Concept/Text:	PVA TePla AG
Design:	Ursula Borsche GmbH
Languages:	Deutsch & Englisch

Printed on paper bleached without the use of chlorine.

ANNUAL REPORT 2002

PVA TePla AG Hans-Riedl-Str. 5 85622 Feldkirchen Fon +49 (0)89 / 905 03 -0 Fax +49 (0)89 / 905 03 -100 E-Mail: info@pvatepla.com

www.pvatepla.com