FORM 6-K

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
Commission file number 001-14264

For the month of June 2005

PFEIFFER VACUUM TECHNOLOGY AG
(Translation of registrant’s name into English)

Berliner Strasse 43
D–35614 Asslar
Federal Republic of Germany
(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of form 20-F or Form 40-F.

Form 20-F  þ		Form 40-F  o

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b) (1):

Yes  o		No  þ

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b) (7):

Yes  o		No  þ

Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes  o		No  þ

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-________

 

 

PFEIFFER VACUUM TECHNOLOGY AG

Table of Contents

				Page
Consolidated Statements of Income for the periods ended June 30, 2005 and June 30, 2004					3
Consolidated Balance Sheets at June 30, 2005 and December 31, 2004					4
Consolidated Statements of Shareholders’ Equity for the periods ended June 30, 2005 and December 31, 2004					5
Consolidated Statements of Cash Flows for the periods ended June 30, 2005 and June 30, 2004					6
Notes to the Consolidated Financial Statements					7
1.		The Company and Basis of Presentation			7
2.		Summary of Significant Accounting Policies			7
3.		New U.S. Legislation and Accounting Rules			8
4.		Restructuring			8
5.		Discontinued Operations			9
6.		Inventories			10
7.		Investment Securities			10
8.		Stock-Based Compensation — Convertible Bonds			10
9.		Earnings per Ordinary and Diluted Share and ADR			11
10.		Share Ownership			12
11.		Employees			12
12.		Pension Benefits and Similar Obligations			12
13.		Warranty			13
14.		Segment Information			13
15.		Income Tax Expense			15
Management’s Discussion and Analyses of Financial Condition and Results of Operations					16
Signatures					24

 

PFEIFFER VACUUM TECHNOLOGY AG

CONSOLIDATED STATEMENTS OF INCOME
(in thousands other than per share amounts)
(unaudited)

		Three months ended								Six months ended
		June 30,								June 30,
		2005				2004				2005				2004
		€				€				€				€
Net sales			39,931				37,816				77,519				75,283
Cost of sales			(21,371	)			(20,210	)			(41,462	)			(40,138	)
Gross profit			18,560				17,606				36,057				35,145
Selling and marketing expenses			(5,065	)			(4,736	)			(9,619	)			(9,308	)
General and administrative expenses			(3,042	)			(3,042	)			(6,057	)			(6,450	)
Research and development expenses			(1,624	)			(1,796	)			(3,400	)			(3,398	)
Operating profit			8,829				8,032				16,981				15,989
Interest expense			(95	)			(5	)			(103	)			(19	)
Interest income			431				586				607				661
Foreign exchange gain			552				243				997				742
Income from continuing operations before taxes			9,717				8,856				18,482				17,373
Income taxes			(3,871	)			(3,555	)			(7,365	)			(6,972	)
Income from continuing operations			5,846				5,301				11,117				10,401
Discontinued operations:
Loss from operations of DVD business net of tax			(338	)			(918	)			(681	)			(1,855	)
Loss on disposal net of tax			(138	)			—				(138	)			—
Loss on discontinued operations net of tax			(476	)			(918	)			(819	)			(1,855	)
Net income			5,370				4,383				10,298				8,546
Basic and diluted income per ordinary share and ADR from:
Continuing operations (in €)			0.67				0.61				1.28				1.20
Discontinued operations (in €)			(0.05	)			(0.11	)			(0.10	)			(0.22	)
Net			0.62				0.50				1.18				0.98

See accompanying notes to the consolidated financial statements.

 

PFEIFFER VACUUM TECHNOLOGY AG

CONSOLIDATED BALANCE SHEETS
(in thousands, unaudited)

		June 30,				December 31,
		2005				2004
		€				€
Assets
Cash and cash equivalents			52,171				44,986
Trade accounts receivable — net			22,645				18,967
Other accounts receivable			2,139				4,056
Inventories — net			15,174				13,954
Investment securities			—				9,000
Prepaid expenses			763				541
Deferred tax assets — net			945				774
Other current assets			150				564
Assets held for sale			265				1,519
Total current assets			94,252				94,361
Intangible assets			568				491
Property, plant and equipment — net			23,179				23,225
Investment Securities			4,002				1,002
Deferred tax assets — net			2,428				2,328
Prepaid pension cost			2,822				2,817
Other assets			1,220				1,009
Total non-current assets			34,219				30,872
Total assets			128,471				125,233
Liabilities and shareholders’ equity
Trade accounts payable			3,608				2,965
Accrued liabilities			7,347				9,519
Income tax liabilities			5,701				5,720
Customer deposits			1,105				1,911
Other payables			3,929				2,328
Other current liabilities			142				—
Liabilities held for sale			301				1,186
Total current liabilities			22,133				23,629
Convertible bonds			768				794
Accrued pension			2,050				1,455
Total non-current liabilities			2,818				2,249
Shareholders’ equity
Share capital (13,459,350 no par value ordinary shares authorized, 8,790,600 issued and 8,690,524 outstanding at June 30, 2005 and at December 31, 2004)			22,504				22,504
Additional paid-in capital			2,821				2,821
Retained earnings			81,733				79,256
Accumulated other comprehensive loss			(1,100	)			(2,788	)
Treasury stock, at cost (100,076 ordinary shares)			(2,438	)			(2,438	)
Total shareholders’ equity			103,520				99,355
Total liabilities and shareholders’ equity			128,471				125,233

See accompanying notes to the consolidated financial statements.

 

PFEIFFER VACUUM TECHNOLOGY AG

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

														Accumulated Other Comprehensive Income
						Additional								Minimum				Cumulative				Unrealized								Total
		Share				paid-in				Retained				pension				translation				gain/(loss)				Treasury				shareholders’
		capital				capital				earnings				liability				adjustment				on hedges				stock				equity
		(€ in thousands)
Balance at January 1, 2003			22,504				2,821				65,870				(656	)			1,560				409				—				92,508
Dividends paid											(4,903	)																			(4,903	)
Treasury stock																											(2,438	)			(2,438	)
Net income											12,746																				12,746
Components of other comprehensive income — net of tax of € (305) —															592				(3,609	)			141								(2,876	)
Total comprehensive income																															9,870
Balance at December 31, 2003			22,504				2,821				73,713				(64	)			(2,049	)			550				(2,438	)			95,037
Dividends paid											(6,083	)																			(6,083	)
Net income											11,626																				11,626
Components of other comprehensive income — net of tax of € (11) —															(100	)			(765	)			(360	)							(1,225	)
Total comprehensive income																															10,401
Balance at December 31, 2004			22,504				2,821				79,256				(164	)			(2,814	)			190				(2,438	)			99,355
Dividends paid											(7,821	)																			(7,821	)
Net income											10,298																				10,298
Components of other comprehensive income — net of tax of € 159 —																			1,966				(278	)							1,688
Total comprehensive income																															11,986
Balance at June 30, 2005			22,504				2,821				81,733				(164	)			(848	)			(88	)			(2,438	)			103,520

See accompanying notes to the consolidated financial statements.

PFEIFFER VACUUM TECHNOLOGY AG

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)

		Six months ended June 30,
		2005				2004
		€				€
Cash flow from operating activities:
Net income			10,298				8,546
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation			1,644				1,664
Gain on disposal of fixed assets			(11	)			(47	)
Change in deferred taxes			—				(43	)
Provision for doubtful accounts			170				(303	)
Loss on disposal of discontinued operations and changes in assets and liabilities held for sale			205				(3,393	)
Effects of changes in operating assets and liabilities:
Trade accounts receivable			(3,227	)			914
Other accounts receivable			1,930				(199	)
Inventories			(814	)			(2,383	)
Prepaid expenses			(202	)			(21	)
Other current assets			108				254
Other long-term assets			(158	)			131
Prepaid pension cost			(5	)			—
Accrued pension liabilities			506				876
Accounts payable trade			630				613
Income tax liabilities			(64	)			3,292
Accrued other liabilities			(2,308	)			(208	)
Customer deposits			(807	)			482
Other payables			1,582				2,750
Net cash provided by operating activities			9,477				12,925
Cash flow from investing activities:
Proceeds from disposal of fixed assets			37				87
Proceeds from disposal of discontinued operations			171				—
Capital expenditures			(1,686	)			(845	)
Purchase of investment securities			(3,000	)			—
Repayment of investment securities			9,000				—
Net cash provided by (used in) investing activities			4,522				(758	)
Cash flow from financing activities
Dividend payment			(7,821	)			(6,083	)
Net cash used in financing activities			(7,821	)			(6,083	)
Effects of foreign exchange rate changes on cash and cash equivalents			1,007				376
Net increase in cash and cash equivalents			7,185				6,460
Cash and cash equivalents at beginning of period			44,986				29,432
Cash and cash equivalents at end of period			52,171				35,892
Non-cash transactions:
Repayments of convertible bonds and employee loans			(26	)			(26	)

See accompanying notes to the consolidated financial statements.

 

PFEIFFER VACUUM TECHNOLOGY AG

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 

June 30, 2005

1.     The Company and Basis of Presentation

     Pfeiffer Vacuum is a full-line manufacturer in the vacuum technology business offering solutions for a variety of customer applications relating to the generation, control and measurement of vacuum. The products developed and manufactured at the production facility in Asslar, Germany, include turbomolecular pumps, a range of backing pumps, such as rotary vane, Roots and dry pumps, complete pumping stations as well as customized vacuum systems, vacuum components and instruments.

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

The Consolidated Financial Statements of Pfeiffer Vacuum Technology AG and its subsidiaries (“the Company” or “Pfeiffer Vacuum”) have been prepared in accordance with United States Generally Accepted Accounting Principles (U.S. GAAP). The interim financial statements reflect all adjustments (consisting only of normal recurring adjustments) which are necessary for a fair presentation of the financial position, results of operations and cash flows of the Company.

Pfeiffer Vacuum presents its Consolidated Financial Statements in euros (€).

2.     Summary of Significant Accounting Policies

Consolidation Principles

     All companies which Pfeiffer Vacuum Technology AG directly or indirectly controls are consolidated. The Company is considered to control an entity if it either directly or indirectly holds a majority of the voting rights and can therefore exercise a controlling influence.

All material intercompany gains and losses, receivables, liabilities, revenues and expenses are eliminated as part of the consolidation process.

Use of Estimates

     The preparation of the Consolidated Financial Statements requires management to make estimates and assumptions that affect the amounts of assets and liabilities on the date of the financial statements and the reported amounts of revenues and expenses during the reporting period that are reported in the financial statements and accompanying notes. These estimates and assumptions could differ from the actual results.

Components of operating expenses

     Cost of sales include all expenses that are related to the sold product or service in a direct or indirect manner, for example, material consumption (including inbound freight charges), production related wages and salaries, purchasing and receiving costs, inspection costs, warehousing costs and certain service costs. Inventory excess and obsolescence charges are also recorded in cost of sales as well as warranty related expenses. Selling and marketing expenses mainly include wages and salaries, costs for marketing and advertising and costs related to trade fairs and conventions as well as other merchandising costs (including catalogs, brochures, etc.). General and administrative expenses predominantly include wages and salaries, allowance for doubtful accounts, audit and other general consulting fees and other costs that relate to the company as a whole (e.g., IT consulting).

 

PFEIFFER VACUUM TECHNOLOGY AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 

Reclassifications

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

Foreign Currency Translation

     The financial statements of the Company’s foreign subsidiaries have been translated into euros (€) in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 52, “Foreign Currency Translation”. The functional currency of all of the Company’s foreign subsidiaries is the applicable local currency in which that entity conducts its business. When translating foreign functional currency financial statements, year-end exchange rates are applied to the assets and liabilities, while average annual exchange rates are applied to income statement accounts. The resulting translation adjustments are recorded as accumulated other comprehensive income (loss).

3.     New U.S. Legislation and Accounting Rules

     As a result of the Company’s listing at New York Stock Exchange, it is subject not only to the provisions of German law (corporation, codetermination and capital market legislation) and of its own Articles of Association but also to the licensing requirements of the New York Stock Exchange. American capital market legislation — specifically the Sarbanes-Oxley Act and the rules and regulations of the Securities and Exchange Commission (“SEC”) — also apply to Pfeiffer.

4.     Restructuring

     In July 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” This Standard requires that a liability for costs associated with exit or disposal activities be recognized in the period in which the costs are incurred if a reasonable estimate of fair value can be made.

During the third quarter of 2004 and after other cost reduction measures proved ineffective, the Company entered into a plan of termination which impacted employees in the DVD business. This business deals with development and production of manufacturing lines for digital versatile discs and falls within the operating segment Germany. Due to the German Works Council Constitution Act (Betriebsverfassungsgesetz) the Company must reach and reached an agreement with its workers council regarding the provisions of the one-time termination benefits for 51 employees. This agreement included the date of termination of each employment contract, amounts of termination payments and the payment date. The accrued amount includes only the severance payment and not regular salaries which are paid out during the minimum retention period and reflected as period costs. An employee will receive severance regardless of whether such employee remains with the Company for the minimum retention period.

The redundancy plan was approved by the management, having the corresponding authority to do so, the employees to be terminated, their function and their location were identified in this plan, each dismissed employee was able to calculate their individual indemnity by using the formula set up in the plan (depending on age, seniority and salary) and it was and is still unlikely that significant changes to the plan will be made or that the plan will be withdrawn.

The total amount expensed in the third quarter of 2004 regarding this redundancy plan was approximately € 1.2 million. The accrued restructuring costs due to the redundancy program amounted to € 0.9 million at December 31, 2004 and decreased to approximately € 0.1 million at June 30, 2005, as payments were made. The remaining payment will be in the third quarter 2005.

 

PFEIFFER VACUUM TECHNOLOGY AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 

5.     Discontinued Operations

     In the second quarter of 2005, the management board committed to a plan to dispose of this business, having obtained supervisory board approval as required in order to terminate this sideline activity. Beginning with the second quarter of 2005, the DVD business as part of the segment Germany is reflected as a discontinued operation. All prior period statements have been restated accordingly.

In April 2005 the Company sold by auction the fixed assets and the respective inventories of the manufacturing site in Aschaffenburg. The disposal of the fixed assets and the respective inventories resulted in a loss of approximately € 0.2 million.

Gains and losses of discontinued operations were as follows:

		Three months ended								Six months ended
		June 30,								June 30,
		2005				2004				2005				2004
		€ (in thousands)								€ (in thousands)
Loss from operations of DVD business before income tax benefit			(545	)			(1,477	)			(1,097	)			(2,985	)
Income tax benefit			207				559				416				1,130
Net loss from operations of DVD business			(338	)			(918	)			(681	)			(1,855	)
Loss on disposal before income tax benefit			(222	)			—				(222	)			—
Income tax benefit			84				—				84				—
Net loss on disposal			(138	)			—				(138	)			—
Total loss from discontinued operations before income tax benefit			(767	)			(1,477	)			(1,319	)			(2,985	)
Income tax benefit			291				559				500				1,130
Net total loss from discontinued operations			(476	)			(918	)			(819	)			(1,855	)

The Company expects that any future expenses due to the discontinued operations will not be material.

The assets and liabilities of the discontinued operations were as follows:

		June 30,				December 31,
		2005				2004
		€ in thousands
Assets
Cash and cash equivalents			8				—
Trade accounts receivable and other receivables			42				6
Inventories — net			215				911
Intangible and fixed assets			—				602
Total current assets			265				1,519
Liabilities
Trade accounts payable and other payables			186				1,060
Accrued other liabilities			115				126
Total current liabilities			301				1,186

 

PFEIFFER VACUUM TECHNOLOGY AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 

6.     Inventories

     Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out method.

Inventories consist of the following:

		June 30,				December 31,
		2005				2004
		(€ in thousands)
Raw materials			4,098				4,218
Work-in-process			4,433				4,241
Finished products			6,643				5,495
Total inventories			15,174				13,954

7.     Investment Securities

     The Company holds investment securities amounting to € 4.0 million, which will be held until final maturity and are consequently valued at carrying cost of acquisition.

Within the second quarter of 2005, the issuer executed the right to repay the investment security amounting to € 9.0 million before original maturity according to the notes of the investment. Interest income amounting to € 144,000 for the six month ended June 30, 2005 was paid by the issuer and included in the Company’s interest income of 2005.

8.     Stock-Based Compensation — Convertible Bonds

     As permitted under SFAS No. 123, “Accounting for Stock-Based Compensation,” as amended, the Company applies the intrinsic value-based method in accordance with APB Opinion No. 25 for its stock-based compensation plans. Under APB No. 25 “Accounting for Stock Issued to Employees,” compensation expense is recorded on the measurement date only if the current market price of the underlying stock exceeds the exercise price.

As of June 30, 2005, employees had returned 3,000 of these convertible bonds having an aggregate principal value of € 384,000 and repaid the corresponding employee loans.

Accounting for Stock Based Compensation

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

		Number of				Weighted Average
		Shares				Exercise Price
		Outstanding				per Share
						€
Convertible shares outstanding January 1, 2004			330,000				44.74
Granted			—				—
Exercised			—				—
Forfeited			(20,000	)			42.86
Convertible shares outstanding December 31, 2004			310,000				44.86
Granted			—				—
Exercised			—				—
Forfeited			(10,000	)			42.86
Convertible shares outstanding June 30, 2005			300,000				44.93

 

PFEIFFER VACUUM TECHNOLOGY AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 

Shares exercisable at June 30, 2005 totaled 228,000. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions used for grants in 2002 and 2000: Risk-free interest rates ranging from 4% to 5%; expected lives ranging from 4.5 to 6 years; expected dividend yield of 1% to 2%; and expected volatility ranging from 30% to 40%.

SFAS 123 requires disclosure of pro forma information regarding net income and earnings per share as if the Company had accounted for its stock-based compensation to employees using the fair value method. For pro forma purposes, using the fair value method the Company’s net income from continuing operations would have been K€ 10,901 and the respective earnings per share would have been € 1.25 and net loss from discontinued operations would have been K€ 1.035 and the respective earnings per share would have been € (0.12) for the six months ended June 30, 2005. For the three months ended June 30, 2005 the proforma net income from continuing operations would have been K€ 5,738 and the respective earnings per share would have been € 0.66, the net loss from discontinued operations would have been K€ 584 and the respective earnings per share would have been € (0.07).

9.     Earnings per Ordinary and Diluted Share and ADR

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

		Three months ended								Six months ended
		June 30,								June 30,
		2005				2004				2005				2004
Numerator:
Income from continuing operations (in thousands €)			5,846				5,301				11,117				10,401
Loss on discontinued operations (in thousands €)			(476	)			(918	)			(819	)			(1,855	)
Net income (in thousands €)			5,370				4,383				10,298				8,546
Denominator:
Denominator for basic earnings per share — weighted-average shares			8,690,524				8,690,524				8,690,524				8,690,524
Effect of dilutive securities:
Convertible bonds			—				—				—				—
Denominator for diluted earnings per share — adjusted weighted average shares and assumed conversions			8,690,524				8,690,524				8,690,524				8,690,524
Basic earnings per share and ADR from:
Continuing operations (€)			0.67				0.61				1.28				1.20
Discontinued operations (€)			(0.05	)			(0.11	)			(0.10	)			(0.22	)
Net			0.62				0.50				1.18				0.98
Diluted earnings per share and ADR from:
Continuing operations (€)			0.67				0.61				1.28				1.20
Discontinued operations (€)			(0.05	)			(0.11	)			(0.10	)			(0.22	)
Net			0.62				0.50				1.18				0.98

 

PFEIFFER VACUUM TECHNOLOGY AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 

10.   Share Ownership

     The following table shows (known to the Company) the number of Ordinary Shares, ADR and Convertible Bonds of the Company as of June 30, 2005 owned by all members of the Supervisory Board and the Management Board:

		Ordinary								Convertible
Members of the Supervisory Board		Shares				ADRs				Bonds
Dr. Michael Oltmanns			100				0				0
Michael J. Anderson			0				0				0
Prof. Dr. Klaus Jürgen Kügler			0				0				0
Götz Timmerbeil			0				0				0
Edgar Keller			0				0				0
Günter Schneider			80				0				0

		Ordinary								Convertible
Members of the Management Board		Shares				ADRs				Bonds
Wolfgang Dondorf			34,100				200				0
Manfred Bender			140				0				750

11.   Employees

     As of June 30, 2005 the Company employed 694 people, of which 511 are in Germany and 183 in other countries.

Headcount

		June 30,
		2005				2004				2005				2004
		Germany								Other Countries
Production			277				298				56				57
Research and Development			79				95				—				—
Selling and Marketing			101				104				96				93
Administration			54				65				31				35
Total			511				562				183				185

The Company’s manpower dropped in Germany by 9.1% primarily due to its withdrawal from DVD business. The above figures for the German production group as of June 30, 2005 contain three remaining employees from the discontinued DVD business.

12.   Pension Benefits and Similar Obligations

     Most employees of the Company are entitled to receive pension benefits from Pfeiffer Vacuum, which are covered by defined benefit plans. Plan assets for the German Pension Plans are held in the Pfeiffer Vacuum Trust e.V. (“the Trust”), a registered association. It is an independent, bankruptcy-protected, separate legal entity whose sole purpose is to act in a fiduciary capacity as trustee for the assets held. Contributions for the year 2004 totaled K€ 836. The trust has invested this cash in a mutual fund managed by an unrelated third party that pursues a target allocation of 30% in equities and 70% in fixed-income securities and cash.

 

PFEIFFER VACUUM TECHNOLOGY AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 

Pension expense for all plans included the following components:

		Three months ended								Six months ended
		June 30,								June 30,
		2005				2004				2005				2004
		(€ in thousands)
Service cost			252				221				502				441
Interest cost			551				516				1,101				1,032
Expected return on assets			(545	)			(501	)			(1,089	)			(1,002	)
Amortization of:
unrecognized net actuarial (gains) losses			38				3				76				7
unrecognized prior service cost			18				19				37				38
unrecognized net obligation			6				—				12				—
Net pension cost			320				258				639				516

In March 2005, the Company contributed approximately € 0.8 million to the Pfeiffer Vacuum Trust e.V. as plan assets for its German based early retirement obligation. Analog to the pension plan presentation, Pfeiffer Vacuum offsets these designated assets against the early retirement obligation in the liabilities section of the consolidated financial statements.

13.   Warranty

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

Warranty provisions consist of the following:

		June 30,
		2005				2004
		(€ in thousands)
Balance at beginning of period			2,897				3,529
Warranties issued during the period			1,285				773
Utilization of accruals			(167	)			(88	)
Balance at end of period			4,015				4,214

14.   Segment Information

     The Company evaluates the success and performance of its subsidiaries on the basis of their income before income tax.

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

 

PFEIFFER VACUUM TECHNOLOGY AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 

Information concerning the Company’s continuing operations by geographic locations is summarized as follows:

		Three months ended								Six months ended
		June 30,								June 30,
		2005				2004				2005				2004
		(€ in thousands)								(€ in thousands)
Net Sales
Germany
Unaffiliated			17,645				16,581				33,527				33,039
Intercompany			13,999				12,722				27,537				25,426
			31,644				29,303				61,064				58,465
Europe excluding Germany			12,287				11,630				25,586				22,974
United States			9,132				8,623				16,850				16,498
Rest of World			1,303				1,158				2,189				3,096
			54,366				50,714				105,689				101,033
Intercompany eliminations			(14,435	)			(12,898	)			(28,170	)			(25,750	)
Total			39,931				37,816				77,519				75,283
Operating profit
Germany			6,633				6,137				13,318				12,358
Europe excluding Germany			914				1,132				1,818				1,931
United States			877				542				1,193				1,115
Rest of World			353				157				501				424
			8,777				7,968				16,830				15,828
Intercompany eliminations			52				64				151				161
Total			8,829				8,032				16,981				15,989
Information concerning the Company’s discontinued operations by geographic locations is summarized as follows:
		Three months ended								Six months ended
		June 30,								June 30,
		2005				2004				2005				2004
		(€ in thousands)								(€ in thousands)
Net Sales
Germany
Unaffiliated			363				1,431				406				3,004
Intercompany			(12	)			2				(12	)			2
			351				1,433				394				3,006
Intercompany eliminations			12				(2	)			12				(2	)
Total			363				1,431				406				3,004
Operating profit
Germany			(812	)			(1,471	)			(1,363	)			(2,971	)
Intercompany eliminations			12				(2	)			12				(2	)
Total			(800	)			(1,473	)			(1,351	)			(2,973	)

 

PFEIFFER VACUUM TECHNOLOGY AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 

15.   Income Tax Expense

     Under German corporate tax law, taxes on income are composed of corporate taxes, trade taxes and an additional surtax.

The Company’s effective tax rate of its continuing operations was 39.8% for the first six months of 2005 and 40.1% for the first six months of 2004.

The tax rate used for calculation of the income tax benefit from discontinued operations was 37.9% in both, the six month period ended June 30, 2005 and 2004, respectively.

 

PFEIFFER VACUUM TECHNOLOGY AG

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
 

Results of Operations

Three Months Ended June 30, 2005 Compared to Three Months Ended June 30, 2004
(Percentages calculated based on amounts in thousands €)

     Since the second quarter of 2005 the Company reported gains and losses from discontinued operations. All prior periods amounts have been reclassified to provide comparability with the presentation of the current year financial statements.

Net Sales

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

		Three months ended
		June 30, 2005								June 30, 2004
		(€ in thousands)				%				(€ in thousands)				%
Net Sales from continuing operations
Germany			17,645				44.2				16,581				43.8
Europe excluding Germany			12,277				30.7				11,588				30.6
United States			9,130				22.9				8,620				22.8
Rest of World			879				2.2				1,027				2.8
			39,931				100.0				37,816				100.0

Discontinued operations:

		Three months ended
		June 30, 2005				June 30, 2004
		(€ in thousands)
Net Sales from discontinued operations
Germany			363				1,431

     The Company’s total net sales from continuing operations amounted to € 39.9 million in the three months ended June 30, 2005 and increased by € 2.1 million or 5.6% from € 37.8 million in the previous year’s period. The segment Germany (German subsidiaries) increased its sales by € 1.1 million primarily due to increased demand of German customers in the second quarter of 2005 compared to the second quarter of 2004. The sales of the European subsidiaries increased by € 0.7 million. The revenues of the U.S. sales company increased in U.S. dollar by $1.1 million or 11.0%, but due to the weakness of the U.S. dollar against the euro the sales were adversely impacted by the effect of exchange rate differences amounting to approximately € 0.4 million. The sales of the Company’s DVD business, reported in discontinued operations (segment Germany), decreased by € 1.1 million.

Net sales revenue in the Company’s core product, the turbo pump, increased by € 1.6 million or 10.2% from € 15.5 million in the second quarter of 2004 to € 17.0 million in 2005. In fore vacuum pumps an increase by € 1.6 million or 40.4% was recorded, offset by decreased sales in vacuum system by € 1.1 million. Revenue in service decreased by € 0.3 million, sales in vacuum instruments and components increased by € 0.3 million.

The Company’s sales increase in the second quarter of the year 2005 compared to the second quarter of the year 2004 was mainly due to an increase in the volume of products slightly offset by an altered product mix.

 

PFEIFFER VACUUM TECHNOLOGY AG
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
 

Additionally, for the readers convenience the Company summarized its net sales by geographical area in the following table. Net sales by geographical area include all sales within a particular area, regardless of which subsidiary realizes the revenues.

The Company’s net sales from continuing operations by geographical area are:

		Three months ended
		June 30, 2005								June 30, 2004
		(€ in thousands)				%				(€ in thousands)				%
Net Sales
Germany			10,944				27.4				9,865				26.1
Europe excluding Germany			12,263				30.7				13,079				34.6
United States			9,059				22.7				8,556				22.6
Asia			7,194				18.0				5,979				15.8
Rest of World			471				1.2				337				0.9
Total			39,931				100.0				37,816				100.0

     The Company’s total net sales from continuing operations increased by € 2.1 million or 5.6% from € 37.8 million in the three months ended June 30, 2004 to € 39.9 million in the respective period of the current year. In the second quarter of 2005 sales in Germany increased by € 1.1 million and made up the sales decrease in Germany in the first quarter of 2005, offset by decreased sales in Europe (excluding Germany) by € 0.8 million. Sales in the U.S. increased by € 0.5 million despite the adversely effect of the weakness of the U.S. dollar against the euro amounting to approximately € 0.4 million. The Company’s efforts to expand its sales in the Asian region led to a sales increase of € 1.2 million or 20.3%. In the rest of world a small increase by € 0.1 million was realized.

Order intake and Order backlog

     The order intake increased by € 2.5 million (6.4%) from € 39.1 million in the three month period ended June 30, 2004 to € 41.6 million in 2005. Orders in turbo pumps, the Company’s core product, recorded a significant increase by € 4.1 million or 29.7% from € 13.8 million in the second quarter of 2004 to € 17.9 million in 2005. Additionally, orders received in fore vacuum pumps increased by € 1.5 million or 33.3%, offset by decreased orders in vacuum systems amounting to € 1.8 million. Service orders declined slightly by € 0.3 million.

Order backlog increased by € 6.8 million from € 24.6 million at June 30, 2004 to € 31.4 million in June 30, 2005. The significant increases were recorded in turbo pumps by € 5.9 million or 51.3% and fore vacuum pumps by € 1.6 million or 48.5%. The Company considers its order intake and order backlog positions as an indication for a business development against the general economic trend.

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

Gross Profit

     The gross profit increased by € 1.0 million (5.4%) from € 17.6 million in the second quarter 2004 to € 18.6 million in 2005, primarily due to the higher sales revenues. The Company’s gross margin decreased slightly from 46.6% in 2004 to 46.5% in 2005.

 

PFEIFFER VACUUM TECHNOLOGY AG
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
 

Selling and Marketing Expenses

     Selling and marketing expenses increased from € 4.7 million in the three month ended June 30, 2004 to € 5.1 million in the respective period in 2005. As a percentage of sales, selling and marketing expenses increased from 12.5% in 2004 to 12.7% in 2005. The increased net sales revenue determined increasing selling and marketing expenses.

General and Administrative Expenses

     General and administrative expenses amounted to € 3.0 million in both the second quarter of 2005 and 2004, due to the Company’s ongoing ability to manage all headquarter and subsidiary needs with a small staff. As a percentage of sales, general and administrative expenses decreased from 8.0% in 2004 to 7.6% in 2005, due to the higher net sales.

Research and Development

     Research and development expenses decreased from € 1.8 million the three months ended June 30, 2004 to € 1.6 million in the same period of 2005. The percentage of sales was 4.1% in 2005 and 4.8% in 2004.

The Company continues to maintain a high ratio of research and development expenditures relative to total sales. Pfeiffer Vacuum depends on continuing technological advances in vacuum pump design and manufacturing and has invested in the needs of future markets, improving its market position and entering new markets. The Company expenses all research and development costs as they are incurred.

Operating Profit

     Operating profit increased from € 8.0 million in the second quarter of 2004 to € 8.8 million in the second quarter of 2005. As a percentage of sales the operating profit increased from an already high level of 21.3% to 22.1%, primarily due to the Company’s cost reduction measures, implemented in past. Pfeiffer Vacuum intends to continue its worldwide cost management.

Interest Expense and Interest Income

     The Company was subject to a tax audit by the German tax authorities for the years 1999 through 2002. The outcome of this tax audit led to supplementary tax payments, which bear interest expense of € 45,000. Interest income in the second quarter of 2005 amounted to € 0.4 million compared to € 0.6 million in the second quarter of 2004.

Foreign Exchange Gain

     Foreign exchange gain in the second quarter of 2004 amounted to € 0.2 million and increased by € 0.4 million to € 0.6 million in the second quarter of 2005, primarily due to realized exchange gains in connection with payments received by the Company in U.S. dollars.

Income Tax Expense

     The effective tax rate of the Company’s continuing operations for the three month period ended June 30, 2005 was 39.8% compared to 40.1% in the respective period of 2004.

The tax rate used for calculation of the income tax benefit from discontinued operations was 37.9% in both, the three month period ended June 30, 2005 and 2004, respectively.

 

PFEIFFER VACUUM TECHNOLOGY AG
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
 

The Company was subject to a tax audit by the German tax authorities for the years 1999 through 2002. The outcome of this tax audit led to supplementary tax payments of approximately € 152,000, paid in the second quarter of 2005.

Net income

     Net income from continuing operations increased by 10.3% from € 5.3 million in the second quarter of 2004 to € 5.8 million in the second quarter of 2005. Net loss from discontinued operations accounted for € 0.9 million in the respective period in 2004 and € 0.5 million in 2005.

Net income from continuing operations per ordinary share and ADR was € 0.67 both basic and diluted in the three months ended June 30, 2005 compared to € 0.61 both basic and diluted in the three months ended June 30, 2004. Net loss from discontinued operations per ordinary share and ADR amounted to € (0.05) basic and diluted in the second quarter of 2005 and € (0.11) in the prior year’s quarter.

 

PFEIFFER VACUUM TECHNOLOGY AG
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
 

Results of Operations

Six Months Ended June 30, 2005 Compared to Six Months Ended June 30, 2004
(Percentages calculated based on amounts in thousands €)

     Since the second quarter of 2005 the Company reported gains and losses from discontinued operations. All prior periods amounts have been reclassified to provide comparability with the presentation of the current year financial statements.

Net Sales

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

		Six months ended
		June 30, 2005								June 30, 2004
		(€ in thousands)				%				(€ in thousands)				%
Net Sales from continuing operations
Germany			33,527				43.3				33,039				43.9
Europe excluding Germany			25,541				32.9				22,919				30.4
United States			16,845				21.7				16,491				21.9
Rest of World			1,606				2.1				2,834				3.8
			77,519				100.0				75,283				100.0

Discontinued operations:

		Six months ended
		June 30, 2005				June 30, 2004
		(€ in thousands)
Net Sales from discontinued operations
Germany			406				3,004

     The Company’s total net sales from continuing operations amounted to € 77.5 million in the six months ended June 30, 2005 and increased by € 2.2 million or 3.0% from € 75.3 million in the previous year’s period. The segment Germany (German subsidiaries) increased its sales by € 0.5 million, primarily due to increased demand of German customers in 2005 compared to 2004. The sales of the European subsidiaries increased by € 2.6 million or 11.4%. The revenues of the U.S. sales company increased in U.S. dollar by $1.4 million or 7.0%, but due to the weakness of the U.S. dollar against the euro the sales were adversely impacted by the effect of exchange rate differences amounting to approximately € 0.8 million. The sales subsidiaries in the Asian market (rest of World) recorded a sales decrease of € 1.2 million. The sales of the Company’s DVD business, reported in discontinued operations (segment Germany), decreased by € 2.6 million.

The major part of the net sales increase was recorded in fore vacuum pumps by € 2.1 million or 24.5% from € 8.5 million in the first six months of 2004 to € 10.5 million in 2005. In the Company’s core product, the turbo pump, only a small increase by € 0.3 million to € 31.5 million was realized. Sales in vacuum systems increased by € 0.8 million, offset by declining service sales by € 0.8 million.

The Company’s sales increase in the six months ended June 30, 2005 compared to the previous year’s period was mainly due to a more favorable product mix and a decrease in the volume of products.

 

PFEIFFER VACUUM TECHNOLOGY AG
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
 

Additionally, for the readers convenience the Company summarized its net sales by geographical area in the following table. Net sales by geographical area include all sales within a particular area, regardless of which subsidiary realizes the revenues.

The Company’s net sales of continuing operations by geographical area are:

		Six months ended
		June 30, 2005								June 30, 2004
		(€ in thousands)				%				(€ in thousands)				%
Net Sales
Germany			20,479				26.4				20,433				27.1
Europe excluding Germany			26,144				33.7				24,869				33.0
United States			16,724				21.6				16,381				21.8
Asia			13,319				17.2				13,020				17.3
Rest of World			853				1.1				580				0.8
Total			77,519				100.0				75,283				100.0