UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

FORM 20-F

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2006

Commission file number 001-14264

PFEIFFER VACUUM TECHNOLOGY AG

(Exact Name of Registrant as Specified in Its Charter)

FEDERAL REPUBLIC OF GERMANY
(Jurisdiction of Incorporation or Organization)

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

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

Title of Each Class		Name of Each Exchange On Which Registered
American Depositary Shares, each representing one Ordinary Share Ordinary Shares, without nominal value		New York Stock Exchange Frankfurt Stock Exchange

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

NONE

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

NONE

(Title of Class)

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

Ordinary shares, without nominal value                    8,970,600
(as of December 31, 2006)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes þ				No o

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes o				No þ

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

Yes þ				No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Accelerated Filer                    þ

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

Item 17 o				Item 18 þ

If this is an annual report indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o				No þ

 

 

TABLE OF CONTENTS

								Page
Preliminary Remarks									5
Application of Amended or New Standards									5
Forward-Looking Statements									6
PART I
Item 1.		Identity of Directors, Senior Management and Advisers							7
Item 2.		Offer Statistics and Expected Timetable							7
Item 3.		Key Information							7
		A.		Selected Financial Data					7
				Statement of Income Data					7
				Balance Sheet Data					8
				Other Data					8
				Selected Historical Financial Data according to U.S. GAAP					9
				Exchange Rate Information					10
		B.		Capitalization and Indebtedness					10
		C.		Reasons for the Offer and Use of Proceeds					10
		D.		Risk Factors					11
				General Economic Conditions					11
				Industry and Business					11
						Technological Changes and Introduction of New Products			11
						Highly Competitive Industry			11
						Manufacturing Facility			11
						Procurement Risk			12
						Human Resources Management Risk			12
						Information Technology Risk			12
						International Operations and Legal Risk			12
				Financial					12
						Financial and Liquidity Risk			12
						Currency Risk			13
Item 4.		Information on the Company							13
		A.		History and Development of the Company					13
				Organization and History					13
				Business and Capital Expenditures					13
		B.		Business Overview					14
				Introduction					14
				Nature of the Company’s Operations and Principal Activities					14
				Seasonality					14
				Raw Materials and Suppliers					14
				Purchasing					14
				Marketing Channels					15
				Dependence of the Company on Intellectual Property, Contracts and New Manufacturing Processes					15
				Competitive Position					15
				Material Effects of Government Regulations					16
		C.		Organizational Structure					16
		D.		Property, Plant and Equipment					16
Item 4.A.		Unresolved Staff Comments							17
Item 5.		Operating and Financial Review and Prospects							17
		Introduction							17
		New Accounting Rules and Accounting Standards							17
		Critical Accounting Policies							17
		Revenue Recognition and Accounts Receivable							18
		Inventory Valuation							18
		Employment-Related Benefits							18
		Discontinued Operations							18

TABLE OF CONTENTS

								Page
		Inflation							18
		Other Risks							18
		A.		Operating Results					19
				Management’s Discussion and Analysis of Financial Conditions and Results of Operations					19
						Vacuum			19
						Vacuum Generation			19
						Vacuum Measurement and Analysis Equipment			20
						Vacuum Systems			20
						2006 Compared to 2005			21
		B.		Liquidity and Capital Resources					28
				Capital Expenditures					29
				Foreign Currency Exchange Hedging					29
		C.		Research and Development, Patents and Licenses, etc.					29
		D.		Trend Information					30
				Vacuum Industry					30
				Outlook					30
				Purchasing					30
		E.		Off-Balance Sheet Arrangements					30
		F.		Tabular Disclosure of Contractual Obligations					31
Item 6.		Directors, Senior Management and Employees							31
		A.		Directors and Senior Management					31
				General					31
				Management Board (Vorstand)					32
				Supervisory Board (Aufsichtsrat)					33
				Committees of the Supervisory Board					35
		B.		Compensation					36
		C.		Board Practices					37
		D.		Employees					37
		E.		Share Ownership					38
				Stock-based Compensation Plans					39
				Employee Participation Program, Term: 2000 through 2005					39
				Employee Participation Program, Term: 2002 through 2007					39
Item 7.		Major Shareholders and Related Party Transactions							40
		A.		Major Shareholders					40
		B.		Related Party Transactions					41
		C.		Interest of Experts and Counsel					41
Item 8.		Financial Information							41
		A.		Consolidated Statements and Other Financial Information					41
				Export Sales					41
				Legal Proceedings					41
				Policy on Dividend Distributions					42
		B.		Significant Changes					42
Item 9.		The Offer and Listing							42
		A.		Offer and Listing Details					42
				4. Market Price Information					42
				Trading of ADRs on the New York Stock Exchange					42
				Trading of Ordinary Shares on the Frankfurt Stock Exchange					43
		C.		Markets					44
				General					44
Item 10.		Additional Information							45
		A.		Share Capital					45
		B.		Memorandum and Articles of Association					45
				Registration, Objects and Purposes of the Company					45
				General					45
				Annual Shareholders Meeting					45
				The Supervisory Board					45

TABLE OF CONTENTS

								Page
				The Management Board					45
				Directors					46
				Ordinary Shares					46
				Treasury Shares					48
				Dividends					48
				Voting Rights					48
				Change of Shareholders’ Rights					49
				Amendments to the Articles of Association and Bylaws					49
				Notification Requirements and Disclosure of Shareholdings					49
				Annual Shareholders Meeting					50
				Limitation on the Right to own Securities					50
				Provisions that would Delay a Change in Control					50
				Provisions of German Law that are Significantly Different from Provisions of U.S. Law					50
				Provisions Governing Changes in the Capital that are More Stringent than Required by Law					51
				German Corporate Governance Code Declaration					51
				NYSE Comparison					51
		C.		Material Contracts					51
		D.		Exchange Control					51
		E.		Taxation					52
		F.		Dividends and Paying Agents					54
		G.		Statement by Experts					54
		H.		Documents on Display					54
		Subsidiary Information							55
Item 11.		Quantitative and Qualitative Disclosures about Market Risk							55
		Exchange Rate Risk							55
Item 12.		Description of Securities other than Equity Securities							57
		A.		Debt Securities					57
		B.		Warrants and Rights					57
		C.		Other Securities					57
		D.		American Depositary Shares					57
PART II
Item 13.		Defaults, Dividend Arrearages and Delinquencies							58
Item 14.		Material Modifications to the Rights of Security Holders and Use of Proceeds							58
		Changes with Respect to Ordinary Shares							58
		Treasury Shares							58
Item 15.		Controls and Procedures							58
		Report of Independent Registered Public Accounting Firm							60
Item 16A.		Audit Committee Financial Expert							61
Item 16B.		Code of Ethics							61
Item 16C.		Principal Accountant Fees and Services							61
Item 16D.		Exemptions from the Listing Standards for Audit Committees							62
Item 16E.		Purchases of Equity Securities by the Issuer and Affiliated Purchasers							62
PART III
Item 17.		Financial Statements							63
Item 18.		Financial Statements							63
Item 19.		Exhibits							64
Signature									65
Exhibit 1.1
Exhibit 2.6
Exhibit 12.1
Exhibit 12.2
Exhibit 13.1
Exhibit 13.2

Preliminary Remarks

     The Consolidated Financial Statements of Pfeiffer Vacuum Technology AG for the fiscal year ended December 31, 2006, have been prepared for the first time in accordance with International Financial Reporting Standards (IFRS) and the interpretations of the International Financial Reporting Interpretations Committee (IFRIC) as applicable in the European Union (EU). This includes the International Accounting Standards (IAS) and the interpretations of the Standing Interpretations Committee (SIC), which continue to retain their validity. The Pfeiffer Vacuum Group has not been impacted by the fact that the EU has not yet endorsed all published IFRS or IAS.

Those standards that have been published but whose application is not yet mandatory have not been adopted at an earlier stage. The Notes to the Consolidated Financial Statements additionally include the information required by § 315a, Sub-Para. 1, in connection with § 315a, Sub-Para. 3, of the German Commercial Code (“HGB”).

Reporting is performed using all mandatorily applicable standards and interpretations. The transition to IFRS from the formerly used “United States Generally Accepted Accounting Principles” (U.S. GAAP) was carried out in accordance with IFRS 1 “First time adoption of IFRS.” Alternative accounting and valuation methods were exercised to receive preferably marginal differences compared to U.S. GAAP.

The Consolidated Financial Statements include a reconciliation from IFRS to U.S. GAAP and the regulations of the United States Securities and Exchange Commission (SEC), Washington D.C., U.S.A.

The Consolidated Financial Statements are prepared essentially in accordance with the acquisition cost principle. However this does not include derivative financial instruments and financial investments available-for-sale, which are carried at fair values.

Unless otherwise specified, the terms “we,” “us,” “our,” “Pfeiffer Vacuum” or “the Company” or “the Group” refers to Pfeiffer Vacuum Technology AG and its consolidated subsidiaries included in this Annual Report, or any more of them, as the context may require.

Unless express reference is made to a differing presentation, all amounts in our Consolidated Financial Statements are expressed in euros (€).

Application of Amended or New Standards

     On August 18, 2005, the International Accounting Standards Board (IASB) issued IFRS 7, “Financial Instruments: Disclosures.” IFRS 7 replaces former IAS 30, “Disclosures in the Financial Statements of Banks and Similar Financial Institutions,” and includes all provisions from IAS 32, “Financial Instruments: Presentation,” relating to disclosure in the Notes. In this connection, amendments and supplements were made to IAS 1, “Presentation of Financial Statements,” with regard to equity disclosures. IFRS 7 leads to a fundamental restructuring of disclosure requirements for financial instruments. Essentially, disclosures are required relating to management’s intentions, methods, risks, securities and processes. The disclosure requirements under IFRS 7 and the amended equity disclosures according to IAS 1 are applicable for the first time to reporting periods beginning on or after January 1, 2007. The new rules will not lead to any changes in valuation for the Company.

IFRIC 10, “Interim Financial Statements and Impairment,” and IFRIC 11, “IFRS 2 – Group and Treasury Share Transactions,” were issued as per December 31, 2006, and endorsed by the EU, although their application is not yet mandatory. No material impact on the Company’s profitability, financial position or liquidity is anticipated in the future from the employment of these interpretations.

In addition, IFRS 8, “Operating Segments,” IFRIC 7, “Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies,” IFRIC 8, “Scope of IFRS 2,” IFRIC 9, “Reassessment of Embedded Derivatives,” and IFRIC 12, “Service Concession Arrangements,” were reissued prior to December 31, 2006. These standards and interpretations have not yet been endorsed by the EU, nor have they been voluntarily applied. No material impact on the Company’s profitability, financial position or liquidity is anticipated in the future.

Forward-Looking Statements

     This Annual Report contains forward-looking statements that reflect our current views about future events. We use the words “anticipate,” “assume,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “should” and similar expressions to identify forward-looking statements. These statements are subject to certain risks and uncertainties, including:

•		changes in general political, economic or business conditions, especially an economic downturn or slow economic growth in Europe or the United States;
•		changes in currency exchange rates and interest rates;
•		changes in laws, regulations and government policies, particularly those relating to emissions, environmental protections and waste disposals;
•		introduction of competing products and possible lack of acceptance of new products or services;
•		increased competitive pressures which may limit our ability to reduce sales incentives and raise prices;
•		price increases, shortages or supply interruptions of production materials, or labor strikes;
•		other risks and uncertainties, some of which are described in Item 3. D “Key information” under the heading “Risk Factors.”

If any of these risks and uncertainties materialize, or if the assumption underlying any of our forward-looking statements prove to be incorrect, then our actual results may be materially different from those we express or imply by such statements. We do not intend or assume any obligation to update these forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made.

Part I

Item 1.    Identity of Directors, Senior Management and Advisers

Not applicable.

Item 2.    Offer Statistics and Expected Timetable

Not applicable.

Item 3.    Key Information

A.    Selected Financial Data

Selected Financial Data

     The following selected financial data should be read in conjunction with, and are qualified in their entirety by reference to, Pfeiffer Vacuum’s Consolidated Financial Statements and Operating and Financial Review and Prospects included elsewhere in this Annual Report. For further information please see Item 5. “Operating and Financial Review and Prospects” and Item 8. “Financial Information.”

The consolidated statement of income data and balance sheet data have been derived from our Audited Consolidated Financial Statements, prepared in accordance with International Financial Reporting Standards (IFRS) and the interpretations of the International Financial Reporting Interpretations Committee (IFRIC), as applicable in the European Union (EU), which we refer to as IFRS. Our financial statements at December 31, 2006, are the first financial statements we have prepared in accordance with IFRS. Pursuant to the rules and regulations of the SEC, the only data we have prepared in accordance with IFRS are the data for 2005 and 2006. A reconciliation from IFRS to U.S. GAAP is included in Note 39 to our Consolidated Financial Statements.

		Year ended December 31,
		2006				2005
		€ in thousands, except per-share amounts
Statement of Income Data
Net sales			179,484				159,517
Operating profit			44,957				36,441
Net income from continuing operations			29,786				24,009
Net income			29,786				23,015
Net earnings per share/ADR from:
Continuing operations, basic and diluted			3.39				2.75
Discontinued operations, basic and diluted			—				(0.11	)
Net earnings per share/ADR (€)			3.39				2.64
Dividends declared and paid per share (*)			2.50				1.35
Dividends declared and paid per share in U.S. dollars (*)		$	3.30			$	1.60

We have translated the euro-denominated dividend proposed for 2006 into dollars solely for our shareholders’ convenience at an exchange rate of € 1 = $1.3181, the noon buying rate for euros on December 31, 2006. The U.S. dollar amounts for the year 2005 reflect the dollar amount translated at the noon-buying rate on December 31, 2005 (1 € = $1.1834).

We succeeded in increasing the earnings in our core business of “vacuum pumps” during the past fiscal year. Our Management and our Supervisory Board plan to propose at the Annual Shareholders Meeting that the shareholders participate in Pfeiffer Vacuum’s success in the form of a dividend of € 2.50. The dividend will thus be significantly higher than the years before (2005: € 1.35). For additional information relating to our policy on dividend distribution, please see Item 8. “Financial information.”

Detailed reconciliation of consolidated statement of income data is included in Note 39 to the Consolidated Financial Statements.

		December 31,
		2006				2005
		€ in thousands
Balance Sheet Data
Total net assets			168,670				139,406
Share capital			22,965				22,504
Equity of Pfeiffer Vacuum Technology AG shareholders			138,337				111,429
Equity of minority interests			635				569

Detailed reconciliation of consolidated balance sheet data is included in Note 39 to the Consolidated Financial Statements.

		2006				2005
Other Data
Adjusted weighted average number of shares outstanding:
— Basic			8,728,672				8,690,524
— Diluted			8,728,672				8,690,524

Selected Historical Financial Data According to U.S. GAAP

Beginning December 31, 2006 for the first time we prepared our Consolidated Financial Statements according to IFRS. Pursuant to General Instructions G. “First-Time Application of International Financial Reporting Standards Instruction (C) (c),” the following data are presented in accordance with Accounting Principles Generally Accepted in the United States, our former GAAP. The consolidated statement of income data and balance sheet data have been derived from our Audited Consolidated Financial Statements.

		2006				2005				2004				2003				2002
		€				€				€				€				€
		(in thousands, except per-share amounts)
Statement of Income Data
Net sales			179,484				159,517				151,512				138,590				150,684
Gross profit			87,612				75,505				72,502				63,197				69,002
Selling and marketing expenses			(22,478	)			(19,877	)			(18,973	)			(20,394	)			(23,944	)
General and administrative expenses			(13,142	)			(12,408	)			(12,524	)			(12,153	)			(11,569	)
Research and development expenses			(7,323	)			(6,432	)			(6,387	)			(6,301	)			(7,517	)
Operating profit			44,669				36,788				34,618				24,349				25,972
Income from continuing operations before taxes and minority interests			46,104				39,337				36,447				28,030				29,620
Income from continuing operations			29,440				23,742				21,814				14,705				20,074
Loss from discontinued operations, net of tax			—				(994	)			(10,188	)			(1,959	)			(2,539	)
Net income			29,440				22,748				11,626				12,746				17,535
Net earnings per share/ADR from:
Continuing operations, basic and diluted			3.37				2.73				2.51				1.68				2.28
Discontinued operations, basic and diluted			—				(0.11	)			(1.17	)			(0.22	)			(0.29	)
Net earnings per share/ADR (€)			3.37				2.62				1.34				1.46				1.99
Dividends declared and paid per ordinary share (*)			2.50				1.35				0.90				0.70				0.56
Dividends declared and paid per ordinary share in U.S. dollars (*)		$	3.30			$	1.60			$	1.23			$	0.88			$	0.59
Balance Sheet Data
Current assets from continuing operations			119,378				104,468				92,842				66,445				113,580
Net current assets of discontinued operations			—				—				1,862				11,592				8,895
Total assets			168,384				138,824				125,233				119,780				155,496
Current liabilities from continuing operations			23,762				20,796				22,443				21,962				19,579
Net current liabilities of discontinued operations			—				—				1,186				895				907
Long term debt			—				—				—				—				7,746
Share capital			22,965				22,504				22,504				22,504				22,504
Shareholders‘ equity			138,553				112,631				99,355				95,037				92,508
Other Data
Adjusted weighted average number of shares outstanding
— Basic			8,728,672				8,690,524				8,690,524				8,750,201				8,790,600
— Diluted			8,728,672				8,690,524				8,690,524				8,750,201				8,790,600

Exchange Rate Information

     Fluctuations in the exchange rate between the euro (€) and the U.S. dollar (US$) will affect the U.S. dollar amounts received by holders of ADRs on the conversion by the Depositary into U.S. dollars of cash dividends paid in euros on the ordinary shares represented by the ADRs.

     The table below sets forth, for periods after January 1, 2002, the high, low, average and period-end noon buying rates for the euro expressed as U.S. dollars per € 1.

Year Ended December 31,		High				Low				Average Rate				End of Period
										(*)
2002		$	1.0477			$	0.8600			$	0.9449			$	1.0477
2003			1.2610				1.0371				1.1309				1.2610
2004			1.3640				1.1798				1.2434				1.3640
2005			1.3514				1.1655				1.2451				1.1834
2006			1.3320				1.1831				1.2560				1.3181
2006
July		$	1.2796			$	1.2499			$	1.2685			$	1.2752
August			1.2898				1.2722				1.2814				1.2859
September			1.2862				1.2661				1.2734				1.2669
October			1.2745				1.2515				1.2613				1.2695
November			1.3190				1.2700				1.2883				1.3190
December			1.3320				1.3094				1.3214				1.3181
2007
January
(through January 31, 2007)		$	1.3272			$	1.2900			$	1.3001			$	1.2936

Fluctuations in the exchange rate between the euro and the U.S. dollar will affect the U.S. dollar equivalent of the euro price of our ordinary shares on German stock exchanges. Accordingly, exchange rate fluctuations are likely to affect the market price of our ADRs on the New York Stock Exchange.

Exchange rate fluctuations may also affect the amount of any cash dividend we pay if a shareholder receives the dividend in U.S. dollars rather than in euros. Please refer to Item 3. “Key Information, D. Risk Factors,” and Item 11. “Quantitative and Qualitative Disclosures about Market Risk,” for information how exchange rate fluctuations affect our business and operations. Please also refer to Item 5. “Operating and Financial Review and Prospects — Liquidity and Capital Resources” for a discussion of the hedging techniques we use to manage our exposure to exchange rate fluctuations.

B.    Capitalization and Indebtedness

Not applicable.

C.    Reasons for the Offer and Use of Proceeds

Not applicable.

D.    Risk Factors

     Within the context of our global operations, we are naturally subject to various risks, which are intrinsically linked with our entrepreneurial activities. In order to be able to specifically deal with these risks, we utilize suitable instruments for identification, analysis and action in our risk management system and evolve these instruments in our individual departments. We have defined the areas of risk management within our individual departments and put in place the necessary procedures, early warning and monitoring systems. We take the defined risk factors into consideration in our annual budgeting process and our multiple-year strategic planning. The planning processes are accompanied by comments from the planning and supervising bodies.

Moreover, the strategic planning, budget and current business position are comprehensively deliberated with our Supervisory Board. Our Supervisory Board receives detailed monthly overviews of the Company’s financial results, as well as reports from the Management Board that could be of particular importance with respect to profitability or liquidity.

General Economic Conditions

     A substantial portion of our sales is generated in Europe and the United States. As a result, an economic weakness or a decline in growth in these markets can have a negative impact on our profitability. A substantial slow-down or decline in demand for our products could have serious effects on our economic and financial positions. In addition, the strong competition that prevails in our market poses the risk of loss of market share and name recognition. In order to limit these market risks, we constantly analyze the environment and the competitive situation. We relativize negative economic changes through measures aimed at adjusting capacities and cost reduction. Ongoing contact with our customers and the market intimacy that this brings with it supplies us with important information about the needs of our customers. We utilize the information about technology needs that we gain from the marketplace to enhance our competitive position and name recognition.

Industry and Business

Technological Changes and Introduction of New Products

     The vacuum industry is characterized by ongoing technological change, as well as by enhancements and new developments to its products. A substantial portion of our economic success is dependent upon our ability to continue to market enhanced or new products on a timely basis and at competitive prices. A failure to preserve our technological lead and manufacture adequate new products in the event of substantial technological change or the superiority of a competitor’s product could significantly adversely affect our profitability and cash flows and our strategic expansion plans.

In fiscal 2006, we spent a total of € 7.3 million on research and development, to combat the risk of technology losses and to maintain our high standards of quality. Strict quality controls reduce the risk of quality shortcomings.

Highly Competitive Industry

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

Manufacturing Facility

     All of our manufacturing activities take place in the facility located at our Headquarters in Asslar, Germany. Any extended interruption or impairment of our production capabilities at the Asslar facility would have a material adverse effect on the Company’s business, financial condition and results of operations. We maintain a business interruption insurance to insure us against stoppage primarily due to natural disasters, such as thunderstorm and flood.

Procurement Risk

     The procurement market includes the risk of delivery bottlenecks and dependence upon single suppliers. We continuously examine alternative suppliers and prefer reliable vendors. We attempt to lessen the risk of a reduced supply of raw materials including steel and aluminum with long-term framework contracts.

Rising demand in the worldwide commodities markets for raw materials that we use in our production process has led to price increases in such materials. Continued high prices or further price increases for raw materials and increased pressure on our suppliers could negatively impact our profitability. We may not be able to pass all of those costs on to our customers or suppliers.

Human Resources Management Risk

     As a high-tech manufacturer, we are dependent upon the high level of training and education of our qualified employees. Losing a major portion of our key personnel could lead to serious problems in the factory.

Information Technology Risk

     Risks may arise from malfunctions of our hardware or software and from computer crimes, such as hacker or virus attacks aligned with loss of data or system outages. We keep the risk of data losses to a minimum by performing daily backups of our complete enterprise data. Our enterprise database, in particular, with which our manufacturing operations, materials management, order handling, financial and cost accounting are handled, is subject to a high security standard. All files created by our employees within the server environment are also backed up on a daily basis. Our backup copies are stored in secure, fireproof locations. The activities of our in-house support team reduce system outages to a low level. The Company uses regularly updated virus scanners and modern firewalls to protect its hardware and software against the risk of computer viruses and hacking.

International Operations and Legal Risk

     As in the case of all internationally operating enterprises, we are subject to risks with respect to regional economic conditions, differing taxation and legislation, unexpected changes in national regulatory requirements, compliance with import and export conditions, as well as foreign legislation. Furthermore, we have to observe, among other things, foreign import and export licensing requirements, trade restrictions and changes in tariff and freight rates, which can involve material risks. The professional expertise required for assessing the Company’s day-to-day business is provided by our qualified staff.

To further minimize risk, we draw upon the assistance of external legal and tax advisors in connection with complex questions and/or out-of-the-ordinary occurrences. No legal disputes are currently pending whose outcome could have a material impact on our financial condition or results of operation.

Financial

Financial and Liquidity Risk

     In what continues to be a tense overall economic situation, financial risks result from the insolvency of customers, in particular. Generally, liquidity risks are the result of the inability to satisfy payment obligations in a timely fashion. We reduce creditworthiness risks, and thus accounts receivable losses, with the aid of a rigorous system of accounts receivable management and by monitoring our customers’ payment patterns. Moreover, our dependence upon individual customers is very limited, as no end customer accounts for more than 5% of our total sales. To steer liquidity, a cash management system is in place between our German companies, which assures the companies a sufficient supply of cash. Overall, we possess sufficient liquid assets to finance our operative business, to cushion negative developments and to continue to grow from within.

Currency Risk

     We prepare our financial reports in euros (€). Approximately 37% of our sales are invoiced in foreign currencies, primarily in U.S. dollars. Our sales, operating profit and cash flows are significantly exposed to changes in exchange rates between the euro and foreign currencies. We utilize foreign currency forward transactions and options to hedge anticipated receipts in foreign currencies against foreign currency exchange fluctuations. Such hedging transactions are restricted to U.S. dollars in which we generate substantial sales and are conducted exclusively with well-established financial institutions. Pfeiffer Vacuum does not engage in speculative foreign currency forward transactions for investment purposes.

Item 4:    Information on the Company

A.    History and Development of the Company

Organization and History

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

We are a stock corporation (“Aktiengesellschaft”) organized under the laws of the Federal Republic of Germany. We develop, manufacture, sell and service a broad range of vacuum technology products for various applications. Pfeiffer Vacuum was founded in 1890. We have already been active in the vacuum technology industry since the early 20th century, and developed into a leader in vacuum technology with such developments as the turbomolecular pump in 1958. In 1996, the Company was converted from a limited liability company (“Gesellschaft mit beschränkter Haftung”) into a stock corporation (“Aktiengesellschaft”) and listed on the New York Stock Exchange (“NYSE”). Since April 15, 1998, our ordinary shares have been listed on the Frankfurt Stock Exchange in Germany, our home country.

Business and Capital Expenditures

     In 2004, we decided to restructure our unprofitable DVD business, part of our operating segment Germany. After all cost reduction measures proved ineffective, in 2005 we ceased all activities of this sideline activity. The liquidation of the production facility is described in detail in our discussion of discontinued operations in Note 27 to the Consolidated Financial Statements “Discontinued Operations.”

Capital expenditures totaled € 5.6 million in 2006 and included the purchase of factory halls built on our land amounting to € 1.9 million. In 2005 our capital expenditures were € 2.5 million.

Identifying market needs early on and responding to them with customer-driven new developments are fundamental prerequisites for being able to continue to remain competitive in the future and broadening market share. Research & development expenditures thus represent an investment in the future development of our sales, and we anticipate that they will therefore continue to remain at a high level. Total capital expenditures in 2004 amounted to € 2.1 million. For detailed information, please refer to Item 5. B “Liquidity and Capital Resources — Capital Expenditures.”

In 2006, we did not have principal capital expenditures or divestitures in progress. In the years 2006, 2005 and 2004 we did not have divestitures aside from our withdrawal from DVD business disclosed in discontinued operations in Note 27 to our Consolidated Financial Statements.

Based on information known by the Company, no public takeover offers by third parties in respect to the Company’s shares or by the Pfeiffer Vacuum Group of other companies’ shares have occurred during the last and current fiscal years.

B.    Business Overview

Introduction

     Pfeiffer Vacuum develops, manufactures, sells and services a broad range of turbomolecular pumps, backing pumps, such as rotary vane, Roots and dry pumps, complete pumping stations, as well as entire vacuum systems. Our product portfolio also includes vacuum components and vacuum instruments.

We possess a global sales and service network, comprised of our own sales offices, subsidiaries and exclusive marketing agents. Moreover, there are service support points in all major industrial locations throughout the world. Our primary markets are in Europe, the United States of America and Asia.

Nature of the Company’s Operations and Principal Activities

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

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

Our customers include manufacturers of analytical instruments and manufacturers of vacuum process equipment, research and development institutions, as well as companies that employ vacuum processes in their production operations. Our customer base also provides us the opportunity to generate income from the sale of replacement parts and the provision of customer service. In the years 2006, 2005 and 2004, no end customer accounted for more than 5% of the Company’s total sales.

Pfeiffer Vacuum operates in one market segment, vacuum technology. The segment information reported in Note 24 to the Consolidated Financial Statements identifies our operating segments geographically, because the subsidiaries in the individual countries are independent legal entities with their own management which distribute the same products and provide the same services. Details of our principal markets are discussed in Item 5. A. “Operating Results.”

Seasonality

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

Raw Materials and Suppliers

Purchasing

     Efficient and cost-oriented sourcing of goods and services is a key basis for a company’s profitability. Our activities here are characterized by ongoing optimization of our purchasing processes, access to new purchasing sources and the best possible prices combined with a high degree of flexibility and quality. Maintaining intensive contacts with existing and potential suppliers both in Germany and in other countries, along with collaboration in a spirit of partnership, assure a good and trustful relationship with our suppliers. Only this method of vendor management and the way in which we collaborate leads to sustained success for both sides.

Pfeiffer Vacuum’s involvement of suppliers in the product creation process early on, in particular in connection with categories of goods that are highly demanding in terms of technology, additionally enables us to utilize our suppliers’ development competence during early phases of the development work. This affords us the opportunity of creating innovative products at optimal cost in shorter development cycles, with make-or-buy decisions being taken into consideration. Depending upon the focus of the task in question, our development, purchasing, logistics, quality and manufacturing operations are involved to a greater or lesser extent in the joint process. And, finally, the fact that all products are manufactured exclusively at our facility in Asslar, Germany, also enables us to centralize all major purchasing processes and thus achieve economies of scale.

Our continuous management of costs, our long-term cooperation with suppliers and the availability of secondary sources for important raw materials have led to further cost reductions in 2006 which compensated for increases in energy and raw material prices over the same period of time. For example, the gas prices published by the German Federal Office of Statistics (Statistisches Bundesamt) increased by 16.3% and electricity by 15.4% in the year 2006. In Germany, we have contracts with scheduled price increases for gas and electricity over the same period of time.

The most important raw material for Pfeiffer Vacuum is aluminum. Approximately 2% of the materials purchased by us are aluminum and the remaining 98% of the materials purchased by us consist of several other materials and manufactured components. With respect to aluminum purchased directly by the Company, we have long-term agreements with suppliers for the purchase of aluminum and have been purchasing from these suppliers for more than five years. These contracts include terms whereby the Company must purchase defined quantities and qualities within a defined time frame. These contracts terminate when the defined portions are purchased. The supplier warrants the defined quality and the Company commits itself to purchase the material at agreed prices. During 2006, the market price of aluminum and semi-manufactured products thereof increased by 13.9% based on publications of the German Federal Office of Statistics (Statistisches Bundesamt). We incurred a moderate increase in costs due to the existing contract terms.

We satisfy our requirements for raw materials, auxiliaries, supplies and finished products from various suppliers in Germany and other countries. Our sole major supplier, accounting for approximately 38% of our total material consumption in 2006, is Inficon AG in Balzers, Liechtenstein (approximately 40% in 2005). We have been purchasing from Inficon for more than twenty years; and most of our current purchases from Inficon are for vacuum gauges, mass spectrometers and leak detectors. Many other sources are available for these products.

Marketing Channels

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

We do not have installment sales. Contracts for vacuum systems may include prepayments contingent upon the work process, the delivery of the major parts to the customer’s location or the customer’s acceptance. An individual risk assessment occurs before acceptance of an order.

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

     We hold numerous patents and have certain patent applications pending, but we are not substantially dependent upon any one particular patent or license. Nor are we dependent upon special manufacturing contracts, marketing contracts, financing contracts or new manufacturing processes.

Competitive Position

     We operate in a highly competitive market and receive information on our competitors and their operations, from, among other places, vacuum industry trade associations, such as the VDMA (Verband Deutscher Maschinen- und Anlagenbau) in Europe and the AVS (American Vacuum Society) in the U.S. We also receive information from market analyses and from consulting firms.

Material Effects of Government Regulations

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

C.    Organizational Structure

     Pfeiffer Vacuum has 13 subsidiaries in Europe, the United States and Asia, more than 20 exclusively operating marketing agents in other countries, as well as service support points in all major industrial locations throughout the world.

The Company’s subsidiaries are:

Identity and Location of Company		Percent Owned
Pfeiffer Vacuum Austria GmbH, Vienna/Austria			100.0	%
Pfeiffer Vacuum Belgium N.V., Temse/Belgium			100.0	%
Pfeiffer Vacuum France SAS, Buc/France			100.0	%
Pfeiffer Vacuum GmbH, Asslar/Germany			100.0	%
Pfeiffer Vacuum Holding B.V., De Meern/Netherlands			100.0	%
Pfeiffer Vacuum Inc., Nashua/United States			100.0	%
Pfeiffer Vacuum Italia S.p.A., Rho (Milano)/Italy			100.0	%
Pfeiffer Vacuum Ltd., Newport/United Kingdom			100.0	%
Pfeiffer Vacuum Nederland B.V., De Meern/Netherlands			100.0	%
Pfeiffer Vacuum Scandinavia AB, Upplands Väsby (Stockholm)/Sweden			100.0	%
Pfeiffer Vacuum (Schweiz) AG, Zurich/Switzerland			99.4	%
Pfeiffer Vacuum Korea Ltd., Yongin-City, Kyungki-Do/South-Korea			75.5	%
Pfeiffer Vacuum (India) Ltd., Secunderabad/India			73.0	%

D.    Property, Plant and Equipment

     We own an approximately 80,000 m² (861,000 SF) site in Asslar, Germany. The buildings in which our corporate Headquarters, main sales and marketing office and manufacturing operations are located have approximately 25,000 m² (269,000 SF) of floor space owned by us. We rent approximately 11,000 m² (118,000 SF) of our own real property to third parties. In addition, we lease premises for sales and service subsidiaries in various countries.

At this location in Asslar, Germany, we manufacture vacuum pumps, vacuum equipment and vacuum systems. Our production capacity at this manufacturing facility in Asslar enables us to complete our orders in adequate time to fulfill our delivery obligations.

All environmental factors, such as electricity, gas and water consumption as well as waste disposal, are regularly monitored and assessed. During the course of the 2006 fiscal year, seven environmental audits were conducted. In 2005, there were nine environmental audits. The items that were audited included compliance with legal requirements in handling, storing and disposing of hazardous substances. No material variances were identified. In addition, the employment of reusable packaging was able to be further expanded. One major customer from the field of plant engineering receives all products in reusable packaging, thus eliminating the need for disposal and the environmental problems this involves.

The Company’s environmental management system was reviewed by an independent certifier in connection with a follow-up audit in November 2006. We passed the audit without any variances, with the certificate under ISO 14001: 2004 retaining its validity through September 2007.

Improved thermal insulation on various factory building roofs and installation of a new heating system in the manufacturing buildings (ceiling-mounted radiant heating) are planned for 2007. This will enable the Company to considerably reduce its energy consumption, and thus contribute to lowering CO₂ emissions. We plan to conduct an additional review to determine whether a further reduction in energy consumption and energy costs can be achieved through the employment of a cogeneration plant.

All capital investments are financed through our cash assets.

Item 4. A.    Unresolved Staff Comments

Not applicable.

Item 5.    Operating and Financial Review and Prospects

Introduction

     The following discussion of our critical accounting policies and our financial condition and operating results should be read in conjunction with our Consolidated Financial Statements and the related Notes, prepared in accordance with IFRS and reconciled to U.S. GAAP as of, and for the years ended, December 31, 2006 and 2005. Please refer to Note 3 to our Consolidated Financial Statements “Accounting and Valuation Methods,” for a description of our significant accounting policies.

The comparability of our Consolidated Financial Statements for the periods presented in this Annual Report is affected by currency translation effects resulting from our international operations. In 2006 and 2005, the euro, the reporting currency of our Consolidated Financial Statements, strengthened significantly against several other world currencies, especially the U.S. dollar. All of our subsidiaries that report their results in a functional currency other than the euro are subject to currency translation risk. The recent appreciation of the euro also affected our reported segment results. Please refer to the description under the heading “Exchange Rate Risk” in Item 11. “Quantitative and Qualitative Disclosures about Market Risk” for additional information on our currency translation and transaction risk exposure.

New Accounting Rules and Accounting Standards

     For a detailed explanation of new accounting rules and accounting standards please see Note 2, “Application of Amended or New Standards” (IFRS) and Note 40, “Additional Disclosure Information Required by U.S. GAAP — Adoption of New Accounting Rules” (U.S. GAAP) to our Consolidated Financial Statements.

Critical Accounting Policies

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

Revenue Recognition and Accounts Receivable

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

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

Inventory Valuation

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

Employment-Related Benefits

     The Company incurs certain employment-related expenses associated with pensions. In order to measure the expense associated with these employment-related benefits, management must make a variety of estimates, including discount rates used to present the value of certain liabilities, assumed rates of return on assets set aside to fund these expenses, compensation increases, employee turnover rates, and anticipated mortality rates. The estimates used by management are based on the Company’s historical experience as well as current facts and circumstances. The Company uses third-party specialists to assist management in appropriately measuring the expense associated with these employment-related benefits. Different estimates used by management could result in the Company recognizing different amounts of expense over different periods of time. Please see Note 20 to the Consolidated Financial Statements, “Pensions and Similar Obligations.”

Discontinued Operations

     In 2005, our operating results were influenced by the decision of our corporate management, with the required approval of our Supervisory Board, to discontinue the DVD business. This decision was based upon the sustained economic weakness of this line of business, which was attributable, among other things, to the poor customer payment record. According to IFRS and U.S. GAAP accounting rules, the losses incurred in this line of business are presented separately in the Consolidated Statements of Income as discontinued operations for all reportable periods. For detailed information, please see Note 27 to the Consolidated Financial Statements, “Discontinued Operations.”

We do not anticipate that these discontinued operations will have any impact on our profitability in the future.

Inflation

     In Germany, the average inflation rate was 1.8% during 2006 and 1.9% in 2005. Inflation did not have a significant effect on our operating results.

Other Risks

     Governmental, economic, fiscal, monetary or political policies or factors could materially affect, directly or indirectly, the Company’s operations. Some of these risks are discussed in Item 3. “Key Information — D. Risk Factors.” Non-German shareholders/ADR-holders have the same rights and are subject to the same risks as German shareholders/ADR-holders.

A.    Operating Results

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

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

Our extensive line of products and services ranges from individual components right through to complex vacuum systems. As a leading supplier in vacuum technology, we offer various types of pumps for a wide range of applications.

Vacuum generation		Turbopumps, rotary vane pumps, dry pumps, Roots pumps
Vacuum measurement and analysis equipment		Vacuum gauges and controllers, mass spectrometers, leak detectors
Installation elements		Fittings, flanges, valves
Vacuum systems		Vacuum pumping stations, leak detection systems, multi-stage vacuum systems

Vacuum

     The surface of the earth is surrounded by a layer of air (the atmosphere) that exerts a given pressure (atmospheric pressure). A vacuum exists if the pressure prevailing in a vessel is lower than the atmospheric pressure that surrounds it. The unit of measure for pressure is millibar (mbar). Vacuum technology differentiates between four vacuum ranges:

•		Low vacuum: From 103 to 1 mbar, e.g. for vacuum packaging
•		Medium vacuum: From 1 to 10-3 mbar, e.g. for decorative coating
•		High vacuum: From 10-3 to 10-7 mbar, e.g. for equipment used in doping checks and environmental analysis
•		Ultra-high vacuum: From 10-7 to 10-12 mbar, e.g. for space simulation or scientific research

Vacuum Generation

Turbopumps

     The turbomolecular pump was invented at Pfeiffer nearly 50 years ago, and has since been steadily evolved. Turbopumps are the Company’s most important products. These pumps are available in a wide range of sizes for all applications in the high- and ultra-high vacuum ranges.

Rotary vane pumps

     Rotary vane pumps are employed as backing pumps for turbo and Roots pumps, in addition to being used as stand-alone pumps. We offer models for all applications in the low- and medium-vacuum ranges.

Dry pumps

     A dry pump does not require lubricants in the pump chamber. This guarantees a high level of process purity and very good environmental compatibility. We have developed a line of dry pumps for employment in the semiconductor industry, in freeze-drying and in metallurgy, for example.

Roots pumps

     We provide a complete line of Roots pumps for applications in the low- and medium-vacuum ranges. These pumps are characterized by an optimum ratio between pumping speed and physical size.

Vacuum Measurement and Analysis Equipment

Vacuum gauges and controllers

     In addition to vacuum generation pumps, we also offer a variety of powerful vacuum measurement and analysis equipment.

Mass spectrometers

     In industrial production processes, it is often not only important to know “how much” is in something, but also “what it is.” With the aid of a mass spectrometer, it is possible to analyze the composition of a gas.

Leak detectors

     Our helium leak detectors enable troublesome, quality-reducing leaks in products and processes to be identified. These devices are employed, for example, for quality assurance in building and operating vacuum systems, refrigerators, air conditioning systems, automotive fuel tanks and brake lines.

Installation elements

     In order to interconnect the various vacuum components or to disconnect them from one another, we offer a broad selection of installation elements, such as flanges, fasteners, gaskets, seals and valves.

Vacuum Systems

TurboCube^TM pumping stations

     In addition to stand-alone pumps, we also produce ready-to-run pumping stations for analytical applications and research & development needs. These TurboCube^TM pumping stations are modularly designed and essentially consist of a turbopump, a backing pump, a vacuum gauge, as well as a controller.

CombiLine^TM pumping stations

     We also offer a broad range of CombiLine^TM pumping stations. In addition to our proven standard pumping stations, in which various sizes of Roots pumps are combined with rotary vane and dry pumps as backing pumps, we also provide different solutions for specific processes.

Leak detection systems

     Pfeiffer Vacuum develops and manufactures complete vacuum systems for specific processes, such as leak testing of components for applications in the automotive industry, of pressure vessels or in the food industry. The products in this category also include helium leak detection systems.

Vacu² multi-stage vacuum processes

     Together with die casting specialists, Pfeiffer Vacuum has made a crucial advance in die casting technology. The purpose of vacuum in a die casting system is to evacuate a given volume of air from the mold cavity and the shot sleeve within the shortest possible period of time.

Service

     Service for our products is a line of business in its own right within the Company’s product portfolio. A close-knit worldwide service network assures that prompt assistance can be provided to our customers. Service includes maintenance, repair or replacement of products at the factory or on the customer’s premises and supply of replacement parts.

In contrast to most of Pfeiffer Vacuum’s competitors, the Company guarantees on-site service and a 24-hour response time for replacement or repair of its pumps in all major industrialized nations. Service sales include the total after market sales such as invoiced working hours for service personnel, spare parts and replacement products.

2006 Compared to 2005
(Percentages calculated on the basis of amounts in thousands of €)

     Generally, we can look back with satisfaction at a successful 2006 fiscal year. In the face of a world economic environment that was difficult overall, along with stiff pricing competition in the vacuum industry, we succeeded in increasing sales and were able to sustain our cost-consciousness that exists in all areas of the Company, along with optimization of our operating processes.

Net Sales

     Presented below are net sales by segment, by region, by product and by market for the year 2006. It should be noted with respect to net sales by segment that the sales shown in this presentation were allocated on the basis of the registered office of the company that invoiced the sales. The segment-based presentation thus shows net sales by subsidiaries. Net sales by region, on the other hand, include all sales in a given region, regardless of which subsidiary within the Pfeiffer Vacuum Group actually invoiced the sales. Net sales by segment and by region can thus differ from one another to a greater or lesser extent. Net sales in the Asian segment, for example, differ from those shown for the Asian region, as the Asian segment includes only the sales of our two Asian subsidiaries in India and Korea. The presentation for the Asian region, in contrast, additionally includes sales generated directly with Asian customers by the German company, such as with customers in Japan, Taiwan and China. In net sales by segment, the sales the German company generated through direct deliveries to agents and/or customers outside Germany were significantly higher than German sales by region. Net sales in the U.S. region and the U.S. segment, on the other hand, are nearly identical, because virtually all sales in this region are handled through our U.S. subsidiary.

The prices of the vacuum pumps we manufacture, sell and service, range from approximately K€ 1 to K€ 60. In 2006, increased sales were attributable to both a higher volume of products and a more favorable product mix (a greater percentage of our high-margin products were sold in 2006 compared to 2005).

Net Sales by Segment

The total net sales of € 179.5 million generated in 2006 (2005: € 159.5 million) break down as follows among the various segments:

		Year ended December 31,
		2006								2005
		(€ in thousands)				%				(€ in thousands)				%
Net sales by segment
Germany			79,700				44.4				70,159				43.9
Europe (excluding Germany)			52,999				29.5				49,720				31.2
United States			41,577				23.2				36,301				22.8
Asia			5,208				2.9				3,337				2.1
Total			179,484				100.0				159,517				100.0

Year-on-year sales growth was achieved in all segments in 2006. The highest growth rates were recorded by our Asian subsidiaries in Korea and India, whose combined sales advanced by € 1.9 million, or 56.1%, from € 3.3 million to € 5.2 million. The sales of our U.S. subsidiary also rose disproportionately by € 5.3 million, or 14.5%,

from € 36.3 million to € 41.6 million, even though the weak U.S. dollar had a € 0.4 million negative impact on sales revenues. Expressed in U.S. dollars, sales advanced by US$ 7.0 million, or 15.5%, from US$ 45.3 million to US$ 52.3 million. With growth of 13.6%, sales of the German companies developed slightly above the average of the Group. On the other hand, the sales generated by the other European companies (excluding Germany) rose only moderately by € 3.3 million, or 6.6%, from € 49.7 million to € 53.0 million.

Net Sales by Region

In contrast to our segment information referred to above, the following provides information as to where we delivered our products:

		Year ended December 31,
		2006								2005
		(€ in thousands)				%				(€ in thousands)				%
Net sales by region
Germany			50,882				28.4				44,939				28.2
Europe (excluding Germany)			54,434				30.3				51,012				32.0
United States			41,309				23.0				36,022				22.5
Asia			31,191				17.4				25,840				16.2
Rest of world			1,668				0.9				1,704				1.1
Total			179,484				100.0				159,517				100.0

Europe (excluding Germany)

In Europe, sales totaled € 54.4 million, up € 3.4 million from € 51.0 million the year before. Within this region, sales developed on a positive note in Switzerland (€ 8.4 million, increase of 18.7%) and the UK (€ 6.6 million, increase of 13.0%), while stagnating at € 6.3 million in France and declining in Scandinavia (€ 4.7 million, decrease of 20.1%). Sales in Austria, Eastern and Southeastern Europe developed on an exceptionally positive note. In this region, sales increased by 27.6% to € 11.1 million. Accounting for 30.3% of total sales, Europe continued to generate the largest share of total net sales revenues (2005: 32.0%).

Germany

Net sales revenues in Germany advanced by € 6.0 million, or 13.2%, from € 44.9 million to € 50.9 million. Following weaker years, this marked the first time that Germany again saw a significant rise in net sales. The stronger demand came both from German end-customers, such as research & development facilities, as well as from Original Equipment Manufacturers (OEMs), who integrate our products into their systems and then export them. In 2006, our Company generated 28.4% of its total sales with its customers in Germany (2005: 28.2%).

United States of America

In this region, sales revenues rose disproportionately by 14.7% from € 36.0 million to € 41.3 million. In 2006, we succeeded in winning nearly 300 new customers in the United States, who generated over US$ 3 million in additional sales. Our customers in the United States accounted for 23.0% of total sales in 2006, as opposed to 22.5% the year before.

Asia and other Regions

With an increase of 20.7%, the Asian region posted the strongest growth rate in the regional sales mix, as well, with sales revenues advancing from € 25.9 million to € 31.2 million. At € 16.0 million (2005: € 15.7 million), Japan accounted for the largest share of total sales in Asia. Sales advanced from € 4.3 million to € 5.8 million (34.4%) in Korea and from € 2.6 million to € 3.1 million (18.7%) in India. Moreover, the expansion of our sales and service facility in China during the year 2006 also generated initial sales growth (70.2%, from € 1.2 to € 2.0 million). The percentage of total sales accounted for by the Asian region has steadily risen in recent years and now totals 17.4%, as opposed to 16.2% the year before. Sales of € 1.7 million in the other regions of the world remained at the previous year’s level. The sales generated in these other regions accounted for 0.9% of total sales (2005: 1.1%).

Net Sales by Product

The following table summarizes our net sales by product:

		Year ended December 31,
		2006								2005
		(€ in thousands)				%				(€ in thousands)				%
Net sales by product
Turbopumps			78,284				43.6				64,397				40.4
Measurement and analyses equipment, components			45,938				25.6				41,347				25.9
Service			25,344				14.1				23,515				14.7
Backing pumps			24,786				13.8				22,775				14.3
Systems			4,582				2.6				6,935				4.4
Other			550				0.3				548				0.3
Total			179,484				100.0				159,517				100.0

Any number of high-tech products and articles used in daily life can only be manufactured in vacuum chambers in which pressure conditions that are similar to those in outer space prevail. Different types of pumps are needed for the various vacuum pressure ranges: For low and medium vacuum, these are primarily rotary vane, Roots and dry pumps. Turbomolecular pumps, or turbopumps for short, are employed to generate high and ultra-high vacuum.

Turbopumps

Our most important product, accounting for 43.6% of total net sales revenues in 2006 (2005: 40.4%), is the turbopump. This class of pumps was invented at Pfeiffer nearly 50 years ago, and has since been steadily evolved. Turbopumps are available in a wide variety of versions – from the world’s smallest and most compact pump with a pumping speed of 11 liters per second for the analytical industry right through to large, 2,000-liter pumps that are primarily employed in the coating and semiconductor industries. During the year 2006, sales of turbopumps rose by € 13.9 million, or 21.6%, from € 64.4 million to € 78.3 million. The Company was able to further expand its market and technology leadership in this product segment. The higher sales during the year 2006 stemmed, in particular, from our ability to win new customers and some high order volumes.

Measurement and analysis equipment, Components

Pfeiffer Vacuum not only offers its customers products for generating vacuum. Vacuum measurement equipment is every bit as important. A precise knowledge of the total pressure or the quality of the vacuum are prerequisites for assuring proper operation of manufacturing processes that occur under vacuum. This necessitates vacuum measurement and analysis equipment. In order to interconnect the various vacuum components or to disconnect them from one another, we additionally offer a broad selection of installation elements, such as flanges, fasteners, gaskets, seals and valves. Sales of these products increased by € 4.6 million, or 11.1%, from € 41.3 million the year before to € 45.9 million. Accounting for 25.6% of total sales, this product category continues to rank second (2005: 25.9%).

Service

Service for our products is a category in its own right within the Company’s product portfolio. A close-knit, worldwide service network guarantees prompt support for our customers. With our unique selling point of “on-site bearing changes,” we offer our customers highly favorable cost of ownership for turbopumps. Service includes maintenance, repair or replacement of products at the factory or at the customer site, supply of spare parts as well as system start-up. Service sales revenues rose by € 1.8 million, or 7.8%, from € 23.5 million to € 25.3 million. The percentage of total sales accounted for by service thus declined from 14.7% to 14.1%.

Backing pumps

Our product line of so-called backing pumps consists of rotary vane pumps, Roots pumps and dry pumps. The dry pump line includes diaphragm pumps, reciprocating pumps, screw pumps and complete pumping stations for specific processes. This product category generated sales of € 24.8 million during the year 2006 (2005: € 22.8 million). This correlates to 13.8% of total sales, as opposed to 14.3% the year before.

Systems

In addition to individual vacuum components, such as pumps, measurement equipment and components, Pfeiffer Vacuum also develops and manufactures complete vacuum systems for specific processes. During the year 2006, sales revenues for leak detection systems and coating systems declined, with sales in the Systems product category dropping by € 2.3 million, or 33.9%, from € 6.9 million to € 4.6 million. Systems accounted for 2.6% of total sales, as opposed to 4.4% the year before.

Other

This category records sales revenues generated by leasing building space. Sales revenues here remained stable at € 0.6 million (2005: € 0.5 million).

Net Sales by Principal Markets

     This section of the Annual Report details the development of net sales revenues in the individual markets in 2006 relative to the year before. Our strong competitive advantage – our independence from individual sales markets – can be seen from the table below.

		Year ended December 31,
		2006								2005
		(€ in thousands)				%				(€ in thousands)				%
Net sales by markets
Analytical Industry			45,184				25.1				40,005				25.1
Industrial			44,585				24.9				37,488				23.5
Research and Development			37,512				20.9				30,809				19.3
Optical and Glass Coating			26,991				15.0				26,695				16.8
Semiconductor Industry			19,307				10.8				18,108				11.3
Chemical and Process Technology			5,905				3.3				6,412				4.0
Total			179,484				100.0				159,517				100.0

Analytical industry

Sales in this category saw significant growth during the year 2006, advancing by € 5.2 million, or 12.9%, from € 40.0 million in 2005, to € 45.2 million. At 25.1%, this market’s percentage of total sales remained at the same level as in 2005. Modern analytical systems would be inconceivable without vacuum technology. In 2006, our focus was on vacuum products for ever-smaller, portable analytical equipment. During the year 2006, Pfeiffer Vacuum showcased these products at the Pittcon (Orlando, Florida) and Analytica (Munich, Germany) trade shows. We were qualified as a component supplier to a major manufacturer of an entirely new electron microscope concept.

Industrial

We continued to expand our position in this heterogeneous market, too, with sales rising by € 7.1 million, or 18.9%, from € 37.5 million to € 44.6 million. This market’s percentage of total sales amounted to 24.9% (2005: 23.5%). Steadily rising demands are being placed upon quality needs in connection with the manufacture of industrial products. As a result, vacuum technology is taking on increasing significance.

There is a wide variety of applications in the industrial sector, including a broad range of potential applications for our products. Roots pumping stations for steel degassing were delivered to a customer in Poland, for example, and initial sales successes were achieved with the innovative Vacu² multi-stage vacuum process for inclusion-free die casting of aluminum automotive engines.

Research & development

We were able to further expand our strong position in this market segment. Sales rose faster than had been budgeted, by € 6.7 million, from € 30.8 million to € 37.5 million. Universities and major research centers in Europe, the United States, Asia and other parts of the world have come to rely upon the quality and dependability of products from Pfeiffer Vacuum. At the same time, we also supply numerous industrial research facilities. And our products are additionally being used in connection with research into renewable energies. During 2006, we received large orders from major research centers in Switzerland, the United States, the United Kingdom and Germany.

Coating

Business with vacuum components for the coating market is project-driven in nature and is thus subject to fluctuations. During the year 2006, sales in the subsegment of photovoltaics posted above-average growth, whereas they declined considerably as a result of slumping sales in the storage media subsegment. Totaling € 27.0 million, sales revenues in the coating market remained virtually on the same level as in the previous year (€ 26.7 million). This market segment accounted for 15.0% of total sales (2005: 16.8%). There are a wealth of application examples for coating under vacuum, ranging from coating solar cells and applying antireflective coatings on eyeglass lenses to manufacturing architectural glass right through to metalizing CDs and DVDs. Our customers in this market segment utilize our entire product portfolio: Turbo and backing pumps, measurement equipment, components and valves.

Semiconductors

The semiconductor segment is the most cyclical of all the markets served by Pfeiffer Vacuum. In 2006, sales revenues again posted stronger growth than in the years before, although this increase was moderately diluted by the weakness of the dollar at year-end. Sales advanced by € 1.2 million from € 18.1 million to € 19.3 million. This market segment accounted for 10.8% of total sales (2005: 11.3%). In addition to microprocessor fabrication, we also include flat panel display production and computer hard disk coating in the semiconductor market segment.

Chemical and process technology

Sales in this market segment decreased by € 0.5 million in 2006, from € 6.4 million to € 5.9 million, accounting for 3.3% of total sales (2005: 4.0%). The applications in the chemical and process technology market segment are very closely related to those in the industrial system technology segment. Employed first and foremost in this segment are our new dry pumps, as well as our extremely reliable rotary vane and Roots pumps.

New orders and orders on hand

     New orders during 2006 totaled € 175.6 million, up € 12.9 million, or 7.9%, from the previous year’s level of € 162.7 million. € 5.8 million of this increase stemmed essentially from the higher volume of new orders for turbopumps, while € 4.3 million was attributable to a higher level of orders in the backing pump segment. New orders for systems decreased by € 1.7 million from € 5.5 million to € 3.8 million. New orders in the service segment, increased by € 1.3 million. This strong rise in orders for new products, especially in connection with turbopumps, resulted predominantly from major orders received from the analytical and R & D markets. As a result of both orders from our customers that involve increasingly shorter delivery time wishes as well as our shorter cycle times, many orders are now being transformed into sales revenues (book to bill) within a matter of weeks.

At the close of fiscal 2006, the book-to-bill ratio – the quotient between new orders and sales – amounted to 0.98 (2005: 1.02). This means that the value of new orders is slightly below the level of sales. Our order backlog of € 25.6 million as of December 31, 2006 (2005: € 29.5 million) affords us sufficient predictability for the initial months of 2007. Our most important product family, turbopumps, accounted for 51.2% of orders on hand.

Cost of Sales and Gross Profit

     Cost of product sales include all expenses that are related to the (sold) product in a direct or indirect manner, for example, material consumption (including inbound freight charges), production-related wages and salaries, including the respective fringe-benefit costs, purchasing and receiving costs, inspection costs and warehousing costs. Cost of service sales includes the total after-market sales-related expenses.

Cost of sales by segment consists of:

		Year ended December 31,
		2006								2005
		(€ in thousands)				%				(€ in thousands)				%
Cost of sales
Germany			14,361				15.7				15,783				18.8
Europe (excluding Germany)			41,507				45.2				38,442				45.8
United States			32,074				34.9				27,181				32.4
Rest of world			3,887				4.2				2,526				3.0
Total cost of sales			91,829				100.0				83,932				100.0

Cost of sales increased to € 91.8 million during the year 2006 (2005: € 83.9 million), predominantly as a result of our higher sales. The fact that cost of sales increased by only 9.4% on sales growth of 12.5% produced a significantly higher gross profit of € 87.7 million (2005: € 75.6 million). This stemmed from a higher percentage of products with higher margins as well as from our successes in keeping rising raw materials and energy prices largely under control in 2006. In fact, this enabled us to more than compensate for the impact of higher personnel and pension expenses on cost of sales.

Gross margin, the ratio between gross profit and net sales, advanced significantly from 47.4% in 2005 to 48.8% in 2006.

Selling and Marketing Expenses

     Our selling and marketing expenses mainly include wages and salaries including the respective fringe-benefit costs, costs for marketing and advertising and costs related to trade fairs and conventions, as well as other merchandising costs (such as catalogs and brochures).

Selling and marketing expenses increased by € 2.5 million from € 20.0 million in 2005 to € 22.5 million in 2006. As a percentage of net sales it decreased slightly from 12.6% in 2005 to 12.5% in 2006. We launched of a new, worldwide image campaign (Captain Vacuum joins the Pfeiffer Vacuum team) in order to set us apart from the competition in a positive light. To our knowledge this type of communication has never before been employed in the vacuum industry.

Our advertising and promotional costs amounted to € 1.9 million for the period ended December 31, 2006, and € 1.5 million for the previous year.

General and Administrative Expenses

     General and administrative expenses predominantly include wages and salaries including the respective fringe-benefit costs, audit and other general consulting fees and other costs that relate to the Company as a whole. We recorded general and administrative expenses in 2006 amounting to € 12.9 million, compared to € 12.4 million the year before. This increase resulted predominantly from higher personnel expenses and from higher administrative expenses in connection with the implementation and audit of requirements under the Sarbanes Oxley Act. General and administrative expenses represented 7.2% (2005: 7.8%) of our net sales.

Research and Development Expenses

     Research & development expenses were up significantly by € 0.6 million from the year before to € 7.3 million in 2006, and accounted for 4.1% of sales (2005: 4.2%). Developing new products and evolving our successful existing product portfolio is a high priority for us. In addition to our own specialists in our engineering and development departments, we also collaborate closely with universities and with companies in Germany and other countries who possess key technologies.

We expense all research and development costs as they are incurred and anticipate that future spending on research and development will be comparable to current levels.

Operating Profit

     Because expenses in the individual departments did not rise as strongly as sales revenues, we again succeeded in increasing our operating profit, which totaled € 45.0 million for the 2006 fiscal year, as opposed to € 36.4 million in 2005. This represents a significant rise of € 8.6 million, or 23.4%, as well as the highest level of operating profit in the Company’s history. At 25.1% (2005: 22.8%), the EBIT-margin, the ratio between operating profit and sales, also reached a new record level for us.

Every employee of Pfeiffer Vacuum contributed an average of K€ 66 to the Company’s operating profit during the year 2006. (Operating profit amounting to € 45.0 million divided by total average number of employees of 685).

Net Financial Income

     Net financial income for the year 2006 totaled € 1.4 million compared to € 2.5 million in 2005. It consists of interest income amounting to € 2,0 million (2005: € 1.5 million) offset by interest expense amounting to € 0.1 million (2005: € 0.2 million) and exchange rate losses of € 0.5 million (2005: Exchange rate gain of € 1.3 million). The development of the U.S. dollar relative to the euro was the main reason for the decline in the foreign exchange result.

Income Taxes

     Income tax expenses totaled € 16.6 million in 2006, as opposed to € 15.0 million in 2005, with € 16.7 million being attributable to current tax expenses and € 0.1 million to deferred tax benefits (2005: € 14.6 million current and € 0.4 million deferred income tax expenses, respectively). This increase of € 1.6 million in the year 2006 was predominantly the result of higher income, which was partly offset by capitalized tax claims. This capitalization also led to a decreased tax rate of 35.8%, down from 38.4% the year before. For further information please refer to Note 18 to the Consolidated Financial Statements “Income Taxes (from Continuing Operations).”

Losses from Discontinued Operations

     There were no longer any losses from discontinued operations for the 2006 fiscal year. In 2005, an after-tax loss of € 1.0 million had been incurred here, stemming from the Company’s withdrawal from DVD business. Losses from these discontinued operations are not anticipated in the future.

Net Income

     Totaling € 29.8 million, Pfeiffer Vacuum earned the highest net income in the Company’s history. In 2005 the net income had amounted to € 23.0 million and included a net loss from discontinued operations of € 1.0 million. Thus, income from continuing operations increased by € 5.8 million, or 24.1%, from € 24.0 million in 2005 to € 29.8 million.

€ 29.6 million, or 99.5% of the Company’s net income, is attributable to the shareholders of Pfeiffer Vacuum Technology AG (2005: 99.5%) and € 0.2 million (2005: € 0.1 million) is attributable to minority interests. For further information, please refer to Note 39d) to the Consolidated Financial Statements, “Minority interests.”

B.    Liquidity and Capital Resources

     We have historically generated sufficient cash to fund our operations, including all working capital requirements, capital expenditures and debt repayments. In 2006, cash and cash equivalents rose by a total of € 13.7 million, amounting to € 75.4 million on December 31, 2006 (2005: € 61.7 million). In our Consolidated Statement of Cash Flow for the year ended December 31, 2005 we separately disclosed “changes in net cash from discontinued operations” (usage of € 0.5 million) and “proceeds from disposal of discontinued operations” of € 0.2 million.

Cash flow from operating activities in 2006 amounted to € 31.8 million (2005: € 24.5 million). In particular, this increase of € 7.3 million, or 29.8%, was attributable predominantly to the increased earnings before taxes (€ 7.4 million). A total cash usage of € 4.0 million as compared to the prior year was due to increased inventories and receivables. This development was more than offset by the € 5.6 million increase in liabilities. In addition, tax payments were up € 0.8 million. Moreover, Pfeiffer Vacuum’s cash flow margin, (operating cash flow relative to sales revenues) was 17.7% in 2006 (2005: 15.4%), and our cash flow per share (operating cash flow relative to the average number of shares outstanding for the year) was € 3.64 in 2006 (2005: € 2.82).

Net cash used in connection with investing activities in 2006 included purchases of investment securities in the amount of € 9.0 million (2005: € 8.0 million) and capital expenditures in the amount of € 5.6 million (2005: € 2.5 million). This development was offset by net cash provided by redemption of investment securities in the amount of € 3.0 million (2005: € 9.0 million), as well as by net cash provided by proceeds from disposals of fixed assets (€ 0.2 million, 2005: € 0.1 million), resulting in total net cash used in investing activities of € 11.4 million (2005: € 1.2 million).

The dividend of € 11.7 million for 2005 – which was paid in June 2006 – was the primary factor that led to a usage of cash flow from investing activities in the amount of € 5.8 million (2005: € 8.0 million). In addition, the share buyback resulted in net cash used in investing activities of € 1.3 million. This was offset by net cash provided in the amount of € 7.3 million from the conversion of convertible bonds. There had been no share buybacks or conversions of convertible bonds in 2005.

Free liquidity was invested in interest-bearing vehicles within the framework of our financial management. A cash management system is in place between the German companies within the corporate group in order to bundle liquidity. The parent corporation regularly concentrates the free liquidity from the non-German group companies. Conservative and largely short-term investment vehicles, such as money-market or time deposits at banks, dominate in connection with financial investments. In the case of securities, only fixed- or variable-rate bond issues from issuers with high credit ratings are fundamentally acquired. These are typically bond issues from banks or high-grade industrial bond issues. We do not enter into speculative transactions. Our working capital is sufficient for all present requirements.

Since 1998 we have enabled our shareholders to participate in Pfeiffer Vacuum’s success in the form of a dividend. Based on our level of cash and cash equivalents, the Management and Supervisory Board will propose at the Annual Shareholders Meeting that a dividend in the amount of € 2.50 per share will be paid (2005: € 1.35). An aggregate dividend of approximately € 11.7 million was approved and paid in 2006.

We did not have long-term debt as of December 31, 2006, and December 31, 2005. We have various lines of credit available for operating purposes in the amount of approximately € 10.7 million (2005: € 10.8 million). No amounts under these lines were outstanding at December 31, 2006 and 2005. All of the credit facilities are denominated in euros. These lines of credit have indefinite terms. Our borrowing requirements are not seasonal.

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

Capital Expenditures

     At € 5.6 million, the capital expenditures of the corporate group were up significantly from the previous year’s level of € 2.5 million and consisted of the following:

		Year ended December 31,
		2006								2005
		(€ in thousands)				%				(€ in thousands)				%
Capital Expenditures
Land and buildings			1,379				24.6				966				39.1
Technical equipment and machinery			1,670				29.8				242				9.8
Other equipment			1,409				25.1				986				39.9
Software			208				3.7				276				11.2
Investment properties			944				16.8				—				—
Total capital expenditures			5,610				100.0				2,470				100.0

The significant increase in capital expenditures for land and buildings, as well as for investment properties, was predominantly attributable to the acquisition of factory buildings. Prior to their acquisition, these buildings were already being utilized under long-term leases.

Foreign Currency Exchange Hedging

     Approximately 37% of our net sales are denominated in currencies other than the euro, primarily in U.S. dollars. We enter into foreign currency forward contracts and options to hedge the exposure of our forecasted sales against currency fluctuations. All derivative financial instruments are entered into only in this scope and qualify as cash flow hedges. These forward contracts are limited to U.S. dollars, and are designed to protect against the impact of changes in exchange rates on these sales. Internal controls assess the effectiveness of all hedging activities. For further Information, please see Note 25 to the Consolidated Financial Statements, “Financial Instruments,” and Item 11. “Quantitative and Qualitative Disclosures about Market Risk – Foreign Currency Exchange Risk.”

C.     Research and Development, Patents and Licenses, etc.

     We operate in a market with high-tech vacuum products. As the inventor of the turbopump, we view it as our commitment to drive the development of vacuum technology with innovative work through our own research projects as well as by rigorously fostering teaching and science in technical disciplines. Developing new products and evolving the successful existing product portfolio is important to Pfeiffer Vacuum. Our sustained economic success proves that we are keeping pace with technology developments. In addition to our own specialists in the engineering and development departments, we also collaborate closely with universities and with companies in Germany and other countries who possess key technologies. We regularly sponsor postgraduate thesis work in the field of research and development and offer internships for physics or engineering students.

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

A significant increase in patent applications and patents granted demonstrates the Company’s innovative strength. Eighteen new patent applications were filed in the year 2006 (2005: 11). In addition, 20 patents were granted on pending applications (2005: 6). We hold a total of over 80 fundamental patents worldwide, as well as more than 110 patent families with nearly 400 national intellectual property rights. We spent € 7.3 million in 2006 and € 6.7 million in 2005 on expenditures for research and development.

D.    Trend Information

Vacuum industry

     The development in the vacuum industry roughly paralleled the previous year’s development and is characterized by stable growth of between 6% and 7%. The key drivers in this development were the analytical and semiconductor markets, in particular, while the field of research & development did not see any noteworthy growth. For further information please refer to Item 3. D. “Risk Factors — Highly Competitive Industry.”

Outlook

     We have prepared our Consolidated Financial Statements for the fiscal year ended December 31, 2006 for the first time in accordance with International Financial Reporting Standards (IFRS). For further information, please refer to “Preliminary Remarks” and for the reconciliation from IFRS to U.S. GAAP to Note 39 “Summary of Differences Between IFRS and U.S. GAAP” and to Note 40 “Additional Disclosure Information Required by U.S. GAAP” to our Consolidated Financial Statements.

Purchasing

     In contrast to industries that are characterized by a high level of raw material inputs, we employ semi-finished goods (raw materials that have already been partially processed) nearly exclusively in manufacturing our products. Since the production of these goods already adds value to the raw materials – only a minor portion of the price we pay is attributable to the actual cost of the raw material itself –, only a portion of rising raw materials prices impacts our costs. In addition, working in collaboration with our key vendors, we also optimize their value added processes in order to assure an optimal supply of inputs in terms of costs and lead times. Moreover, electronic handling of purchasing processes is a further major element in our internal process optimization. For further information please refer to Item 4. B. “Business Overview — Raw Materials and Suppliers, Purchasing.”

E.    Off-Balance Sheet Arrangements

Not applicable.

F.    Tabular Disclosure of Contractual Obligations

     We have entered into purchase, rental, leasing or maintenance agreements which expire at various dates. The table below presents the maximum amount of the off-balance sheet contractual commitments as of December 31, 2006, classified by periods in which the contingent liabilities or commitments expire:

Contractual Obligations

		Payments Due by Period
						Less than												More than
		Total				1 year				1-3 years				3-5 years				5 years
		€ in thousands
Operating leases			2,299				842				1,082				360				15
Purchase obligations			3,524				541				2,796				187				—
Maintenance contracts			452				352				100				—				—
Pension payments *			24,134				1,990				4,249				4,634				13,261
Total contractual obligations			30,409				3,725				8,227				5,181				13,276

Purchase obligations include long-term arrangements for future material supplies. Rental expenses amounted to € 1.1 million for both, the years 2006 and 2005. The Company did not have any capital lease obligations outstanding as of December 31, 2006 or 2005.

Item 6.    Directors, Senior Management and Employees

A.    Directors and Senior Management

General

     In accordance with the German Stock Corporation Act (Aktiengesetz), Pfeiffer Vacuum has a Supervisory Board (Aufsichtsrat) and a Management Board (Vorstand). The two boards are separate, and no individual may simultaneously be a member of both boards.

In March 2003 the Company established an Audit Committee. All of its individuals are members of the Supervisory Board.

Our Management Board is responsible for managing the day-to-day business in accordance with applicable laws, our Articles of Association and Bylaws (Satzung) and our Internal Rules of Procedure (Geschäftsordnung). In January 2007, we amended our Articles of Association and Bylaws. An English-language version is filed as Exhibit 1.1 to this Annual Report.

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

Our Audit Committee supervises the Management Board and has installed controls and procedures to examine the Company’s reporting and book-keeping system.

In carrying out their duties, the members of the Supervisory Board, the Audit Committee and the Management Board must exercise the standard of care of a diligent and prudent businessperson. In complying with this standard of care, the members of the Supervisory Board, the Audit Committee and the Management Board must take into account a broad range of considerations, including the concerns of the Company and its shareholders, employees and creditors.

Management Board (Vorstand)

     Our Management Board presently consists of two members who are appointed by the Supervisory Board in accordance with the German Stock Corporation Act. Pursuant to the Articles of Association and Bylaws of the Company, any two members of the Management Board, or one member of the Management Board and the holder of a special power of attorney (Prokura), may legally bind the Company.

Our Management Board must report regularly to the Supervisory Board and the Audit Committee, in particular, on proposed business policy, budgets and strategy, profitability and on the current business of the Company, as well as on any exceptional matters that arise periodically.

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

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

According to our Articles of Association and Bylaws, decisions of the Management Board are approved by a simple majority of the votes. In the event of a tie, the Chairman of the Management Board (Vorstandsvorsitzender) or, in his absence, the Vice Chairman, has the deciding vote. Currently, no Vice Chairman of the Management Board has been appointed.

The present members of our Management Board are as follows:

Wolfgang Dondorf

     Wolfgang Dondorf (age 63), Chairman of the Management Board, responsible for Development, Manufacturing, Sales & Marketing and Public Relations, was appointed Managing Director of the Company in July 1994 and has been a member of the Management Board since 1996. From 1989 to 1994, Mr. Dondorf served as managing director of King Plastic GmbH, a plastic components manufacturing company. He also served as managing director of Pulsotronic GmbH from 1982 to 1989, Starkstrom Gummersbach GmbH from 1979 to 1982, and Sprague Electric Inc. from 1971 to 1979. Mr. Dondorf received a Master’s degree in Electrical Engineering (Dipl.-Ingenieur) from RWTH Aachen.

Manfred Bender

     Manfred Bender (age 41), was appointed as Chief Financial Officer at April 1, 2004, and is responsible for Finance/Controlling, Information Technology, Customer Service, Logistics and Human Resources. He graduated with a Master’s degree in Business Economics (Dipl.-Betriebswirt) from Fachhochschule Giessen-Friedberg, joined the Company in 1998 and was responsible for the Finance and Controlling Department through March 31, 2004. From August 2001 through March 2004, the Management Board granted Mr. Bender a special power of attorney (Prokura), which granted him the authority to bind the Company together with any other member of the Management Board. Prior to 1998, he had served as controller, internal auditor and IT-manager for Schunk GmbH, a multinational industrial group. In 2006, Mr. Bender was elected to the Supervisory Board of Technotrans AG in Sassenberg/Germany.

The distribution of responsibilities within the Management Board is as follows:

The four-eyes principle applies: Major decisions are made jointly. In addition to collaborating closely with one another and mutually informing one another on a daily basis, Management Board meetings are typically conducted every two weeks.

Senior Officer (Prokuristin)

     Nathalie Benedikt (age 30), who graduated with a Master’s degree in Business Economics (Dipl.-Betriebswirtin) from Berufsakademie Mannheim, joined the Company in 2000. She is responsible for the Finance and Controlling Department. In July 2006, the Management Board granted Mrs. Benedikt a special power of attorney (Prokura), which grants her the authority to bind the Company together with any member of the Management Board. Prior to 2000, she had served as an accountant for Zürich Versicherungs-AG, Direktion für Deutschland, a multinational insurance group.

Supervisory Board (Aufsichtsrat)

     In accordance with our Articles of Association and Bylaws, the Supervisory Board consists of six members, four of whom are elected by the shareholders at an Annual Shareholders Meeting in accordance with the provisions of the German Stock Corporation Act, and two of whom are elected by the employees in accordance with the German One-Third Participation Act (Drittelbeteiligungsgesetz of 2004), which supersedes the German Labor Management Relations Act of 1952.

Each of the members of our Supervisory Board is elected for a term of office of five years (the term expires at the end of the Annual Shareholders Meeting at which the shareholders discharge the Supervisory Board member for the fourth fiscal year following the year in which such member was elected). The terms of the current members of the Supervisory Board will end as of the date of the Annual Shareholders Meeting to be held in 2011.

The regular term of office of all Supervisory Board members ended on May 31, 2006. The shareholder representatives to the Supervisory Board were elected at the Annual Shareholders Meeting on May 31, 2006, while the employees elected their representatives to the Supervisory Board on May 10, 2006. The Supervisory Board submits a slate of nominations for the election of shareholder-representative members of the Supervisory Board. In selecting the nominees, care is taken to assure that the Supervisory Board will at all times be composed of members who possess the requisite expertise, skills, abilities and professional experience, as well as sufficient independence. Both the international business activities of the corporate group as well as potential conflicts of interest are taken into consideration in this regard.

A member of the Supervisory Board elected by the shareholders may be removed by the shareholders by a majority of the votes cast at an Annual Shareholders Meeting or for cause by court order of the municipal court (Amtsgericht) upon motion by a simple majority of the members of the Supervisory Board. Upon request of the Works Council or at least twenty percent of the employees entitled to elect members of the Supervisory Board, a member of the Supervisory Board elected by the employees may be removed by at least three-quarters of the votes cast by employees who are entitled to vote. In addition, such member may be removed for cause by a court order of the municipal court upon motion by a simple majority of the members of the Supervisory Board.

The Supervisory Board appoints a Chairman and a Vice chairman from among its members. At least half the members of the Supervisory Board must be present to constitute a quorum. Resolutions are passed by a simple majority of the Supervisory Board.

In 2006, the Supervisory Board held four meetings. The business address of the members of our Supervisory Board is the same as our business address, which is Berliner Strasse 43, D-35614 Asslar, Germany. The following individuals are members of the Supervisory Board:

Name		Age				Principal Occupation
Dr. Michael Oltmanns (Chairman)			50			Attorney at Law and Tax Consultant Law Offices of Menold Bezler, Stuttgart, Germany First elected: 1996 Chairman since 2001 - reelected on May 31, 2006
Further Supervisory Board posts held by Dr. Oltmanns:						HPC AG, Weinheim (Chairman) Merkur Bank KGaA, Munich/Germany (Vice Chairman) Jetter AG, Ludwigsburg (Chairman) Scholz AG, Essingen (Chairman)
Prof. Dr. Klaus-Jürgen Kügler (Vice Chairman)			56			Dean (Professor) at Giessen-Friedberg Technical University, Giessen, Germany First elected: 2001 - until May 31, 2006
Götz Timmerbeil (Vice Chairman)			39			Certified Public Accountant and Tax Consultant, Gummersbach, Germany First elected: 2001 - reelected on May 31, 2006
Michael J. Anderson			49			Managing Director Equity Capital Markets of UBS Securities, New York, United States First elected: 1996 - reelected on May, 31, 2006
Wilfried Glaum			60			Business Administrator, Hüttenberg, Germany First elected: 2006 - since May 31, 2006
Günter Schneider			63			Chairman of the Pfeiffer Vacuum Works Council, First elected: 1996, (elected by the employees) - until May 31, 2006
Edgar Keller			51			Member of the Pfeiffer Vacuum Works Council, First elected: 2001 (elected by the employees) - until May 31, 2006
Manfred Gath			53			Chairman of the Pfeiffer Vacuum Works Council, First elected: 2006 (elected by the employees) - since May 31, 2006
Helmut Bernhardt			50			Development Engineer, First elected: 2006 (elected by the employees) - since May 31, 2006

Committees of the Supervisory Board:

     The Supervisory Board has established and maintains the following committees responsible for audit and compensation matters:

Audit Committee:

     In accordance with the Sarbanes-Oxley Act, the Company established an Audit Committee in March 2003. The following individuals are members of the Audit Committee:

Name		Age				Principal Occupation
Götz Timmerbeil (Chairman and Financial Expert)			39			Certified Public Accountant and Tax Consultant
Dr. Michael Oltmanns			50			Attorney at Law and Tax Consultant
Michael J. Anderson			49			Managing Director Equity Capital Markets of UBS Securities

The Audit Committee nominates our independent auditors and our Supervisory Board recommends their appointment at the Annual Shareholders Meeting. After our shareholders appoint the independent auditors, the Audit Committee formally engages them, determines their compensation and reviews the scope of the external audit. The Audit Committee also reviews our annual and quarterly reports and financial statements, taking into account the results of the audits and/or reviews performed by the independent auditors. The Audit Committee also maintains procedures for dealing with complaints regarding accounting, internal controls or auditing matters and procedures for the confidential and anonymous submission of communications from employees of the company concerning questionable accounting and auditing matters.

We maintain no business relations with the members of our Audit Committee. It follows from this that all members of the Audit Committee are independent.

Administration Committee:

     Our Administration Committee addresses, among other things, “consent to contracts with members of the Supervisory Board.” The following individuals are members of the Administration Committee:

Name		Age				Principal Occupation
Dr. Michael Oltmanns (Chairman)			50			Attorney at Law and Tax Consultant
Götz Timmerbeil (Vice Chairman)			39			Certified Public Accountant and Tax Consultant
Helmut Bernhardt			50			Development Engineer

Management Board Committee:

     Our Management Board Committee is responsible for personnel matters relating to the members of the Management Board. It decides independently and without influence as to whether the members of the Management Board receive a variable compensation element in addition to the fixed element. The compensation consists additionally of non-monetary compensation (company car, accident insurance). The Management Board Committee currently uses the following procedure in stipulating the variable salary element (which is closely linked to the Management Board member’s performance and the Company’s success): The percentage change in sales and income before and after taxes relative to the year before is determined. The variable element from the previous year is then multiplied by this combined factor. The compensation paid to members of the Management Board is thoroughly discussed in detail by the Management Board Committee.

The following individuals are members of the Management Board Committee:

Name		Age				Principal Occupation
Dr. Michael Oltmanns (Chairman)			50			Attorney at Law and Tax Consultant
Götz Timmerbeil (Vice Chairman)			39			Certified Public Accountant and Tax Consultant
Wilfried Glaum			60			Business Administrator

B.    Compensation

Management Board

Compensation Report

     The compensation paid to members of the Management and Supervisory Boards is detailed in the following section.

Compensation Paid to Members of the Management Board

     The compensation paid to members of the Management Board is thoroughly discussed in detail and then adopted by the Management Board Committee of the Supervisory Board. This compensation consists of a fixed element and a variable element, as well as non-monetary compensation (company car, accident insurance). The variable element is contingent upon the group’s sales, operating profit or loss and after-tax income. In addition to a fixed salary element in the amount of K€ 334 and a variable salary element in the amount of K€ 457, the statement of income also records non-monetary compensation in the amount of K€ 11 for Wolfgang Dondorf, Chief Executive Officer and Chairman of the Management Board. Manfred Bender, Chief Financial Officer and member of the Management Board, received a fixed salary element of K€ 150, a variable salary element of K€ 164 as well as K€ 10 in non-monetary compensation. Wolfgang Dondorf has received a pension commitment in the amount of 60% and Manfred Bender 20% of their last respective fixed salary elements. In addition, pension commitments have also been made to former members of the Management Board. The net pension expenses for the year attributable to the Chief Executive Officer and Chairman of the Management Board amounted to K€ 188, while the statement of income records K€ 95 for former members of the Management Board. An addition has been made to Pfeiffer Vacuum Trust e. V. in the amount of K€ 492.

Supervisory Board

Compensation Paid to Members of the Supervisory Board

     The members of the Supervisory Board receive fixed compensation, which is stipulated by the Annual Shareholders Meeting. The Consolidated Statement of Income records compensation in the amount of K€ 45 for the year 2006 for Dr. Michael Oltmanns, as the Chairman of the Supervisory Board, while Supervisory Board compensation in the amount of K€ 30 was incurred for Götz Timmerbeil as the new Vice Chairman. Expense of K€ 15 was recorded for Michael Anderson in fiscal 2006. New Supervisory Board members Helmut Bernhardt, Manfred Gath and Wilfried Glaum received compensation in the amount of K€ 9 each. The expense recorded for retired Vice Chairman Prof. Dr. Klaus-Jürgen Kügler amounted to K€ 12, while the Consolidated Statement of Income records K€ 6 each for retired Supervisory Board members Edgar Keller and Günter Schneider. The compensation is paid on a pro-rata basis for members of the Supervisory Board who were newly elected or retired during the course of the year under review.

Negative Statement

     No further payments in addition to the above-indicated compensation elements were paid to members of the Management or Supervisory Boards during the year covered by this report. In particular, no stock options were granted, no loan entitlements were established and no guaranty commitments were issued. Nor do any special agreements exist in connection with the termination of the activities of members of the Management or Supervisory Boards.

Transparency

     Our corporate communications work strives to provide all target audiences with the same information at the same time. Private investors, too, can utilize the Internet to inform themselves on a timely basis about current developments within the corporate group. All ad-hoc press releases issued by Pfeiffer Vacuum Technology AG are made available to its shareholders on the Company’s website. Pursuant to §15a of the German Securities Trading Act (“Wertpapierhandelsgesetz”), the members of the Management and Supervisory Boards must disclose purchases and sales of Pfeiffer Vacuum shares. Pfeiffer Vacuum publishes this information on its website (pfeiffer-vacuum.net) under “Investor Relations/Corporate Governance.”

C.    Board Practices

     The Company has entered into service agreements with both members of our Management Board. Base salaries are established on the basis of a comparative analysis of base salaries, paid by similarly situated industrial companies. Additional annual bonuses are determined in relation to the profitability of the Company. They are expressed as a percentage of base salary and may be adjusted, upward or downward, on the basis of our profitability.

Four members of our Supervisory Board, Mr. Günter Schneider, Mr. Edgar Keller, Mr. Manfred Gath and Mr. Helmut Bernhardt, have employment contracts with the Company, in their capacity as employees. They were elected by the Company’s employees to the Supervisory Board in accordance with the German Labor Management Relations Act (Betriebsverfassungsgesetz of 1952) and the German One-Third Participation Act (Drittelbeteiligungsgesetz). Their employment contracts are standard-form contracts governed by the terms of a collective wage agreement between the labor union representing certain of the Company’s employees and an employer’s association representing the Company and other companies in the industry. As stipulated in the collective wage agreement, there are no benefits payable to them upon termination of their employment contracts. Please see Item 6. D. “Employees,” for further information about the collective wage agreement.

D.    Employees

		December 31,
		2006				2005				2004				2006				2005				2004
						Germany								Foreign Countries
Production and Service			273				277				280				56				55				57
Research and Development			75				76				81				—				—				—
Selling and Marketing			103				102				98				95				96				92
Administration			53				55				55				29				30				33
Total			504				510				514				180				181				182

     As of December 31, 2006, we employed 684 people, 504 of whom are in Germany and 180 of whom are in other countries. As of December 31, 2006 and 2005, there were no employees engaged in discontinued operations.

The Company pays employees at its German location either on the basis of the general collective-bargaining agreement for the metalworking and electrical engineering industries or at higher pay scales. The codetermination principles are observed in a spirit of trustful collaboration between management and works council.

Effective March 1, 2006, the new single-status payscale agreement (ERA) instituted under the collective bargaining agreement was introduced at corporate Headquarters in Asslar, Germany. The ERA is a consistent payscale framework system for blue collar, technical and business white collar employees and eliminates differentiation in wage and salary groups. Moreover, it also provides consistency for the other working conditions stipulated under the collective bargaining agreement. Entitlements stipulated under the collective bargaining agreement are assured on a zero-sum basis. The new single-status payscale agreement is not anticipated to result in any additional costs.

The current agreement for “metalworkers,” which covers most of the Company’s employees, went into effect on June 1, 2006, and is effective through March 31, 2007. Negotiations on a new agreement are expected to take place in 2007. The term of the current agreement will govern the Company’s relations with its metal workers until the new agreement takes effect. Employees at the Asslar facility are represented by a Works Council. There is good collaboration between the Works Council and management. We have not had any work stoppages during the past ten years.

In 2006, all employees again shared in the Company’s success in the form of a pay bonus. A growth-based bonus system provides additional incentive to the staff of the sales organization. Executives at corporate Headquarters have a variable income element that is coupled to the achievement of the Company’s operating profit target.

Pfeiffer Vacuum offers its employees Company-funded pension plans. Since year-end 2003, the Company’s pension obligations under agreements relating to the Company-funded old-age pension in Germany have been held in an asset management trust in the form of a registered association, Pfeiffer Vacuum Trust e. V. For further information relating to the pensions, please see Note 20 to the Consolidated Financial Statements, “Pension and Similar Obligations.”

Various pension plans that conform to country-specific conditions are in place at the sales subsidiaries.

During 2006, ten employees took advantage of the opportunity to gradually transition into retirement under a part-time contract for near retirees. This enabled us to offer trainees permanent jobs upon passing their final examination.

E.    Share Ownership

     The following table includes certain information known to the Company with respect to beneficial ownership of the Company’s ordinary shares as of December 31, 2006, by all members of the Supervisory Board and the Management Board:

Title of		Identity of		Numbers				Percent of
Class		Person or Group		Owned				Class
		Supervisory Board
Ordinary Shares		Dr. Michael Oltmanns			100				0.0	%
Ordinary Shares		Michael J. Anderson			0				0.0	%
Ordinary Shares		Wilfried Glaum			1,000				0.0	%
ADRs		Wilfried Glaum			200				0.0	%
Ordinary Shares		Götz Timmerbeil			0				0.0	%
Ordinary Shares		Gath, Manfred			0				0.0	%
Ordinary Shares		Bernhardt, Helmut			137				0.0	%

Title of		Identity of		Numbers				Percent of
Class		Person or Group		Owned				Class
		Management Board
Ordinary Shares		Wolfgang Dondorf			13,700				0.2	%
ADRs		Wolfgang Dondorf			200				0.0	%
Ordinary Shares		Manfred Bender			140				0.0	%

Stock-based Compensation Plans

     The purpose of our employee participation programs was to provide compensation and motivate the management and some key employees by providing them with an opportunity to share in the Company’s share price development.

In prior years, when stock option plans were not allowed under German law, the use of convertible bonds was common practice among German public companies. Our employee participation program utilizes convertible bonds in lieu of stock options. Under this program, the Company provides an employee a loan to purchase a Company-issued convertible bond. The loan and the nominal value of the convertible bond are equal to each other (and to what would be the exercise price in the case of a stock option), and the interest rate on the loan is equal to the interest rate on the convertible bond. Accordingly, there is no out-of-pocket cost to the Company or to the employee for either the loan or the convertible bond (as in the case of a stock option).

The employee may then exercise her/his right to convert the bond to Company stock (equivalent to the exercise of a stock option) by repaying the loan to the Company for the nominal value of the convertible bond (which is equal to what would be the exercise price in the case of a stock option).

Employee Participation Program, Term: 2000 through 2005

     Within the scope of an employee participation program, in July 2000 we issued 4,400 convertible bonds having an aggregate principal amount of € 0.6 million to members of management and certain salaried employees of the Company in Germany and other countries. The final conversion date was December 9, 2005. No bonds were converted under this plan. The Company redeemed the convertible bonds on December 10, 2005.

Employee Participation Program, Term: 2002 through 2007

     Within the scope of a further employee participation program, on July 7, 2002, we issued 4,600 convertible bonds having an aggregate principal amount of € 0.6 million to members of management and certain salaried employees of the Company in Germany and other countries.

The conversion feature entitles the bearer to convert each bond into 50 no-par ordinary shares of Pfeiffer Vacuum. The conversion price is based upon 110% of the average closing price on the Frankfurt Stock Exchange for the last ten trading days prior to issuance. The conversion price for the July 2002 issue was set at € 42.86 per share. Fair value at the date of grant was € 10.35 per ordinary share option.The fair value of each option grant was estimated on the date of grant using the Black-Scholes option pricing model, with the following assumptions: Risk-free interest rate of 4.5%; expected life of 4 years; expected dividend yield of 1% and expected volatility of 30%. The expected volatility was based upon historical volatility. The risk-free interest rate was derived from the interest rates of German government bonds, while the expected life was taken from the expected term of the conversion rights. Each holder of convertible bonds could convert up to 30% of such bonds to ordinary shares subsequent to the Annual Shareholders’ Meeting in 2004, up to 60% following the Annual Shareholders Meeting in 2005 and up to 100% following the Annual Shareholders Meeting in 2006. The final conversion date is December 9, 2007. Conversion is only possible during specific periods of time.

All bearers of convertible bonds exercised their conversion rights in the two conversion periods in 2006. Thus, all convertible bonds were converted or forfeited as of December 31, 2006. The convertible bonds bore interest at 6% p.a. up to the conversion date. Employees were given the opportunity of financing the purchase of the convertible bonds through interest-bearing employee loans. These loans bore interest at the same fixed rate as the bonds, had identical terms, were classified as other non-current assets in the Consolidated Balance Sheet

and were repayable upon conversion of the bonds or, if the bonds were called by the Company, upon termination of employment. The employee loans granted under this program were redeemed in 2006 in connection with the conversion and amounted to K€ 314 as of December 31, 2005.

180,000 option shares under the 2002 program were exercisable on December 31, 2005. In the two conversion periods following the Annual Shareholders Meeting on May 31, 2006, and in November/December 2006, all outstanding convertible bonds, having a notional value of K€ 461, were converted to 180,000 no-par ordinary shares. Share capital was thus increased by K€ 461. The total cash adjustment of K€ 7,254 paid in connection with the conversion (equivalent to € 40.30 per share) was recorded in additional paid-in capital. For further information please refer to Note 13 to the Consolidated Financial Statements, “Share Capital and Additional Paid-in Capital.”

In fiscal years 2006 und 2005, personnel expenses in the amount of K€ 232 and K€ 492, respectively, were recorded with regard to the convertible bonds.

Item 7.    Major Shareholders and Related Party Transactions

A.    Major Shareholders

     To the best of our knowledge, we are not directly or indirectly owned or controlled by another corporation, by any foreign government, or by any natural or legal persons, severally or jointly. 100% of our shares/ADRs are broadly held (free-float).

The following table includes certain information known to us with respect to beneficial ownership of 5% or more of the Company’s ordinary shares:

Title of		Identity of		Amount			Percent of
Class		Person or Group		Owned			Class
				December 31, 2006
Ordinary Shares		Arnhold and S. Bleichroeder Advisors, LLC, New York/U.S.A.		914,400			10.34	%
Ordinary Shares		Artisan Partners Ltd., Milwaukee/U.S.A.		883,275			9.99	%
				December 31, 2005
Ordinary Shares		Arnhold and S. Bleichroeder Advisors, LLC, New York/U.S.A.		914,400			10.52	%
Ordinary Shares		Harris Associates L.P., Chicago/U.S.A.		864,077			9.94	%
Ordinary Shares		Artisan Partners Ltd., Milwaukee/U.S.A.		606,579			6.98	%
				December 31, 2004
Ordinary Shares		Arnhold and S. Bleichroeder Advisors, LLC, New York/U.S.A.		450,002			5.18	%
Ordinary Shares		Harris Associates L.P., Chicago/U.S.A.		893,320			10.28	%

These shareholders have the same voting rights as any other holder of our ordinary shares/ADRs.

B.    Related Party Transactions

     Pfeiffer Vacuum did not enter into transactions with related parties in the years ended December 31, 2004, 2005 and 2006 and is not presently proposing to enter into transactions with related parties, that are material either to the Company or any related party, or that are unusual in their nature of conditions. There were no related party loans outstanding at December 31, 2004, 2005 and 2006.

Within the scope of the conversion of the convertible bonds issued in 2002, Manfred Bender, Chief Financial Officer of Pfeiffer Vacuum, converted 250 convertible bonds to 12,500 no-par value shares of the Company and sold these shares in 2006. He did not utilize any loan from the Company. The announcements required by § 15a of the German Securities Trading Act (Wertpapierhandelsgesetz) were duly published.

Within the scope of the conversion of the convertible bonds issued in 2002, Helmut Bernhardt, a member of Pfeiffer Vacuum’s Supervisory Board, converted 100 convertible bonds to 5,000 no-par value shares of the Company and sold 4,863 of these shares in 2006. He did not utilize any loan from the Company. The announcements required by § 15a of the German Securities Trading Act (Wertpapierhandelsgesetz) were duly published.

All loans we granted our employees in connection with our employee participation programs were repaid. For further information please refer to Note 19 to our Consolidated Financial Statements, “Convertible Bonds and Share-based Compensation.”

C.    Interests of Experts and Counsel

     Not applicable.

Item 8.    Financial Information

A.    Consolidated Statements and Other Financial Information

     See Item 18 “Financial Statements.”

Export Sales