Accounting Principles

The consolidated financial statements of Salzgitter AG (SZAG) were prepared in accordance with the accounting principles of the International Accounting Standards Board (IASB) that were rendered mandatory on the balance sheet date by EU Regulation No. 1606/2002 and are based on the principle of historical acquisition cost. The requirements of the applied standards and interpretations (SIC/IFRIC) were satisfied without exception and convey a true and fair view of the assets, financial and earnings position of the Salzgitter Group.

As a listed parent company of a group, Salzgitter AG is obliged in accordance with Section 315a, German Commercial Code (HGB) to prepare consolidated financial statements in compliance with international accounting standards and regulations.

The consolidated financial statements are disclosed and filed with the Commercial Register at Braunschweig District Court under HRB 9207. The Salzgitter AG company, entered in the Commercial Register at Braunschweig District Court, has its headquarters in Salzgitter. The address of the Executive Board of Salzgitter AG is Eisenhüttenstraße 99, 38239 Salzgitter.

The financial year of Salzgitter AG and its subsidiaries included in the consolidated financial statements corresponds to the calendar year. The financial statements were prepared in euros.

The present structure of the Salzgitter Group, with SZAG as parent company, means that profits and losses posted by individual Group companies in intercompany trading and with existing losses carried forward can be offset for tax purposes only to a limited extent, and that the scope for central financial management in the Group is similarly restricted.

To eliminate the disadvantages, the Group intends to reorganize its internal structure under company law in such a way that SZAG will bring its shares in its material affiliated companies into its wholly-owned subsidiary Salzgitter Mannesmann GmbH (SMG) by means of a spin-off in accordance with the Reorganization Act (UmwG) either in their entirety (100 %) or − where expedient for avoiding tax burdens − in the amount of some 99.8% or 94.9%.

According to this concept, Salzgitter Mannesmann GmbH, Salzgitter, will function without any employees purely as an intermediate holding company in which the results posted by all of the material Group companies are offset against each other for tax purposes, and the Group's financial management is organized centrally.

On November 17, 2005, SZAG's Extraordinary Meeting of Shareholders granted its approval to effect a spin-off to the subsidiary Salzgitter Mannesmann GmbH as from December 1, 2005, in accordance with Section 123, para. 3, no. 1, Reorganization Act (UmwG).

An action to rescind this resolution was filed at Braunschweig Regional Court on December 19, 2005. In the meantime the court has received both a defense and a request for a statement that the action is not an obstacle to the registration of the spin-off in the Commercial Register (request for acceptance).

When the taxes on income were being ascertained, the effects of the new Group structure adopted by the Extraordinary Meeting of Shareholders of Salzgitter AG on November 17, 2005, were taken into consideration.

As part of the reorganization of the Group structure, it was also agreed between Salzgitter AG and Salzgitter Mannesmann GmbH to implement the groupwide cash and foreign currency management solely through SMG effective from December 1, 2005.

On December 15, 2005, the Executive Board and the Supervisory Board issued the Declaration of Compliance in accordance with Section 161 of the German Stock Corporation Act [AktG] and made it permanently available to shareholders on the company's website (www.salzgitter-ag.de). The Declaration of Compliance is also printed in the annual report in the section on Corporate Governance Report.