Selected Notes to the Consolidated Financial Statements

Principles of accounting and consolidation, balance sheet reporting and valuation methods

1. The consolidated financial report of Salzgitter AG, Salzgitter, for the reporting period from January 1 to September 30, 2006, has been prepared as a condensed report with selected notes. The report has been drawn up as before in accordance with the International Reporting Standards (IFRS) published by the International Accounting Standards Board (IASB) in consideration of requirements contained in IAS 34 for condensed interim reports.
2. In comparison with the annual financial statements as at December 31, 2005, the following changes have been made in the accounting, valuation, calculation and consolidated methods in the interim financial statements for the period ended September 30, 2006:
   • The Eupec PipeCoatings S.A., Joeuf (France), which so far has been included proportionately (50 %), has been excluded from the group of consolidated companies. Mannesmann DMV Stainless, Mülheim an der Ruhr, and Flachform Stahl GmbH, Schwerte, have been included in the group of consolidated companies for the first time. The company DMV Stainless France S.A., Montbard (France) was merged into the company DMV Stainless S.A.S., Montbard (France). This company was renamed into Mannesmann DMV Stainless S.A.S. Furthermore, the companies Röhrenwerk Gebr. Fuchs GmbH, Siegen, and Mannesmann Line Pipe GmbH, Hamm, were merged and now operate under the name Mannesmann Fuchs Rohr GmbH, Siegen. The shareholding in Vallourec S.A., which had been valued 'at equity', was sold.
   • Since January 1, 2006, “Other taxes” are reported in the position “Other operating expenses”. Due to the marginal effect on the income statement, an adjustment of the reference period figures has been omitted.
   • Basis for the calculation of the Cash Flow Statement is no longer “Consolidated net income” but “Earnings before tax”. Income taxes paid are reported separately.

Selected explanatory notes on the income statement

1. Sales by division are shown in the respective section. In contrast to the quarterly financial statements as at September 30, 2006, ”Other/Consolidation” now contains aside from Salzgitter AG the Salzgitter Mannesmann GmbH (SMG), which hitherto had been assigned to the Tubes Division. SMG has long-term contracts governing prematerial supplies to enterprises outside the group of consolidated companies. This explains the recording of sales in the position. Due to the marginal effect, an adjustment of the reference period figures has been omitted.
2. Earnings per share are calculated pursuant to IAS 33. The undiluted earnings per share based on the weighted number of shares of Salzgitter AG came to € 23.66 in the period under review.

   Dilution of the earnings per share occurs if the average number of shares is increased by the addition of the potential shares to be issued on the basis of the options and conversion rights. There were no such options and conversion rights outstanding as of September 30, 2006. Therefore, diluted earnings per share equaled undiluted earnings per share and amounted to € 23.66.

Treasury shares

Salzgitter AG’s portfolio of treasury shares comprised 6,321,436 units as per September 30, 2006. In comparison with the portfolio status as per December 31, 2005 (6,321,528 units), the number of shares had decreased by 92. In line with the authorization given by General Meeting of Shareholders held on May 26, 2005, 598 shares at an average price of € 61.70 were used in lieu of payment for the services of third parties during the reporting period. 101 shares were issued to members of the workforce for free or as a bonus. In addition, 607 shares were purchased at an average price of € 58.89.