|
|
|
|

|                                      
|--------------------------------------
|UNITED
    STATES                     
|SECURITIES
    AND EXCHANGE COMMISSION
|Washington,
    D.C. 20549            
|                                      
|Form
    20F                         
|                                      

|                                                                                          |  | REGISTRATION
      STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT
      OF 1934
|----------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------
|OR                                                                                       
|                                                                                          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934                
|                                                                                          |  | For
      the fiscal year ended December 31, 2005                                                         
|OR                                                                                       
|                                                                                          |  | TRANSITION
      REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934      
|OR                                                                                       
|                                                                                          |  | SHELL
      COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934   
|                                                                                          |  | For
      the transition period from to                                                                   
|Commission
      File Number 1-14398                                                     
|                                                                                         
|SGL
      CARBON AKTIENGESELLSCHAFT(Exact name of Registrant as specified in its charter)

|SGL
      CARBON CORPORATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | FEDERAL
      REPUBLIC OF GERMANY                  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ---------------------------------------------------
|(Translation
    of Registrant                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       s name into English) | (Jurisdiction
    of incorporation or organization)
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|Rheingaustrasse
    182                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|D-65203
    Wiesbaden                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|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
| | --------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------
| |                                                                                                                 |  |                                              
| | A
    merican Depositary
Shares,
    each representing one-third
of one Ordinary
    Bearer Share, no par value |  | New York Stock Exchange                      
| | Ordinary
    Bearer Shares, no par value                                                                        |  | New
    York Stock Exchange*                 

|                                                                                                                                                                                          
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*
        Not for trading, but only in connection with the registration of American
        Depositary Shares,
    pursuant to the requirements of the Securities and Exchange Commission.
|Securities to
    be registered pursuant to Section 12(g) of the Act: NONE                                                                                                                
|Securities for
        which there is a reporting obligation pursuant to Section 15(d) of the
    Act: NONE                                                                               
|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
      Bearer Shares, no par value                                                                                                                                                                                                                                                                                                                                                                   |  |  | 62,789,251
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  |  | ----------
|Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in Rule 405 of the Securities Act.                                                                                                                                                                                                                                                                         
|YesNo                                                                                                                                                                                                                                                                                                                                                                                                       
|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
           No                                                                                                                                                                                                                                                                                                                                                                                           
|Note  Checking
        the box above will not relieve any registrant required to file reports
        pursuant to Section 13 or 15(d) of the Securities Exchange
      Act of 1934 from their obligations under those Sections.                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                                                                            
|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.
|YesNo                                                                                                                                                                                                                                                                                                                                                                                                       
|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. (Check one):                                                                                                                           

|Large
    accelerated filer | Accelerated
    filer | Non-accelerated
|--------------------------- | --------------------- | ---------------

|Indicate
          by check mark which financial statement item the registrant has elected
    to follow                                                 
|---------------------------------------------------------------------------------------------------------------------------------------------------------
|Item
      17      Item
      18                                                                                                                         
|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
           No                                                                                                                                        
|                                                                                                                                                         

|
|
|
|



TABLE
    OF CONTENTS

|                               |                                                                         |                                                                                         | Page
|------------------------------ | ----------------------------------------------------------------------- | --------------------------------------------------------------------------------------- | ----
|                               |                                                                        
|CERTAIN
    DEFINED TERMS      | 4                                                                      
|FORWARD-LOOKING
    STATEMENTS | 4                                                                      
|PART
    I                     | 5                                                                      
|                               | ITEM
    1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS       | 5                                                                                      
|                               | ITEM
    2. OFFER STATISTICS AND EXPECTED TIMETABLE                     | 5                                                                                      
|                               | ITEM
    3. KEY INFORMATION                                             | 5                                                                                      
|                               |                                                                         | Selected
    Financial Data                                                             | 5   
|                               |                                                                         | Capitalization
    and Indebtedness                                                     | 9   
|                               |                                                                         | Reasons
    for the Offer and Use of Proceeds                                           | 9   
|                               |                                                                         | Risk
    Factors                                                                        | 9   
|                               | ITEM
    4. INFORMATION ON THE COMPANY                                  | 16                                                                                     
|                               |                                                                         | History
    and Development of the SGL Group                                            | 16  
|                               |                                                                         | Business
    Overview                                                                   | 17  
|                               |                                                                         | Organizational
    Structure                                                            | 27  
|                               |                                                                         | Property,
    Plants and Equipment                                                      | 28  
|                               |                                                                         | Item
    4A. Unresolved Staff Comments                                                  | 30  
|                               | ITEM
    5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS                | 31                                                                                     
|                               |                                                                         | Operating
     Results                                                                  | 37  
|                               |                                                                         | Liquidity
     and Capital Resources                                                    | 54  
|                               |                                                                         | Research
     and Development, Patents and Licenses, etc.                               | 59  
|                               |                                                                         | Trend
     Information                                                                  | 61  
|                               |                                                                         | Global
     economic growth set to continue                                             | 61  
|                               |                                                                         | Stable
	       development projected for Carbon and Graphite Business
Area              | 61  
|                               |                                                                         | Specialties
     continue to prosper                                                    | 62  
|                               |                                                                         | SGL
     Technologies ahead of important strategic steps                                | 62  
|                               |                                                                         | Further
     improvement in Group earnings expected                                     | 62  
|                               |                                                                         | Procurement
     and production                                                         | 62  
|                               |                                                                         | Liquidity
     and capital resources                                                    | 63  
|                               |                                                                         | Increase
     in capital expenditure in 2006                                            | 63  
|                               |                                                                         | Costs
	       for research and development and the environment at previous
years level | 63  
|                               |                                                                         | No
          significant changes planned for the headcount or the Group
structure       | 63  
|                               |                                                                         | Off-
    balance sheet arrangements                                                     | 63  
|                               |                                                                         | Tabular
    disclosure of contractual obligations                                       | 64  
|                               | ITEM
    6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                  | 65                                                                                     
|                               |                                                                         | Directors
    and Senior Management                                                     | 65  
|                               |                                                                         | Compensation                                                                            | 71  
|                               |                                                                         | Board
    Practices                                                                     | 79  
|                               |                                                                         | Employees                                                                               | 79  
|                               |                                                                         | Share
    Ownership                                                                     | 80  
|                               | ITEM
	      7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS        | 81                                                                                     
|                               |                                                                         | Major
    Shareholders                                                                  | 81  
|                               |                                                                         | Related
    Party Transactions                                                          | 81  
|                               |                                                                         | Interest
    of Experts and Counsel                                                     | 81  
|                               | ITEM
    8. FINANCIAL INFORMATION                                       | 82                                                                                     
|                               |                                                                         | Consolidated
          Statements and Other Financial
Information                       | 82  
|                               |                                                                         | Significant
    Changes                                                                 | 84  
|                               | ITEM
    9. THE OFFER AND LISTING                                       | 85                                                                                     
|                               |                                                                         | Offer
    and Listing Details                                                           | 85  
|                               |                                                                         | Plan
    of Distribution                                                                | 87  
|                               |                                                                         | Markets                                                                                 | 87  
|                               |                                                                         | Selling
    Shareholders                                                                | 87  
|                               |                                                                         | Dilution                                                                                | 87  
|                               |                                                                         | Expenses
    of the Issue                                                               | 87  
|                               | ITEM
    10. ADDITIONAL INFORMATION                                     | 88                                                                                     
|                               |                                                                         | Share
    Capital                                                                       | 88  
|                               |                                                                         | Memorandum
    and Articles of Association                                              | 88  
|                               |                                                                         | Material
    Contracts                                                                  | 92  
|                               |                                                                         | Intercreditor
    Agreement                                                             | 95  
|                               |                                                                         | Polish
    Facility                                                                     | 98  
|                               |                                                                         | Exchange
    Controls                                                                   | 100 
|                               |                                                                         | Taxation                                                                                | 100 
|                               |                                                                         | Dividends
    and Paying Agents                                                         | 105 
|                               |                                                                         | Statements
    by Experts                                                               | 105 
|                               |                                                                         | Documents
    on Display                                                                | 105 
|                               |                                                                         | Subsidiary
    Information                                                              | 105 
|                               | ITEM
    11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 106                                                                                    
|                               | ITEM
    12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES     | 111                                                                                    

2

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|             |                                                                                                  |                                                                                       |     
|------------ | ------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------- | ----
|             |                                                                                                  |                                                                                       | Page
|             |                                                                                                  |                                                                                       |     
|PART
    II  | 112                                                                                             
|             | ITEM
    13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                                     | 112                                                                                  
|             | ITEM
	      14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
    PROCEEDS | 112                                                                                  
|             | ITEM
    15. CONTROLS AND PROCEDURES                                                             | 112                                                                                  
|             | ITEM
    16. [RESERVED]                                                                          | 112                                                                                  
|             |                                                                                                  | ITEM
    16A. Audit committee financial expert                                        | 112 
|             |                                                                                                  | ITEM
    16B. Code of Ethics                                                          | 112 
|             |                                                                                                  | ITEM
    16C. Principal Accountant Fees and Services.                                 | 112 
|             |                                                                                                  | ITEM
	      16D. Exemptions from the Listing Standards for Audit
Committees           | 113 
|             |                                                                                                  | ITEM
	      16E. Purchase of Equity Securities by the Issuer and
Affiliate Purchasers | 113 
|PART
    III | 114                                                                                             
|             | ITEM
    17. FINANCIAL STATEMENTS                                                                | 114                                                                                  
|             | ITEM
    18. FINANCIAL STATEMENTS                                                                | 114                                                                                  
|             | ITEM
    19. EXHIBITS                                                                            | 114                                                                                  
|SIGNATURES   | 115                                                                                             
|             | CERTIFICATION                                                                                    | 116                                                                                  
|             | CERTIFICATION                                                                                    | 117                                                                                  

3

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CERTAIN DEFINED TERMS

SGL
      CARBON Aktiengesellschaft is organized as a stock corporation under the
      laws of the Federal Republic of Germany. In this annual report on Form
      20-F, we refer to SGL CARBON Aktiengesellschaft and (unless the context
      requires otherwise) its consolidated subsidiaries as the “SGL Group” or the “Group” or the “Company”. References to
“SGL” are to SGL CARBON Aktiengesellschaft without its consolidated subsidiaries. We refer to the ordinary bearer shares, no par value, of SGL as the “Shares”.


The
      following abbreviated references to the Business Areas of the SGL Group
      will also be used in this Annual Report: CG for the “Carbon and
Graphite” Business Area, S for the “Specialties” Business Area (formerly GS  Graphite Specialties) and SGL T or T for the “SGL Technologies” Business Area. In January 2005 we sold the
surface protection business of the former “Corrosion Protection” Business Area (CP). The remaining business of CP was transferred to and is included in the results of the Specialties Business Area. The term “Business
Area” is used for reporting purposes, whereas the term “Business Unit” is
used in business-related discussions within this document and both terms define
the above reporting units of SGL Group. FORWARD-LOOKING
    STATEMENTS


This
      annual report contains forward-looking statements and information relating
      to the SGL Group. Words such as “anticipate”,
“believe”, “estimate”, “expect”, “intend”, “plan”, “project” and
similar expressions identify forward-looking statements. These statements reflect
the current belief of our management as well as assumptions made by, and information
currently available to, the SGL Group.


Forward-looking
      statements are subject to risks and uncertainties. If these risks and uncertainties
      materialize, or if our assumptions prove incorrect, our actual results,
      performance or achievements could differ materially from any future results,
      performance or achievements expressed or implied by our forward-looking
      statements. Factors that could cause our forward-looking statements to
      prove incorrect
include changes in general economic and business conditions, changes in currency
      exchange rates and interest rates, introduction of competing products by
      other companies, lack of acceptance of new products or services by the
      SGL Groups
targeted customers, changes in business strategy and various other factors. See Item 3, “Key Information  Risk Factors” for
a discussion of risks that we believe particularly significant to the Group and
our business. We do not intend, and do not assume any obligation, to update these
forward-looking statements.


4

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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

Selected
  Financial Data

We
      prepare our consolidated financial statements in accordance with International
      Financial Reporting Standards (IFRS). Since 2002, IFRS is the term for
      the entire body of accounting standards issued by the International Accounting
      Standards Board, replacing the earlier IAS, or International Accounting
      Standards. Individual accounting standards that the IASB issued prior to
      this change in terminology
continue to use the prefix “IAS”. The SGL Carbon Group prepared the
consolidated financial statements in accordance with German GAAP (HGB) for the
years until Dec. 31, 2000. In 2001 the SGL Carbon Group adopted IFRS and has
prepared its consolidated financial statements in accordance with IFRS for all
years presented.


We
      derived the following selected financial data for each of the years in
      the five-year period ended December 31, 2005 from our consolidated financial
      statements. We prepared this information in accordance with IFRS or, where
      indicated, in accordance with U.S. generally accepted accounting principles
      (US-GAAP). IFRS differs in certain significant respects from U.S. GAAP.
      See Item 5, “Operating and
Financial Review and Prospects-Significant Differences Between IFRS and U.S. GAAP” as
well as Notes 34 and 35 to the consolidated financial statements contained elsewhere
in this annual report for a discussion of these
differences.


Until December 31,
    2004, 18 subsidiaries and two joint ventures were excluded from consolidation
    and accounted for at cost. In the consolidated financial statements as of
    December 31, 2005 we changed our accounting policy, and as a result these
    subsidiaries have been included in consolidation and the joint ventures have
    been accounted for using the equity method. In this context, the opening balances
    of assets, liabilities and equity as of January 1, 2003, as well as the consolidated
    balance sheet as of December 31, 2004 and the consolidated income statement
    and cash flow statement for the years presented, have been restated retrospectively.


IFRS
      2 “Share-based payment” is effective for annual periods beginning
      on or after January 1, 2005. The IFRS is to be applied retrospectively
      on all share-based payments granted since November 7, 2002, that still
      existed when the standard became effective and requires comparable information
      to be restated. This also includes a restatement to the opening balances
      of the
retained earnings in the earliest period presented.


The
      revised IAS 1 “Presentation of financial statements” defines a presentation of current and non-current assets and liabilities as
separate groups in the balance sheet. The standard must be used for reporting periods of a fiscal year beginning on January 1, 2005 or later. The companys consolidated balance sheet was structured accordingly and the previous years figures
were restated.


As
      indicated in their reports that appear elsewhere in this annual report,
      Ernst & Young Aktiengesellschaft, Wirtschaftsprü fungsgesellschaft,
independent auditors, have audited our consolidated financial statements for the years ended December 31, 2005 and 2004 and BDO Deutsche Warentreuhand Aktiengesellschaft, Wirtschaftspru ̈ fungsgesellschaft,
independent auditors, have audited our consolidated financial statements for
the year ended December 31, 2003.


5

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|                                                                                                              | As
      of and for the year ended December 31,              |  
|------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------ | -
|                                                                                                              |                                                              |  
|                                                                                                              |                                                              |  
|                                                                                                              | 2005(1)                                                      |  
|                                                                                                              | $                                                            |  
|                                                                                                              |                                                              |  
|                                                                                                              | (in millions; except
      per share and certain other data) |  
|Statement
      of Operations Data:                                                                           |                                                              |  
|IFRS                                                                                                          |                                                              |  
|Sales
      revenue                                                                                           | 1,260.9                                                      |  
|Cost
      of sales                                                                                           | (880.9                                                       | )
|Gross
      profit                                                                                            | 380.9                                                        |  
|Selling,
          research and development, administration expenses and other operating
        income (net) | (246.8                                                       | )
|Profit/(loss)
        from operations(14)                                                                     | 133.2                                                        |  
|Result
      of investments                                                                                   | 0.9                                                          |  
|Interest
        expense (net)(3)                                                                             | (61.6                                                        | )
|Other
      financial result                                                                                  | (16.8                                                        | )
|Income
      tax benefit(expense)                                                                             | (22.5                                                        | )
|Minority
      interests                                                                                      | 0.1                                                          |  
|Net
      profit / loss (after minority interests)                                                            | 33.3                                                         |  
|Discontinued
      operations                                                                                 | 0.0                                                          |  
|Net profit/loss attributable to shareholders                                                                  | 33.3                                                         |  
|                                                                                                              |                                                              |  
|Earnings
        (Loss) per Share(4)                                                                          | 0.59                                                         |  
|Earnings
        (Loss) per ADR(4)                                                                            | 0.20                                                         |  
|                                                                                                              |                                                              |  
|                                                                                                              |                                                              |  
|U.S.
      GAAP                                                                                               |                                                              |  
|Net
        profit/(loss)(10)                                                                                 | 26.9                                                         |  
|Basic
      profit/(loss) per Share(4)                                                                        | 0.47                                                         |  
|Basic
        profit/(loss) per ADR(4)                                                                        | 0.16                                                         |  
|Diluted
        profit/(loss) per Share(4)                                                                    | 0.47                                                         |  
|Diluted
        profit/(loss) per ADR(4)                                                                      | 0.16                                                         |  
|Balance
      Sheet Data:                                                                                     |                                                              |  
|IFRS/IAS                                                                                                      |                                                              |  
|Working
        capital (5)                                                                                   | 455.7                                                        |  
|Total
      assets                                                                                            | 1,396.0                                                      |  
|Financial
        debt(6)                                                                                     | 403.5                                                        |  
|Shareholders equity                                                                                          | 380.0                                                        |  
|                                                                                                              |                                                              |  
|Weighted
        average shares(13)                                                                           | 56,390,621                                                   |  
|                                                                                                              |                                                              |  
|U.S.
      GAAP                                                                                               |                                                              |  
|Total
      assets                                                                                            | 1,455.7                                                      |  
|                                                                                                              |                                                              |  
|Shareholders equity                                                                                          | 353.6                                                        |  
|Other
      Data:                                                                                             |                                                              |  
|IFRS/IAS                                                                                                      |                                                              |  
|Gross
      profit margin (%)                                                                                 | 30.1                                                         |  
|Operating
      margin (%)                                                                                    | 10.6                                                         |  
|Depreciation
      and amortization                                                                           | 76.8                                                         |  
|Capital
      expenditures                                                                                    | 52.7                                                         |  
|Ratio
        of net debt to shareholders equity (%)(7)                                                      | 82.2                                                         |  
|Return
        on capital employed (%)(8)                                                                     | 13.8                                                         |  
|Research
      and development expenses                                                                       | 21.2                                                         |  

6

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|                                                                           |              |  | As of and for the year ended December 31,              |  |             |  
|-------------------------------------------------------------------------- | ------------ |  | ------------------------------------------------------ |  | ----------- | -
|                                                                           |              | 
|                                                                           |              |  |                                                        |  | 2004        |  
|                                                                           | 2005
    (1) |  | 2005
    (2)                                           |  | restated(2) |  
|                                                                           | $            |  | €                                                      |  | €           |  
|                                                                           |              |  |                                                        |  |             |  
|                                                                           |              |  | (in millions; except
per share and certain other data) |  |             |  
|Quantity
	    of graphite electrodes sold  (thousands
	    of metric
tons) | 222,000      |  | 222,000                                                |  | 209,000     |  
|Number
    of employees worldwide (end of  year)                           | 5,263        |  | 5,263                                                  |  | 5,265       |  
|                                                                           |              |  |                                                        |  |             |  
|Business Area Data:                                                        |              |  |                                                        |  |             |  
|Net Sales(9)                                                               |              |  |                                                        |  |             |  
|Carbon
 and Graphite                                                       | 759.4        |  | 643.7                                                  |  | 562.5       |  
|Specialties(11)                                                            | 310.7        |  | 263.4                                                  |  | 246.3       |  
|SGL Technologies(11)                                                       | 187.6        |  | 159.0                                                  |  | 133.5       |  
|                                                                           |              |  |                                                        |  |             |  
|Profit / (loss) from                                                       |              |  |                                                        |  |             |  
|operations(12) (14)                                                        |              |  |                                                        |  |             |  
|Carbon
 and Graphite                                                       | 143.5        |  | 121.6                                                  |  | 86.4        |  
|Specialties(11)                                                            | 23.4         |  | 19.8                                                   |  | 13.9        |  
|SGL Technologies(11)                                                       | 0.2          |  | 0.2                                                    |  | (10.6       | )
|                                                                           |              |  |                                                        |  |             |  

|(1)  | Amounts in this column have been translated solely for the convenience
    of the reader at an exchange rate of €1.00 = $ 1.1797, the middle rate
    of exchange on December 31, 2005 as published by the European Central Bank.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|(2)  | Effective January 6,
2005, we sold the Surface Protection and Plastics Process Technology businesses
and present these activities as discontinued operations for 2004. The fiscal
years 2003,  2002 and 2001 have been adjusted accordingly. As described in the
introduction to this section, effective January 1, 2005 we consolidated 18 subsidiaries
and two joint ventures, which had previously been accounted for at cost. Effective
January 1,
2003 we have consolidated SGL Angraph Sp. Z o.o, Poland, a previously non consolidated
company. Beginning January 1, 2002, we have consolidated SGL Brakes GmbH and
SGL Information-Systems
LLC, whose net assets were previously included in other consolidated companies.
Beginning January 1, 2001, we have consolidated SGL Information-Services GmbH,
SGL Technologies GmbH and RK Technologies International Ltd., which were previously
non-consolidated subsidiaries. As of January 1, 2001, we acquired all shares
in SGL ACOTEC Ltda (formerly KCH-ANCOBRAS Ltda.), which we have consolidated
as of this
date.
|    
|(3)  | For 2005, 2004 and 2003, we have included the interest component
    of additions to the pension provision of €13.5 million, €13.3 million and €14.0 million, respectively, as an expense in the
financial result (interest expense) in accordance with IFRS. As a Group rule, the interest portion of the allocation to the pension provisions is included in the net financing costs in the United States as well as in Europe. In this matter, we
reclassified expenses of € 5 million and € 6 million from operating expenses
to financing costs under IFRS in 2003 and 2002, respectively. Under U.S. GAAP,
this interest component is included in operating profit.                                                                                                                                                                                                                                                                                                                                                                                                       
|    
|(4)  | We have calculated profit/loss per share for each period based upon net profit or loss less amounts attributable to minority interests divided by the weighted average number of Shares
outstanding. We have calculated loss per ADR as loss per Share divided by three. Because of no dilutive effect in 2005 and the net loss in the years 2004 and 2003, the diluted profit or loss per Share for 2005, 2004 and 2003 was identical to the
profit or loss per Share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    
|(5)  | Working Capital as defined as total net inventories plus total
    net trade receivables, less trade payables. Under U.S. GAAP, working capital
    at December 31, 2005, 2004 and 2003 would have been €304.8 million, €280.0 million and €158.1
    million, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    
|(6)  | Financial debt include refinancing costs of €16.0 million, €20.3 million and €0.0
    million in 2005, 2004 and 2003, respectively, which are amortized over the
    remaining terms.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    
|(7)  | Total financial debt less cash and cash equivalents, divided
    by shareholders equity at year-end.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    
|(8)  | Operating results divided by the amount of goodwill, tangible fixed assets, inventories and trade accounts receivables, less trade accounts payables at the end of the year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    
|(9)  | Business area data for sales revenue do not include certain
    amounts for sales not allocable to a business area. Such sales include sales
    to employees, R&D services and rental income. For
the years 2005, 2004 and 2003 these amounts were €2.7 million €1.7 million and €2.8
million respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    
|(10) | Net loss under U.S. GAAP is presented before cumulative changes in accounting principles in 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    
|(11) | As of January 1, 2001, we reorganized our operations into four business areas: Carbon and Graphite, Specialties (formerly Graphite Specialties), Corrosion Protection and SGL Technologies
(formerly Fibers and Composites). As of January 1, 2002, we reclassified our expanded graphite business in Europe from Specialties to SGL Technologies. Due to the divestiture of the Surface Protection and plastic process technology businesses, the
process technology activities from the former Corrosion Protection Business Area (CP) were reorganized and included in the Specialties Business Area (S). We have adjusted the corresponding figures for the fiscal years 2003 and 2002 to reflect our
current segment reporting structure.                                                                                                                                                                                                                                                                                                                                  
|    
|(12) | Profit (loss) from operations for the years 2005, 2004 and 2003 does not include unallocated corporate costs and consolidation adjustments. See Note 27 to the consolidated financial
statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    
|(13) | Weighted average number of shares.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

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|(14) | We present profit/(loss) from operations as a further supplemental measure of our performance. Profit/(loss) from operations is not a uniformly or legally defined financial measure. It
generally represents earnings before discontinued operations, financial result and taxes.
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The following
    table shows profit/(loss) from operations as derived from our net profit (loss),
    on a consolidated level and, with respect to each of our three business areas:


| |                                                          | As of and for the years ended |  
| | -------------------------------------------------------- | ----------------------------- | -
| |                                                          | December 31,                  |  
| |                                                          |                               |  
| |                                                          |                               |  
| |                                                          | 2005                          |  
| |                                                          |                               |  
| |                                                          | (in millions of €)            |  
| | Consolidated net profit (loss) before minority interests | €28.1                         |  
| | Discontinued operations                                  | 0.0                           |  
| | Consolidated net financing costs                         | 65.6                          |  
| | Consolidated income tax expense (benefit)                | 19.1                          |  
| |                                                          |                               |  
| | Carbon and Graphite                                      | 121.6                         |  
| | Specialties                                              | 19.8                          |  
| | SGL Technologies                                         | 0.2                           |  
| | Other                                                    | (28.8                         | )
| |                                                          |                               |  
| | Consolidated operating profit                            | 112.8                         |  

Exchange Rates

The following table shows the high, low, average and period-end euro-dollar exchange rates for the five years ended December 31, 2005 and the high and low
euro-dollar exchange rates for the six months ended March 31, 2006. Up to November 30, 2005 these rates are based on the noon buying rates published by Deutsche Bank. Starting December 2005 we use the reference exchange rates published by the
European Central Bank (ECB). The reference rates of the ECB are based on the regular daily concertation procedure between central banks within and outside the European System of Central Banks, which normally takes place at 2.15 p.m. ECB time
(CET).


|              |                           |  |        |  | Period  |  | Period | 
|------------- | ------------------------- |  | ------ |  | ------- |  | ------ | 
|Period        | High                      |  | Low    |  | Average |  | End    | 
|              |                           |  |        |  |         |  |        | 
|              | (in
    dollars per euro) | 
|2001          | 0.9548                    |  | 0.8388 |  | 0.8957  |  | 0.8820 | 
|2002          | 1.0477                    |  | 0.8600 |  | 0.9448  |  | 1.0415 | 
|2003          | 1.2610                    |  | 1.0371 |  | 1.1309  |  | 1.2610 | 
|2004          | 1.3640                    |  | 1.1798 |  | 1.2434  |  | 1.3640 | 
|2005          | 1.3514                    |  | 1.1655 |  | 1.2450  |  | 1.1797 | 
|October 2005  | 1.2150                    |  | 1.1926 |  | 1.2019  |  | 1.2042 | 
|November 2005 | 1.2059                    |  | 1.1655 |  | 1.1787  |  | 1.1773 | 
|December 2005 | 1.2020                    |  | 1.1699 |  | 1.1856  |  | 1.1797 | 
|January 2006  | 1.2312                    |  | 1.1831 |  | 1.2103  |  | 1.2118 | 
|February 2006 | 1.2105                    |  | 1.1854 |  | 1.1938  |  | 1.1875 | 
|March 2006    | 1.2181                    |  | 1.1900 |  | 1.2020  |  | 1.2104 | 

At April 25, 2005
    the euro dollar exchange rate, based on the noon buying rate published by
    Deutsche Bank was $1.2425 = €1.00. Fluctuations in the euro-dollar
    exchange rate will affect the dollar equivalent of the Share price in euros
    on the Frankfurt Stock Exchange and, as a result, are likely to affect the
    market price of the American Depositary Shares on the New York Stock Exchange
    as well as the amount of any dividends received by holders of American Depositary
    Receipts.


Dividends

SGL did not
      declare dividends for the fiscal years 1998-2005.


Except as described
      herein, holders of ADRs are entitled to receive dividends on the Shares
      represented by the ADRs evidenced by such ADRs. SGL will pay any cash dividends
      payable to such


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Capitalization
  and Indebtedness

Not applicable.


Reasons
  for the Offer and Use of Proceeds

Not applicable.


Risk
  Factors

Potential investors should carefully consider the following specific risk factors along with the other information contained in this annual report before deciding
to invest in the SGL Shares. Each of the risks described below could have a material adverse effect on our financial condition and results of operations. In addition, each of these risks could cause our share price to decline, and investors could
lose all or part of their investment. Additional risks not known to us or that we currently consider immaterial may also impair our business operations. The order in which the following risk factors are presented is not an indication of the
likelihood of their occurrence.


Our business
  is affected by the uncertainties of economic and political conditions.

Conditions in domestic and global economies have a strong impact on our business operations. Numerous factors, such as global or regional political conflicts,
have a continous impact on macroeconomic parameters and the international capital markets. The uncertainty of economic and political conditions can have a direct impact on the demand for our products and can also influence our planning and
forecasting ability. This is particularly the case for our products where we operate under global market conditions, such as graphite electrodes for the steel industry, cathodes for the aluminum industry, carbon electrodes for the silicon-metal
industry, graphite specialties supplied to the semiconductor industry and industrial applications including carbon ceramic brake discs supplied to the automotive industry, process equipment for the chemical industry and structural parts and carbon
fibers supplied to the aviation industry.


We face
  substantial pricing pressure from our competitors.

The
      industries in which we operate are highly competitive. Competition is based
      primarily on price, product quality and customer service. Most of our production
      process is capital intensive, which results in high fixed costs. The pricing
      pressure thus has a direct impact on our results. In addition, price decreases
      can be aggravated by temporary imbalances in supply and demand, with an
      oversupply in
stagnating markets. Graphite electrodes, in particular, are subject to strong
      price competition. In 2005 the average price of our graphite electrodes
      increased in local currency 5% in Euro and 13% in US$ versus 2004.
      Our market share could be adversely affected if we increase prices, or
      a competitor reduces prices, or if we decide to maintain profit margins
      rather than market share or pursue other competitive strategies.


Continuing competition
    could either prevent us from raising prices, as necessary to offset higher
    production costs, force price reductions, or reduce our sales volumes and
    revenues. It could also require us to spend more for sales, marketing and
    research and development. Any of these developments could substantially harm
    our financial condition and results of operations.


The industries
    that use graphite electrodes are cyclical, and declines in demand for graphite
    electrodes could adversely affect our business.

In 2005, we derived
      approximately 49% of our sales revenue from the sale of graphite electrodes,
      our core business. We sell our graphite electrodes primarily to the electric
      arc furnace (or EAF) steel industry. The EAF industry is global and customers
      are located in every major geographic market. As a result, our customers
      are affected by changes in global and regional economic conditions. This,
      in turn, affects the demand for and the price of our graphite electrodes,
      which are


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sold to customers
  in the EAF industry. The most recent economic slowdown in the steel industry,
  and in particular, the structural crisis in the U.S. steel industry led to an
  overall drop in the demand for graphite electrodes until mid-2002. As a result
  of the structural crisis in the steel industry, a consolidation of the steel
  and graphite industries occured, with the elimination of several competitors
  in both industries, and consequently a decline in demand. Accompanying this
  decline in demand was also the shift in demand from a large number of customers
  to a smaller number of larger companies, with increased pressure on our product
  pricing. With the end of the slowdown in the steel industry in mid-2002 the
  economic conditions for graphite electrodes producers improved with demand and
  prices increasing.



The
      market for graphite electrodes, particularly in Europe and North America,
      is mature and expands in line with overall economic growth and with an
      increase in the proportion of EAF steel to total steel production. On the
      other hand, opportunities for growth do exist in Asian markets, although
      we have not had a substantial presence in these markets up to now. In addition,
      demand for our graphite electrodes
sold to the EAF steel industries may be adversely affected by technological improvements
      in those electrodes as well as in the manufacturing operations of our customers,
      which reduce the rate of consumption or use of our electrodes for a given
      level of production. Since the early 1980s there has been a steady gradual
      decrease in “specific consumption”  the quantity of graphite electrodes consumed per metric ton of steel produced  due
      to improved efficiency in EAF steelmaking processes and equipment design.
      Since the mid-1990s, increased EAF steel production has offset the decrease
      in specific consumption, resulting in steady to slightly increasing demand
      for graphite electrodes. Despite the overall
long-term trend, the year-to-year and quarter-to-quarter fluctuations in the
      demand for graphite electrodes have been significant. We cannot assure
      you that future improvements in steelmaking processes and technology or
      a decline in EAF steel production will not result in a net decrease in
      demand for graphite electrodes. A significant drop in demand for our graphite
      electrodes could have a material adverse effect on our financial condition
and results of operations.


We have substantial
  amounts of debt. This debt, along with the obligations and covenants contained
  in our financing arrangements, limits our financial and operating flexibility.

For
      a detailed description of our debt, you should read the discussion under
      the captions “Capitalization” and “Management
Discussion and Analysis of Financial Condition and Results of Operations.”


The
      conditions of our new syndicated credit facility, as well as the conditions
      of the senior notes substantially limit our financial flexibility. In particular,
      these agreements (see detailed description in Item 10, “Additional Information  Material Contracts”)
      place limits on our ability to incur new debt, grant security to third
      persons, dispose of material assets, take organizational measures such
      as mergers, changes of corporate form, joint ventures or similar transactions,
      or to enter into transactions with related parties. Other limitations generally
      concern the payment of dividends and the repurchase of own
shares. In addition, we must meet a number of financial covenants in the context
      of our financing agreements. Our substantial debt and our compliance with
      the covenants contained in our financing agreements could have a material
      adverse impact on
our financial condition and results of operations.


Further more, we
    continue to require significant funds for our operations, financing costs,
    the payment of the remaining antitrust liabilities and other obligations.
    We cannot assure you that we will be able to generate or obtain sufficient
    funds needed for our future operations and our other cash requirements, or
    that we will meet all loan covenants and other obligations in connection with
    our present financing arrangements. We also cannot assure you that we will
    be able to refinance our financial liabilities as they mature or that we will
    be able to negotiate the same or better terms in future loan agreements. In addition we
      cannot assure you that we will not have to incur additional debt in the
      future. Incurring such additional debt could further increase the risks
      regarding our debt and financing arrangements.


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We require
  a significant amount of cash to service our debt. Our ability to generate sufficient
  cash depends on a number of factors, many of which are beyond our control.

Our ability to make payments on or repay our debt and to fund our working capital requirements depends on the availability of financial resources. Our ability to
generate cash will depend on our future operating performance, as well as on general economic, financial, competitive, market and other factors, many of which are beyond our control. In particular, our ability to generate adequate cash will depend
at least in part on:


| | • | a price increase in the carbon and graphite electrode industry, as well as
    our ability to maintain and grow our sales revenues in most of our business
    segments;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | • | our ability to contain costs and implement further cost savings through our
    restructuring programs and cost saving initiatives; and                                 
|
| | • | our ability to realize earnings from new technologies and products.                                                                                                     

We cannot assure you that our business will generate sufficient cash flows from operations or that future borrowings will be available to us in an amount
sufficient to enable us to pay our debts as they become due or to fund our other liquidity requirements.


We are party
  to several antitrust court proceedings.

In the past several years, we have faced various court actions and investigations in connection with antitrust violations and have been assessed substantial fines
  by the U.S. Department of Justice, the Canadian antitrust authorities and the European Commission for price fixing in the graphite electrode industry, the specialty graphite industry and in the area of electrical and mechanical carbon and graphite
  products. As of December 31, 2005, all fines raised by the U.S. Department of Justice and the Canadian antitrust authorities have been paid in full.


In
      July 2001, December 2002 and December 2003 the European Commission fined
      us for violating antitrust laws with respect to graphite electrodes, specialty
      graphites and in the area of electrical and mechanical carbon and graphite
      products, respectively. In April 2004, the European Court of First Instance
      reduced the fine imposed in 2001 in the graphite electrode proceedings
      from €80.2 million to €69.1
million. In June 2005, the European Court of First Instance reduced the fine imposed in 2002 in the specialty graphite proceedings from €27.75 million to €18.45 million. Since the judgment of the European Court of First Instance failed to address
either the censured gross procedural errors or the internationally recognized prohibition against double jeopardy, we have filed an appeal to the European Court of Second Instance for both proceedings. Regarding the third fine imposed in 2003 we
have appealed before the European Court of First Instance. In 2004, the third fine (€23.9 million including interest) was deposited in an interest-bearing escrow account of the antitrust authorities until the closure of the legal proceedings. In
April 2006 we further deposited an amount of €88.9 million covering the present
level of the first fine including interest in an interest bearing escrow account
of the antitrust authorities until the final decisions of the courts are
made.


As
      part of our accounting procedures we continually review our provisions
      for antitrust fines and adjust them if necessary. Our Board of Management
      believes that
these provisions, which are below the €111.2 million aggregate amount of fines,
are sufficient as of December 31, 2005 to cover any potential liabilities that
finally could arise from these antitrust proceedings.


In addition, we
    have made significant payments in the past several years in defending against
    and settling a number of civil suits seeking damages as a result of violations
    of antitrust laws. The majority of these civil suits have been concluded by
    now; however, there are a number of legal proceedings remaining. See “Business
    Description  Legal proceedings  Civil suits resulting from antitrust
    violations.” We cannot predict the ultimate outcome of these proceedings. Despite intensive
      internal legal training and establishing compliance policies, we cannot
      assure you that we or certain of our subsidiaries or affiliates will not
      become subject to antitrust investigations by the relevant authorities and
      will not be required to pay additional fines or be subject to claims for
      damages from third parties for violations of applicable antitrust laws.
      An unfavorable result in any of these future or current proceedings could
      have a material adverse effect on our financial condition and results of
      operations.


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In addition we will
    be in default under the credit agreements if any new antitrust proceedings
    are instituted against any member of the SGL Group or if we receive any antitrust
    fines in an aggregate amount exceeding €2.5 million. However, before
    accelerating the Facilities the parties will enter into negotiations in good
    faith for a period not exceeding thirty days.




We are exposed
  to currency exchange rate risks and interest rate risks.

We
      generate a significant portion of our sales revenue in U.S. dollars. As
      a result, a decline in the value of the U.S. dollar compared to the euro
      will have a negative impact on our sales revenue, which are recorded in
      euro. Compared to the sales revenue that we generate in U.S. dollars, we
      incur a relatively small portion of our cost of sales in U.S. dollars.
      As a result, a U.S. dollar that is weak
compared to the euro will have a negative impact on our gross profit and therefore
      on our result. A medium-to long-term decline in the value of the U.S. dollar
      relative to the euro and other currencies could also weaken our competitive
      position as compared to competitors who incur a relatively larger portion
      of their cost of sales in U.S. dollars. During the period of 2002 to 2004
      the value of the U.S. dollar compared to the euro has declined, while during
      2005 the U.S. dollar has strengthen
against the euro. We cannot predict any trends for the future. We have entered
      into hedging arrangements for the majority of our U.S. dollar transaction
      exposure in Europe for 2006 to reduce the risk of fluctuations in currency
      exchange rates. However, these hedging arrangements can protect us only
      to a limited extent against a long-term decline of the U.S. dollar. See “Operating and Financial Review and Prospects  Overview  Currency exchange
exposure”.


As a result of our issuance of senior notes the average interest rate of our total debt has and will further increase. Under both our current and our new
syndicated credit facility the interest rate consists of a combination of a variable basic interest rate and a margin that can be adjusted according to our ability to meet certain fixed financial ratios. Any change in the basic interest rate or in
the margin will either increase or decrease our interest rate burden. In order to limit this exposure we have entered into certain interest rate hedging arrangements to reduce our exposure to fluctuations in interest rates. However, these
instruments can protect us only to a limited extent against any long-term increase in interest rates.


We operate
  globally and face unpredictable international economic conditions, government
  policies, regulatory controls and changes in public policy that could adversely
  affect our business.

We operate 33 major manufacturing facilities, which are located in Europe, North America and Asia (China) and sell our products in approximately 100 countries. In
2005, sales revenue of our products outside Germany accounted for approximately 87% of our total sales revenue. As a result, we are subject to risks associated with operating in foreign countries, including fluctuations in currency exchange rates,
declines in regional or global economic activity, limitations, if any, on the conversion of foreign currencies into euro, and the possible imposition of investment and other restrictions by governments. In addition, our business is subject to
changes in the public policies of individual countries or states, including potential increases in taxes and tax rates.


We must comply with a broad range of regulatory controls on the testing, manufacture and marketing of our products. In some countries, including the United States
and member states of the European Union, regulatory controls have become increasingly demanding. We expect that this trend will continue. A proposed new European Union chemicals policy could mandate a significant increase in the testing and
assessment of basic chemicals and chemical intermediates, leading to increased costs and reduced operating margins for these products.


Although many regulations
    and policies increase our costs, changes in public policy and regulations
    have not had a material adverse effect on the Group during the past decade.
    However, we cannot assure you that changes in policies or regulations will
    not harm our operating results or financial condition in the future. We have
    made substantial investments in new business areas in the past several years
    in order to diversify our product portfolio. The success of this strategy
    depends on the successful development and commercialization of new products,
    in particular in the SGL Technologies business area. Our strategy of
      product portfolio diversification, which we have pursued through our investments
      into new business areas, requires the successful development of new products,
      as well as


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the
  setting up of a new distribution and marketing network in order for us to be
  able to tap into new, non-established markets. We are entering into new business
  areas  in particular with our high technology segment SGL Technologies
   in which we have little experience and which are subject to rapid product
  developments and changes.



In the past years, we have made substantial investments into our business area
SGL Technologies. For the past three years, the sales revenue for this business
area have fluctuated, and we have incurred net operating losses until 2004 followed
by a break-even result in 2005. Any growth in sales and any increase in profitability
in this business area will depend largely on whether and how fast our newly developed
products will be able to prevail in the market.


We may encounter
  supply shortages and increases in the cost of raw materials and energy.

The largest portion
    of our cost of sales, next to personnel costs, is accounted for by raw materials
    and energy. We are exposed to commodity price risks through our dependence
    on various raw materials, such as petroleum coke, coal tar pitch, petroleum
    pitch, anthracite coal and natural graphite flake as well as energy supplies.
    We purchase raw material and energy from a variety of sources and generally
    do not enter into long-term purchase contracts. The principal raw material
    we use in the manufacture of our products is petroleum coke, an engineered
    by-product of petroleum refining. The market for petroleum coke, in particular
    needle coke, is marked by a small number of large suppliers with substantial
    market influence and the possibility of further consolidations. Although we
    believe that the raw materials we require will remain available in adequate
    quantities, the availability and price of raw materials and energy may be
    affected by new regulations, suppliers allocations, interruptions in
    production by suppliers and market conditions. High energy prices continue
    to significantly influence our costs of production. Although we have reduced
    the impact of price increases for energy and raw materials through increased
    efficiency and cost savings, we cannot assure you that we will be able to
    mitigate any future price increases in the same way. A substantial increase
    in raw material or energy prices, or a continued interruption in energy supplies,
    could substantially harm our financial condition and results of operations.


Our pension
  and retirement obligations could significantly exceed the existing provisions
  and funding status of these obligations.

We have obligations
    toward our employees with regard to benefits for the time after the employment
    relationship has terminated, such as retirement payments, life insurance and
    medical insurance. These benefit plans consist of both defined contribution
    and defined benefit plans and vary from country to country in which we maintain
    such plans.


Changes and movements in the equity, fixed income, real estate and other markets could significantly change the valuation of the assets of our plans. A change in
the yield assumptions used also has an impact on the calculation of the discounted present value of our pension obligations. In addition, changes in pension and postretirement benefit plan assumptions, such as rates for compensation increase,
retirement rates, mortality rates, health care cost trends and other factors can lead to significant increases or decreases in our pension or postretirement benefit obligations. This would affect the reported funded status of our plans and therefore
could also negatively affect net periodic pension cost, future cash contributions and equity. For further details on the funding status of pensions and other post-retirement benefit obligations, see Note 20 to our consolidated financial statements
appearing elsewhere in this annual report.


We cannot assure
    you that any future expenses or cash contributions that become necessary under
    our pension or postretirement benefit plans will not have a material adverse
    effect on our financial condition and results of operations.


Environmental
    matters could result in significant increases in costs.

Our operations
      are subject to various risks associated with manufacturing, including the
      related storage and transportation of raw materials, products and wastes.
      We are also subject to numerous domestic and foreign laws and regulations
      relating to the storage, handling, generation, treatment, emission, release,
      discharge and disposal of potentially hazardous substances and wastes (see
      “Business Description  Government regulation”). Environmental
      and health laws and regulations could lead to the possibility of substantial
      fines, revocation of applicable permits or orders for


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environmental
  cleanup. Any violations of these laws or regulations, or any adjustments to
  comply with changing laws or regulations, could result in significant expenditures.
  Environmental laws in particular have continuously been tightened in the past
  several years. We also expect a potential tightening of environmental laws in
  those countries that are joined the European Union in 2004 in which we have
  facilities. As a result, we cannot assure you, that a known, previously unknown
  or future contamination event, or any new, more stringent regulations or their
  enforcement by the relevant authorities will not increase our environmental
  costs in the future. A significant increase in environmental liabilities or
  costs could materially harm our financial condition and results of operations.



Prolonged
  work stoppages due to labor disputes could adversely affect our business.

Most of our workforce
    is covered by collective bargaining agreements. Although we believe that we
    have satisfactory relations with our works councils and unions, we cannot
    assure you that we will reach new agreements on satisfactory terms when existing
    collective bargaining agreements expire. Nor can we assure you that we would
    reach such new agreements without work stoppages, strikes or similar industrial
    actions. If industrial actions substantially obstructed our manufacturing
    operations for an extended period, our business, financial condition and results
    of operations could suffer material harm.


Disruptions
      of the business operations, strikes or similar measures at our customers or suppliers sites
      could also have a material adverse effect on our financial condition and
results of operations.


We may not
  be able to protect the intellectual property critical for the development of
  SGL Technologies business.

We own over 300
    patents registered in the United States, Europe and in other major world markets,
    and have over 350 patent applications pending for new technologies and processes.
    In addition, we have obtained licenses to various domestic and foreign patents.


We generally have a number of new patent applications or trademark registration applications pending at any given time relating to product enhancements and new
product developments. We do not believe that the success of our established businesses is materially dependent on trade secrets, know-how, patents, trademarks or other proprietary information. However, in the future, competitors may obtain patents
for technologies whose use by our competitors could adversely affect our business and financial condition.


The new product
    lines that we are developing in our SGL Technologies business do rely to a
    significant extent on such proprietary rights and information. We cannot assure
    you that any patents or trademarks that we obtain will adequately protect
    the covered products and technologies. Nor can we assure you that our confidentiality
    covenants and agreements will adequately protect our trade secrets, know-how
    or other proprietary information not covered by patents or trademarks, or
    that others will not obtain this information through independent development
    or other legal means. Furthermore, we cannot assure you that our activities
    will not infringe on the proprietary rights of others or that we will be able
    to obtain licenses, on reasonable terms or otherwise, to technology that we
    need. In addition, we cannot assure you that our proprietary rights and information
    will not become obsolete as a result of the development of new technologies
    by our competitors. If we fail to obtain the necessary intellectual property
    rights or to protect our proprietary information, or if we infringe upon the
    proprietary rights of others, the business, financial condition or results
    of operations of our SGL Technologies business could suffer significant harm.


Existing insurance
    coverage may prove inadequate.

We aim to cover
      foreseeable material risks by insurance. Our insurance coverage, however,
      may prove inadequate to fully cover the risks to which the SGL Group is
      exposed. For certain risks, adequate insurance coverage may not be available
      on the market or at reasonable conditions. Our sales revenues are exposed
      to credit default risks. For this reason and insofar as possible, we cover
      this risk through insurance to a certain extent (which is limited, for example,
      in the United States). We use a variety of instruments for this purpose,
      such as pre-payment, payment guarantees,


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ITEM 4. INFORMATION
  ON THE COMPANY

Introduction

SGL
      Carbon Aktiengesellschaft is incorporated as a stock corporation for unlimited
      duration under the laws of the Federal Republic of Germany. SGLs
registered office is at Rheingaustrasse 182, D-65203 Wiesbaden, Germany, telephone number +49-611-60-29-100. Our English-language home page on the World Wide Web is at www.sglcarbon.com/index.html; this annual report does not incorporate information
found on our web site. SGLs agent in the United States for U.S. federal
security law purposes is SGL Carbon LLC, located at our North American headquarters,
8600 Bill Ficklen Drive, Charlotte, North Carolina 28269.


History
  and Development of the SGL Group

SGLs
      corporate origins lie in the second half of the 19th century. Two of the
      earliest industrial manufacturers of carbon products, Gebrüder Siemens
& Co. (founded 1872) and the Plania Werke (founded 1896) merged in 1928 forming
Siemens Plania Werke AG fu ̈ r Kohlefabrikate. This newly created company
and its successors underwent a series of international mergers and acquisitions
over the
years and in 1992 became Sigri Great Lakes Carbon GmbH, SGLs immediate
predecessor company, in 1992. At that time, Hoechst AG (Hoechst) was the majority
shareholder of Sigri Great Lakes Carbon GmbH.


On December 21, 1994, Sigri Great Lakes Carbon GmbH became SGL CARBON Aktiengesellschaft through a change in corporate form (Umwandlung).
      In April 1995,
SGLs initial public offering took place on the Frankfurt Stock Exchange, where approximately 25% of its shares were sold to the public. SGL became a 100% publicly traded company during June of 1996 when Hoechst divested its remaining ownership
in SGL in a global placement of approximately 10.5 million shares. Approximately 40% of those shares were placed in North America in the form of American Depositary Receipts (ADRs) listed on the New York Stock Exchange under the symbol
“SGG”.


Since
      1992, the SGL GROUP has completed several acquisitions and divestitures
      as part of its strategy to enhance its position as the worlds largest
      producer of carbon and graphite products and to concentrate its business
      on areas where we see growth were identified opportunities. The following
      are the significant acquisitions, divestitures and corporate changes that
      the SGL Carbon Group has made over
the past three years :


| | •                                                                                                                                                                                                                                                                                                         | SGL CARBON Luxembourg S.A., Luxembourg, was founded in January 2004; this
    company issued the senior subordinated notes in the refinancing of the SGL
    Group. In connection with the sale of the Surface Protection and Plastics
    Process Technology businesses, SGL CARBON Technic LLC (U.S.A.) was established
    in the U.S. for the purpose of acquiring graphite process technology operations
    in that country.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | •                                                                                                                                                                                                                                                                                                         | In
	    Poland, at fiscal year-end 2004, SGL ANGRAPH Sp.z o.o was merged with
	    SGL CARBON POLSKA S.A; in Italy, SGL CARBON Specialties S.p.A. was merged
    with SGL CARBON S.p.A.; and in the U.S., SGL Information- Services LLC was
    merged with SGL CARBON LLC. Radion Finanziaria S.p.A., Milan, Italy, and
    SGL CARBONFinance Ltd., Dublin,
Ireland, were dissolved in 2004.                                     
|
| | •                                                                                                                                                                                                                                                                                                         | The
	    Surface Technology and Plastics Process Technology operations, which
	    were divested in January 2005, are carried in the consolidated financial
    statements as assets held for sale (respectively, liabilities held for sale
    and discontinued operations  see above explanations).                                                                                                                            
|
| | •                                                                                                                                                                                                                                                                                                         | SGL Information Services GmbH, Augsburg changed its fiscal year to March
    31 and is being liquidated.                                                                                                                                                                                                                                                                                                                          
|
| | •                                                                                                                                                                                                                                                                                                         | In
	    November and December 2005, two holding companies were created in Spain
	    and Germany. The Spanish holding SGL CARBON Holding S.L., La Coruña
    (Spain) acquired legal entities of SGL in Spain, Italy and South America.
    We also intensified our activities in India in 2005 with the creation of
    the subsidiary SGL CARBON INDIA Pvt. Ltd., in Pune.                                                       
| |                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | During
      2005, other than as noted above, there were no significant acquisition
      or divestiture activities for the SGL Carbon Group. Capital expenditures
      incurred during 2005 were related to normal maintenance and efficiency
    improvements of the SGL Groups operating facilities.

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Business Overview

In
      2005, we had sales in more than 100 countries; sales outside Germany accounted
      for approximately 87% of our sales revenue. The SGL Group operates 33 major
      manufacturing facilities of which 17 are located in the European Union,
      12 in North America and 4 in Asia (China). Our customers are located throughout
      the industrialized world. Our sales revenue in 2005 amounted to €1,068.8
      million. We organize the business operations of the group into three business
      areas that reflect the products that we produce and market: Carbon and
      Graphite, Specialties and SGL Technologies.


Carbon and Graphite (“CG”) manufactures and
markets graphite electrodes and certain carbon and graphite products (carbon
electrodes, cathodes and furnace linings). In 2005, sales revenue for the Carbon
and Graphite business area amounted to €643.7 million and EBITDA
amounted to €160.2 million.


Specialties (“S”) manufactures
  and markets graphite products with a wide variety of applications  and for
    a large number of industrial sectors, including semiconductors, energy management,
  tool manufacturing, ferrous and non-ferrous metallurgy, high-temperature processes,
  chemicals, automotive, glass and ceramics. In 2005, sales revenue for the
  Specialties business area amounted to €263.4 million and EBITDA amounted to €32.4
  million.


SGL Technologies
(“ST”) manufactures carbon fibers, aerospace and industrial
composites, expanded graphite (including yarns and fabrics), carbon ceramic brake
discs and fuel cell components. SGL Technologies covers the entire value chain
from fibers through to composites. We believe that we are the only major competitor
in this market that can cover such a broad product portfolio. In 2005 , sales
revenue for the
SGL Technologies business area amounted to €159.0 million and EBITDA amounted
to €12.6
million.


Industry
and Market Overview

We
      are active in a broad range of markets for carbon-based industrial products.
      Many of the industries served by our established Carbon and Graphite and
      Specialties businesses in particular, the steel, aluminum and chemicals
      industries  are mature global industries that tend to grow at approximately
      the same rate as the economy as a whole and may be marked by cyclicality.
      Demand for products used in these industries tends to fluctuate with global
      and regional business cycles as well as with specific industry developments.
      Our SGL Technologies business area, by contrast, focuses on emerging technologies
      that we believe have significant
potential for growth.


Carbon
  and Graphite

Our
      Carbon and Graphite business area serves the metallurgical industries.
      Our graphite electrodes are a necessary component of electric arc furnace,
      or EAF, steelmaking, while our cathode blocks and carbon electrodes play
      an important role in the production of aluminum and other nonferrous metals.
      We also produce carbon-based furnace linings that help furnaces withstand
      the extreme temperatures needed
in metals production. According to our estimates, the worldwide market for products
      made by our Carbon and Graphite business area was approximately €3 billion
      in 2005.


The manufacture of high-quality graphite and carbon electrodes is a mature, capital intensive business that requires extensive process know-how developed over
years of experience working with the various raw materials and their suppliers, furnace manufacturers and steelmakers (including working on the specific applications for finished electrodes). It also requires high-quality raw material sources and a
developed energy supply infrastructure. There have been no significant new entrants in the manufacture of electrodes since the 1940s. We believe that it is unlikely that there will be significant new entrants into the market for the manufacture of
graphite electrodes over the next several years.


Graphite electrodes

Graphite
      electrode production is our single largest business. Graphite electrodes
      are a necessary component of EAF steelmaking, the principal technology
      used in “mini-mills.” EAF steelmaking consumes graphite
      electrodes, for which we believe there are currently no substitute products.


Demand for graphite electrodes, therefore, varies directly with demand for finished steel and, in particular, with production of EAF steel. The steel industry
generally is cyclical in nature and


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experiences significant
  fluctuations based on numerous factors. In general, the EAF steel industry,
  however, has been less cyclical than the blast furnace/basic oxygen furnace
  production (“BF/BOF” production) steel industry and has grown fairly
  steadily since the early 1970s (see below, “ EAF steelmaking”).
  Volume and percentage of EAF steel to total steel production increased through
  2001. During 2002, the percentage of EAF steel production to total steel production
  declined slightly, despite a significant increase in volume, primarily as a
  result of a significant increase of steel production in China, where EAF steelmaking
  currently represents a smaller portion of total steel production. We believe
  that long-term growth prospects for the EAF steel industry remain favorable.
  See “Operating and Financial Review and Prospects.”

Beginning in the
  1970s, technological improvements reduced “specific consumption,”
  or the quantity of graphite electrodes consumed per metric ton of steel produced.
  During the same period, graphite electrode manufacturing capacity began to expand.
  As a result, by the mid-1980s there was significant excess manufacturing capacity
  in this industry. In the late 1980s and early 1990s, graphite electrode producers
  began to consolidate and to reduce manufacturing capacity. As a result, supply
  and demand were generally in balance during the 1990s. In the late 1990s, however,
  external factors began to adversely affect the graphite electrode industry,
  causing oversupply and price erosion. These factors included the Asian financial
  crises of 1998-1999, the structural crisis in the U.S. and Japanese steel industries
  in 2001 and worldwide recessionary trends in 2002. Insolvencies of graphite
  manufacturers in both Germany and the USA started another consolidation phase
  of the industry, including site closures. Due to this consolidation and reduction
  of capacity as well as the growing demand of the booming steel industry in the
  time from 2003 until 2005, the graphite electrode industry has begun to return
  to profitability.


Technological improvements in equipment design and production process, use of higher quality scrap metals and other raw materials and improvements in the size,
strength and quality of graphite electrodes (including improvements developed by the SGL Group) have increased the efficiency and reduced the cost of EAF steel production. According to our estimates, these improved efficiencies have reduced
worldwide specific consumption from approximately 6.5 kilograms of graphite electrodes per ton of steel produced in the early 1980s to approximately 2.2 kilograms per ton in 2005. We expect that, as the cost of further marginal improvements in the
efficiency of EAF steelmaking increases, the rate of decline in specific consumption will grow slower. We believe that the long-term growth potential of EAF steel will tend to offset reductions in specific consumption, resulting in steady to
slightly increased demand for graphite electrodes over the long-term.


According
      to our estimates, our share of the worldwide market for graphite electrodes
      was approximately 21% in 2005. We believe that our regular customers for
graphite electrodes include most of the worlds major EAF steel producers.


EAF steelmaking

Electric
      arc furnace production and BF/BOF production are the two primary steelmaking
      technologies. EAF steelmaking operations are commonly referred to as mini-mills
      because their production capacity is generally smaller than that of BF/BOF
      facilities. Electric arc furnaces range in size from those producing approximately
      25 tons of steel per production cycle, or “heat”,
      to those producing approximately 150 tons per heat. Graphite electrodes
      act as conductors of electricity in the furnace, generating sufficient
      heat to melt scrap metal or other material used to produce steel. EAF steelmaking
      is generally regarded as more
efficient and cost-effective than BF/BOF steelmaking.


Although
      EAF production is unlikely to replace BF/BOF altogether, a number of factors
      have favored its growth at the expense of the older technology. These include
      lower required investments, lower energy consumption, greater environmental
      sustainability and technological advances.


Since its development in the 1960s, mini-mill technology has produced a steadily increasing portion of total steel production. Due primarily to the
cost-effectiveness of EAF steelmaking, EAF steel production worldwide has grown steadily from 100 million tons in 1972 (approximately 16% of total steel production) to about 360 million tons in 2005 (approximately 32% of total steel production),
according to the estimates of market studies. The following table shows worldwide crude and EAF steel production in 1972, in 1980 and from 1990 through 2005.


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|     | Worldwide
    Steel Production* |  |                       | 
|---- | ------------------------------- |  | --------------------- | 
|     |                                 |  | EAF
    proportion of | 
|Year | Crude1                          |  | EAF                   | 
|     |                                 |  |                       | 
|     | (in
    thousands of tons)      |  | (%)                   | 
|1972 | 632,009                         |  | 99,749                | 
|1980 | 716,493                         |  | 160,511               | 
|1990 | 770,694                         |  | 215,124               | 
|1991 | 733,974                         |  | 209,873               | 
|1992 | 719,398                         |  | 210,508               | 
|1993 | 726,247                         |  | 222,511               | 
|1994 | 723,958                         |  | 229,063               | 
|1995 | 750,309                         |  | 245,330               | 
|1996 | 750,611                         |  | 249,741               | 
|1997 | 797,135                         |  | 270,051               | 
|1998 | 778,032                         |  | 266,144               | 
|1999 | 789,900                         |  | 269,150               | 
|2000 | 849,200                         |  | 293,600               | 
|2001 | 846,000                         |  | 295,000               | 
|2002 | 903,800                         |  | 304,600               | 
|2003 | 968,300                         |  | 315,000               | 
|2004 | 1,060,000                       |  | 347,000               | 
|2005 | 1,130,000                       |  | 360,000               | 

|   
|---
|*  
|(1)

Other Carbon
and Graphite products

Carbon electrodes serve as conductors of electricity in a furnace to generate sufficient heat to reduce silicon dioxide in a continuous process. The production of
silicon metal in furnaces that use carbon electrodes involves a process similar to that used for graphite electrodes, but at lower temperatures. Demand for carbon electrodes is directly related to the volume of silicon and phosphorus production.
Silicon and phosphorus production, and hence demand for carbon electrodes, have been relatively stable since the early 1990s. In 2001, demand declined by approximately 20%, primarily as a result of the energy crisis in Brazil. Demand for carbon
electrodes returned to stability in 2002. Our primary markets for carbon electrodes are in the United States, France, Norway, Australia and Brazil. We estimate that our share of the worldwide market for carbon electrodes was approximately 30% in
2005.


Cathode
      blocks and other products are used to equip electrolysis cells for the
      production of primary aluminum. Cathode blocks for the production of primary
      aluminum are produced according to customers specifications and design.
      We sell cathodes to all major aluminum smelters worldwide. According to
      our estimates, our share of the worldwide market for cathodes in 2005 was
      approximately
18%.


Carbon blocks for furnace linings are also produced in a variety of dimensions and grades, depending on the furnace size, the position of the block within the
blast furnace and the function the block is required to perform. They are used for bottom lining, wall protection and heat conduction in the hotter areas of blast furnaces. A modern furnace design allows for more than 10 years of furnace operation
before the replacement of the linings becomes necessary. Our main markets for furnace linings are Europe, Asia and North America. Furnace linings, which is recently experiencing modest growth, typically account for a modest portion of our business
(for example, approximately 3% of our sales revenue in 2005).


Specialties

The Specialties business area produces custom made products for specific applications. We serve a wide range of industries such as energy, semiconductor, tool
manufacturing, ferrous/non ferrous metallurgy, chemical, automotive, mechanical engineering, high temperature processes.


The main strategic focus of our Specialties business is to strengthen our global position with an emphasis on expanding our presence in Asia. With new products
and innovations (e.g. for solar or


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nuclear industry) we aim to grow globally. Over the last years, as a result
  of our SGL Excellence initiative, we have been able to improve our cost position
  through site specialization, simplification of production and product portfolio,
headcount reduction and continuous improvement programs.

Our specialties activities are aligned in five major segments as follows:


Electronic Applications: We have a leading position in graphite products for the semiconductor and solar markets in both Europe and North America. Demand in the
semiconductor market is highly cyclical. After a downturn during 2001 and 2002, the semiconductor market has recovered over the last two years. In contrast strong demand and growth being observed in the solar and battery markets, especially in Asia.
We estimate our market share at approximately 20% globally.


Industrial
      Applications: The Industrial Applications market is fragmented into many
      applications, such as tool manufacturing, glass and ceramics markets, ferrous
      and non-ferrous metallurgy, refractory manufacturing, electrochemistry,
      nuclear industry medical technology. In Europe market growth is low and
      in America, after a period of declining demand from 1998 to 2002, the market
      is now recovering. Still the
Industrial Applications market is by far the largest Specialties market with
      approximately €500 million in sales annually. We estimate our market share
      at approximately 15% globally.


High Temperature Applications: We believe that we are the only company, being able to produce and supply the full range of graphite products (isostatic and
extruded graphites, carbon fiber reinforced carbon (CFC) and felt) to furnace manufacturers. We estimate our market share at approximately 10% globally, with a strong presence in Europe but with relatively low share in North America and
Asia.


Automotive and Mechanical Applications: This market is separated into large volume serial business (such as parts for pumps used in automobiles) and small series
business for mechanical engineering applications. The automotive markets are growing only moderately in Europe, North America and Japan but strongly in China. Historically our focus was on the serial business and our traditional home markets in
Europe, whereas we are now looking for expansion into other regions as well. We estimate our market share at approximately 10% globally.


Process
      Technology: After a decline in demand in 2004, we have experienced an upturn
      in 2005. We estimate the worldwide market for Process Technology to be
      approximately €0.1 to 0.2 billion, of which we have a share of approximately
37%.


SGL Technologies

SGL Technologies, our newest business area, aims for growth in specific niche markets, where we expect cyclicality to be generally lower than in the customer
industries of our established businesses. SGL Technologies serves a number of diverse specialty markets with carbon fiber and carbon composite-based products. We hold established market positions in the segments for oxidized fiber and chopped carbon
fiber. In the more diverse market segments, such as those for continuous carbon fiber, aircraft structural components and carbon fiber reinforced plastics, our market shares are relatively small. We also have strong market shares in certain markets
for composite materials and components, such as in rocket motor nozzles, carbon-carbon for wet friction applications and high purity carbon felts.


We expect these markets to grow as new applications are developed. For example, the market for high-performance carbon-ceramic brake discs is in the initial
stages of development. We believe that the market for our fuel cell components, which are currently in the research and development phase, also has significant potential for growth. In the long run, development of this business, and of the fuel cell
component industry in general, is dependent on the achievement of significant reductions in fuel cell production and distribution costs.


Principal Products
      by Business AreaCarbon and Graphite

The Carbon and Graphite business area manufactures and markets graphite electrodes and specialized carbon products such as carbon electrodes, cathodes and furnace
linings. Carbon and graphite are based on petroleum coke, coal tar, petroleum pitch and anthracite coal, which are our


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primary raw materials. Carbon and graphite have many exceptional properties
  that we optimize for various applications through our manufacturing processes.
  See “ Manufacturing Process and Operations”. Our carbon and
  graphite products exhibit stability under high temperatures, are noncorrosive
  and conduct heat and electricity. As a result, these products are used in a
wide range of applications.

The Carbon and Graphite business areas key products include:


| | • | Graphite electrodes, our principal product, used primarily in electric
    arc furnace or EAF steel production, the steelmaking technology used by virtually
    all “mini-mills”, as well as in some ladle furnaces and foundries.
    Steel production requires temperatures
as high as2,760°Celsius
to melt scrap metal, iron ore or other raw materials for processing. Electricity
passing through our electrodes creates an electric arc that generates these extreme
temperatures. The electrodes, which vary in size depending on the individual
furnaces requirements, are consumed regularly in the production process.
We believe we provide the full range of sizes in graphite electrodes and that
their quality is equal to, or in specific segments, better than, that of any
other manufacturers products. We further believe that there are currently
no commercially viable substitutes for graphite electrodes in EAF steel making.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | • | Carbon electrodes, used primarily to produce silicon metal. Electrodes
    vary in size but are typically larger than the graphite electrodes used in
    EAF steelmaking and require a different manufacturing process. A typical
    silicon metal furnace uses 18 electrodes, consuming three of them every five
    days.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| | • | Cathode blocks and related products, used to equip electrolysis cells
    for the production of primary aluminum. Cathode blocks require a significant
    degree of custom fitting; we produce them to
our customers specifications and design. Newly constructed aluminum smelters
tend to require larger electrolysis cells than older facilities; we believe that
we are equipped to meet this trend in demand.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| | • | Furnace linings, used for wall protection and heat conduction in the
    hotter areas of blast furnaces used to produce liquid pig iron, an intermediary
    material in the production of steel from iron ore. Although modern furnace
    design allows 10 or more years of operation before lining replacement becomes
    necessary, a typical furnace will have its lining replaced a number of times
    over its useful life.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

Specialties

We supply a wide variety of materials customized to serve the following industries and applications:


Electronic Applications:
      For the Electronic Applications market we offer a wide range of components
      made of high purity graphite, felt and CFC for semiconductor industry,
      power generation and thermal and power management.


Industrial Applications: Our product range for Industrial Applications consists of mold stock and precision machined parts made of extruded, isostatically, die
and vibration molded graphite, high purity graphite, soft and rigid felt and CFC for tool manufacturing, glass and ceramics industry, ferrous and non-ferrous metallurgy, refractory manufacturing, electrochemistry, the nuclear industry and medical
technology.


High Temperature Applications: For High-Temperature Applications we supply mold stock and machined graphite parts, CFC, soft and rigid felt, graphite foils and
sheets for heat treatment applications, aerospace and chemical process technology.


Automotive and Mechanical Applications: For Automotive and Mechanical Applications we supply mold stock and mechanical components made of carbon graphite,
graphite and graphite-filled high performance plastics for the automotive industry, household appliances, mechanical engineering as well as powder and granules for compounding.


Process Technology for Corrosive Media: Our Process Technology products comprise heat exchangers, columns, pumps, quenchers, bursting discs and HCl (Hydrogen
Chlorine) synthesis units


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made of DIABON* process equipment graphite as well as pumps made of exotic
  metals and LICUFLON* PTFE (PolyTetraFluorEthylen = Teflon)-lined vessels and
  columns for corrosive applications in the chemical, environmental, mining,
  pulp, energy, pharmaceutical and agricultural industries. Furthermore we offer
complete engineered Systems made from DIABON and LICUFLON.

SGL Technologies

SGL Technologies consists of six businesses lines manufacturing carbon fibers, aerospace/defense and industrial composites, expanded graphite (including yarns and
fabrics), carbon ceramic brake discs and fuel cell components.


Carbon fibers serve as base materials in the manufacture of products that must be both stiff and lightweight, and able to conduct heat and electricity,
particularly in the aviation and aerospace industries. We produce carbon fibers in two forms. Oxidized fibers are used in high performance carbon-carbon aircraft brakes as well as for specialty flame-retardant insulation applications. Carbonized
fibers are used primarily in chopped form as reinforcement in thermoplastic housings, such as mobile telephone and printer and laptop computer housings.


Carbon composites includes carbon fiber reinforced plastics, or CFRP. CFRP are used in medical equipment, the textile and wire making industries. The composite
materials and components we produce range from relatively standard carbon or fiberglass reinforced plastics, used for x-ray tables and secondary aircraft structures, to high performance, high temperature composites used for rocket motor
nozzles.


Expanded graphite consists primarily of foils that are based on natural graphite and can withstand extremely high temperatures and aggressive corrosion. These
foils are used in sealing applications as an alternative to asbestos, as well as in sealing technology in the automobile construction industry and the chemical industry. In addition, milled exfoliated products based on natural graphite can be used
for the growing market of fillers, for example in high-performance batteries, as well as in a variety of other areas of application in which electrical and thermal conductivity is important.


We have developed new materials and components for developing high-technology applications, such as carbon ceramics for high performance automotive brakes and
components for fuel cells. Our carbon ceramic automotive brakes (carbon ceramic discs) are made from a ceramic composite material, composed of carbon fiber within a silicon carbide matrix and are called carbon fiber reinforced silicon carbide or
C/SiC. The main advantages of the carbon ceramic discs are a very high and consistent friction performance and significant lower weight compared to traditional automotive brake discs. Carbon-Ceramic discs are designed to last much longer than
ordinary brake discs. SGL Technologies began serial production of carbon ceramic brake discs in a newly constructed plant in 2002 to serve the increasing demand from Porsche. Since mid 2005 we are also supplying discs for high-end automobiles
produced by Audi.


Seasonality

Our sales revenue from graphite electrodes fluctuates from quarter to quarter due to such factors as customer inventory levels, scheduled customer plant
shutdowns, vacations and changes in customer production schedules in response to seasonal changes in energy costs, weather conditions, strikes and work stoppages. In addition, customers may change their order patterns in response to price changes.
During the period prior to the effective date of a price increase, customers tend to buy additional quantities of graphite electrodes at the then lower price, which adds to our sales revenue during that period. During the period following the
effective date of a price increase, customers tend to use those additional quantities before placing further orders, which reduces our sales revenue during that period. Similarly, customers tend to use up their inventories and delay purchases when
they expect price reductions.


Raw Materials and Suppliers

The primary raw materials for graphite electrodes and graphite specialties products are petroleum coke (needle coke for electrodes and regular grades for
specialty products), coal tar pitch and petroleum pitch. The primary raw materials for carbon electrodes are anthracite coal and coal tar


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pitch and, in some instances, a petroleum coke-based material. The primary
  raw material for flexible graphite is natural graphite flake, which is obtained
  primarily from China and
Canada.

We
      purchase all of our raw materials from a variety of sources. We maintain
      contacts with the most important petroleum coke suppliers and purchase
      from most vendors on an ongoing basis, with annual price negotiations,
      to satisfy our needs in our three business segments. Using procurement
      agreements with key suppliers, SGL secures the necessary raw materials
      for production, especially for needle coke.
These agreements normally last for one year and contain minimum quantities to
      be purchased by SGL. The prices for the deliveries are settled on a base
      price, which is adjusted by variable components (e.g. defined parameters
      of the needle coke
producers raw material price).We have established strong ties to these
suppliers and have been cooperating with them on the implementation of joint
quality improvement and quality monitoring programs for many years. We believe
that, under current conditions, our raw materials are available in adequate quantities
at current market prices.


We
      purchase electric power and natural gas used in our manufacturing processes
      from large European and North American regional suppliers. The availability
      and price of raw materials and energy may be affected by limitations imposed
      under new legislation or governmental regulations, suppliers allocations
      to meet the demand of other purchasers during periods of shortage (or,
      in the case of energy suppliers, extended cold weather), interruptions
      in production by suppliers, and market and other events and conditions.
      In recent years, prices for petroleum coke have gone through cycles of
      both volatility and stability. During these times, we
have mitigated the effect of price increases by improving operating efficiency
and by implementing cost-cutting measures.


Marketing Channels and Customer Service

We
      sell our Carbon and Graphite products in our local markets primarily through
      our direct sales force, which operates from our sales offices and is supported
      by
our own customer service personnel. The SGL Groups local sales organizations
or local independent sales agents service export customers with the assistance
of our direct sales force. Most of these independent sales agents have worked
with the
SGL Group for many years.


In the Specialties and SGL Technologies business area, we make the majority of our sales through our specialized sales organizations specifically dedicated to
each such business area. We also use independent exclusive sales agents in certain locations. From time to time, the Carbon and Graphite sales organization also assists in sales of Specialties products, particularly outside of Europe and North
America.


Since we are globally oriented with a diverse customer base, we regularly hold regional conferences to present and discuss our business strategies, targets and
philosophy with our representatives in Germany and throughout the world.


For many years, we have been strongly committed to supporting our sales activity by providing a high level of customer service. As with our sales and distribution
organizations, each of our customer service personnel is specifically dedicated to one of our three business areas. In addition to providing basic support services, we also assist our customers with their technical problems, focusing on the design
and operation of production equipment (such as EAF technology), as well as on specifications for and use of our products. Since 1992 we have established long-term cooperative arrangements with several key customers to focus on technical improvements
and product development.


To
      our key accounts, we generally sell our products on the basis of annual
      sales agreements. In these agreements, we usually fix a negotiated price
      with the customer for one year. During that year, the customers then place
      their orders in accordance with the terms of the agreement. Our customers
      in the Carbon and Graphite business area generally place orders for electrodes
      three to six months prior to
the specified delivery date, as well as pursuant to a forecasted full-year demand.
      We manufacture and manage electrode inventory levels on the basis of rolling
      sales forecasts. Other products, particularly in the Specialties and SGL
      Technologies Business, are generally manufactured to order. Finished products
      are generally stored at our manufacturing facilities. We ship products
      to customers primarily overland and by sea, using “just in time” techniques
      where
practicable.


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Dependence on Patents or Licenses, Industrial, Commercial or Financial Contracts

We own over 300 patents registered in the United States, Europe and in other major world markets, and have over 350 patent applications pending for new
technologies and processes. In addition, we have obtained licenses to various domestic and foreign patents. These patents, patent applications and licenses are, in the aggregate, important to our competitive position, and the loss of a great number
of patents worldwide could have a material adverse effect on our business. However, we believe that we are not currently dependent on any individual patent or license or group of patents or licenses.


We enter into industrial, commercial and financial contracts with a number of parties throughout the world and consider our relationships with these
counterparties to be sound and productive. However, we also have a policy of locating alternative sources for all of our industrial, commercial and financial needs, and thus we believe that we are not dependent on our existing industrial, commercial
or financial contracts.


Manufacturing Processes and Operations

The manufacture of graphite electrodes takes, on average, approximately two months. Graphite electrodes range in size from three inches to 32 inches in diameter
and two feet to nine feet in length and weight between 20 pounds and 4,800 pounds (2.2 metric tons). Carbon electrodes, cathodes and furnace linings are manufactured in a process comparable to that for graphite electrodes, except that impregnation
and graphitization are used only for particular grades of cathodes and furnace linings.


| | The manufacture
    of graphite electrodes involves the following six primary processes.                                                                                                                                                                                                                                                                                                                         
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                  
| | Forming  Calcined
        petroleum coke is crushed, screened, sized and blended in a heated vessel
        with coal tar pitch, applying highly specialized techniques. The resulting
        plastic mass is extruded through a forming press and cut into cylindrical
        lengths (called “green” electrodes) before cooling in a water
    bath.                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                  
| | Baking  The “green” electrodes
        are baked at approximately 900°Celsius in specially designed furnaces
        to further carbonize the pitch. After cooling, the electrodes are cleaned,
    inspected and sample-tested.                                                                                                                                                                                
| |                                                                                                                                                                                                                                                                                                                                                                                                                  
| | Impregnation  Baked
        electrodes are impregnated with a special pitch when higher density,
        mechanical strength and capability to withstand higher electric currents
    are required.                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                  
| | Rebaking  The
        impregnated electrodes are rebaked to “coke out” the
    pitch, thereby adding strength to the electrodes.                                                                                                                                                                                                                                                                                
| |                                                                                                                                                                                                                                                                                                                                                                                                                  
| | Graphitizing  The
        rebaked electrodes are heated in longitudinal electric resistance furnaces
        at approximately 3,000° Celsius
        to restructure the carbon to its characteristically crystalline form,
        graphite. After this process, the electrodes are gradually cooled, cleaned,
    inspected and sample-tested.                                                                 
| |                                                                                                                                                                                                                                                                                                                                                                                                                  
| | Machining After
        graphitizing, the electrodes are machined to comply with international
        specifications governing outside diameters, overall lengths and joint
        details. Tapered sockets are machine-threaded at each end of the electrode
        to permit the joining of electrodes in columns by means of correspondingly
    double-tapered machine-threaded graphite connecting pins.

The production of the variety of graphite specialties grades generally follows a process similar to that used for graphite electrodes, but uses additional forming
techniques (such as isostatic and die molding), additional treatments like purification and more intricate machining. Specialty graphite products use different mixtures of raw materials due to fine grain formulations and different processing time
periods.


Expanded graphite is made from mined natural graphite flake, which is acid-treated, heat-treated and rolled into sheets of desired thickness and width and
produced in highly specialized production lines. Fibers and composites that use polymer raw materials also require highly sophisticated and highly specialized facilities, in addition our main production lines for carbon and graphite products. Our
high temperature technology expertise is essential for the manufacture of graphite fibers and composites.


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We
      use statistical process controls in all manufacturing processes and have
      implemented a quality management program that involves continuous in-house
      training. We generally warrant to our customers that our products will
      meet the SGL Groups and the customers specifications. With
      the exception of 1997, in which we conducted a recall of graphite electrodes
      in North America due to a defect in a new piece of production equipment
      at one of our U.S. production sites, electrode returns and replacements
      have historically amounted to less than 1% of our sales revenue. In the
      SGL Technologies business area, we expect a higher rate of defects for
some products due to the greater number of newly developed products.


Competitive Position of the SGL Group

The carbon and graphite industry is highly competitive with competition based primarily on price, product quality and customer service. There are approximately 10
to 15 major manufacturers of carbon and graphite products worldwide, of which the SGL Group is the largest, based on its 2005 sales revenue.


Carbon and Graphite

For graphite electrodes,
    our principal product, there are approximately 10 to 15 major manufacturers
    worldwide. The SGL Group and GrafTech International Ltd. (formerly UCAR International
    Inc.) are the largest of these manufacturers on the basis of metric tons produced.
    In addition to the SGL Group and GrafTech International Ltd (GrafTech), there
    are graphite electrode manufacturers in the United States (2), Japan (4) and
    several in India and China. We estimate that our share of the global market
    for graphite electrodes was approximately 21% at the end of 2005.


We believe that we are the largest manufacturer of carbon electrodes worldwide. According to our estimates, we supplied approximately 30% of the worldwide market
for carbon electrodes in 2005.


Approximately ten manufacturers compete in the global market for cathodes used in the aluminum industry. We estimate that our share of the global market was
approximately 18% of this market at the end of 2005. Other major manufacturers include GrafTech, Nippon Carbon, SEC Corporation the Vesuvius Group and a few Chinese manufacturers.


Specialties

The Specialties
    market is served by many competitors with different product ranges and value
    added segments. We believe that globally-oriented international companies,
    including the SGL Group, Le Carbone Lorraine, GrafTech, Tokai Carbon, Morgan
    Crucible and the Schunk Gruppe account for about two thirds of the total market
    volume worldwide. A significant part of the market is served by small, local
    machine shops, which machine and finish goods supplied to them by the major
    graphite producers in a semi-finished state. We believe that we have leading
    positions in the supply of graphite and CFC products for electronic and industrial
    applications in Europe and North America. We estimate that the worldwide market
    for Process Technology is approximately €0.1 to 0.2 billion, of which
    we have an approximately 37% market share. The Process Technology market is
    highly fragmented with many locally-oriented, often family-owned smaller companies.
    Our main competitors in the market for carbon-based process equipment applications
    are Le Carbone Lorraine and Carbon Everflow (India).


SGL Technologies

The competitors
    of our SGL Technologies business area are carbon based advanced material and
    composites companies. Our main competitors for fiber products are Zoltek,
    Toho and Formosa. In the market segments for carbon composites the key competitors
    include Thiokol, Hexcel, ATPX and Cytec. Key competitors in expanded graphite
    are GrafTech and Le Carbone Lorraine.


Government Regulation

Our domestic and international manufacturing facilities and operations are subject to numerous environmental laws and regulations as well as administrative orders
relating to alleged prior violations of laws or regulations. These legislation and orders could require us to install additional controls for certain emission sources or to change our manufacturing processes in future years. We believe we possess
all material permits necessary for the current operation of our facilities. Although we believe


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that we are currently in material compliance with applicable laws, regulations
and permits, our operations, like those of our competitors, involve certain environmental
risks.

We
      seek to minimize environmental risk by developing, implementing and improving
      material resources, production and abatement techniques. Using advanced
      techniques, we aim to improve working conditions and reduce the environmental
      impact of our own operations and those of our customers businesses. Our goal is to comply with the European Unions Integrated Pollution Prevention and Control
(IPPC) directive while at the same time creating economically and technically viable conditions to assure long-term competitiveness. We augment the efforts of our internal auditors, research and development team and operations supervisors with
periodic, active cooperation with national and international state agencies and organizations. We have adjusted the organization of our environmental team to create an integrated Environmental, Health & Safety
Audit (EHSA) management system tailored to the demands of our industry. Our goal
is to achieve internal standards according to ISO 14001, generally recognized
as the highest standard in this field. We use our Internal Management and Audit
System for continuous EHSA Risk
Assessment in our efforts to achieve permanent, sustainable improvements in performance.


International
      regulations govern the transportation of hazardous goods. Air pollution,
      wastewater, solid waste and occupational health and safety are generally
      regulated by national laws. In the European Union, these areas are generally
      covered by EU directives and guidelines. In particular, the EUs IPPC
      directive requires certain industries, including the carbon and graphite
      industry, to implement advanced techniques. The IPPC directive does not
      itself create binding regulation. Rather, it serves as a framework for
      regulators in the EU member states in establishing national regulations.
      Although national-level implementation of the IPPC
directive may lead to more restrictive national environmental regulations, based
      on our experience in Germany we believe that national regulations based
      on the IPPC directive will tend to be more lenient than those proposed
      in the directive itself. We believe that we are in compliance, or in the
      process of achieving compliance, with the heightened requirements of IPPC
      directive-based regulation.


In Germany we are subject to environmental laws and regulations including the Federal Pollution Control Act, the Water Resources Management Act and the Waste Act.
Under these statutes and their related bodies of regulation, the authorities may inspect our production sites every one to three years. We must also comply with the Plant Security Act, the Employment Security Act, Regulations for the Prevention of
Accidents and the Toxic Substances Control Act (which includes technical regulations on hazardous substances) and the Dangerous Chemicals Ordinance.


Similar laws are already in force in Austria, Italy and a number of other EU countries; France and Spain are in the process of adopting new laws to comply with EU
requirements. We expect that most European national environmental laws and regulations will be replaced over the near- to medium-term by common EU requirements (or by national regulations based on EU directives). National governments will remain
free to adopt requirements stricter than those required by the EU.


In the United States we are subject to environmental requirements including those imposed by the Clean Air Act, the Clean Water Act, the Resource Conservation and
Recovery Act, the Safe Drinking Water Act and similar federal, state and local laws regulating air emissions, water discharges and solid and hazardous waste generation, storage, transportation and disposal. The Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (Superfund) and similar state laws can impose joint and several liability for releases of hazardous substances into the environment, without regard to fault or the lawfulness of the original activity.
Categories of potentially responsible parties can include current or former owners and operators of a contaminated site and companies that generated or sent waste to a site. The Toxic Substances Control Act and related laws are designed to assess
the risk to health and the environment of new products at early developmental stages. In addition, laws adopted or proposed in various states impose reporting or remediation requirements if historical contamination is discovered, operations cease or
property is transferred or sold. We believe that we are currently in material compliance with applicable U.S. laws and regulations.


From time to time we have received claims seeking environmental cleanup or similar costs with respect to properties that either the SGL Group or others currently
or previously owned or operated.


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We believe that the extent of contamination and our liability, if any, arising
  from such claims will not have a material adverse effect on our financial condition
  or results of
operations.

We have established and continue to establish accruals for environmental liabilities where it is probable that a liability has been incurred and the amount of the
liability can be reasonably estimated. We adjust accruals on a periodic basis as we make new remediation commitments or receive information indicating that previous estimates should be changed. We believe that, taking into account our environmental
accruals, our current environmental liabilities will not have a material adverse effect on our financial condition or results of operations.


Estimates of future costs of environmental protection are necessarily imprecise. Uncertainties affecting these estimates include the impact of new laws and
regulations, the availability and application of new and diverse technologies and the extent of insurance coverage. Subject to this inherent imprecision, on the basis of our experience in managing environmental matters we believe that costs and
capital expenditures related to environmental protection over the next several years will not have a significant impact on our financial condition or results of operation.


Organizational
  Structure

As
      a management holding company, SGL is legally separate from its various
      operating subsidiaries in the SGL Group. SGLs Board of Management, however,
provides overall strategic direction and monitors the operations of the Group. Individual members of the Board of Management have a group coordination function for specific business units and functional as well as regional responsibilities. See Item
6, “Directors, Senior Management and Employees  Directors and Senior Management  Board of Management”.


Our
      operational business is managed by Business Areas. At the beginning of
      2002, we combined the former regional business units of Carbon and Graphite
      and Specialties into global Business Areas to improve efficiency and respond
      to the increasing globalization of our key customers. With this change
      and the divestiture of the surface protection business, all three of our
      Business Areas Carbon and
Graphite, Specialties and SGL Technologies  are now organized on a global
basis. Our organizational structure is thus identical with our segment reporting.


Our
      production sites and Group companies are managed by the relevant Business
      Area (or, in the case of multi-business area sites, by a management committee).
      The boards of directors of individual Group companies have responsibility
      for those companies legal and financial affairs. Centralized corporate functions support the SGL Board of Management and provide services to all businesses and to individual
legal entities within the Group. In 2005, we merged the previously decentralized research and development activities into the newly created central function “Technology & Innovation”,
for details see ITEM 5.


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Principal subsidiaries

The following table
    lists SGL Carbons principal consolidated subsidiaries as December 31,
2005 and its ownership interest in each:


|Company Name                  |  | Location                |  | Business Area |  | Ownership Interest% | 
|----------------------------- |  | ----------------------- |  | ------------- |  | ------------------- | 
|                              |  |                         |  |               |  |                     | 
|North America                 |  |                         |  |               |  |                     | 
|SGL Carbon LLC                |  | Charlotte, NC, USA      |  | CG, S, SGL T  |  | 100.0               | 
|HITCO Carbon Composites, Inc  |  | Gardena, CA, USA        |  | SGL T         |  | 100.0               | 
|SGL Technic Inc               |  | Valencia, CA, USA       |  | S, SGL T      |  | 100.0               | 
|M.G.P. LLC                    |  | Sinking Spring, PA, USA |  | S             |  | 100.0               | 
|SGL Carbon Technic LLC.       |  | Strongsville, OH, USA   |  | S             |  | 100.0               | 
|SGL Canada Inc.               |  | Lachute, Canada         |  | CG            |  | 100.0               | 
|Europe                        |  |                         |  |               |  |                     | 
|SGL Carbon GmbH               |  | Meitingen, Germany      |  | CG, S         |  | 100.0               | 
|SGL Technologies GmbH         |  | Meitingen, Germany      |  | SGL T         |  | 100.0               | 
|SGL Brakes GmbH               |  | Meitingen, Germany      |  | SGLT          |  | 100.0               | 
|SGL Carbon Beteiligung GmbH * |  | Wiesbaden, Germany      |  | Corporate     |  | 100.0               | 
|SGL Carbon Holding GmbH *     |  | Wiesbaden, Germany      |  | Corporate     |  | 100.0               | 
|SGL Carbon Technic SAS        |  | Grenoble, France        |  | S             |  | 100.0               | 
|SGL Carbon SpA                |  | Milan, Italy            |  | CG, S         |  | 99.7                | 
|SGL Carbon Holdings S.L.      |  | La Coruña, Spain        |  | Corporate     |  | 100.0               | 
|SGL Carbon S.A                |  | La Coruña, Spain        |  | CG            |  | 99.9                | 
|Gelter Ringsdorff S.A.        |  | Madrid, Spain           |  | S             |  | 64.0                | 
|SGL Carbon GmbH & Co          |  | Steeg, Austria          |  | CG            |  | 100.0               | 
|SGL Carbon Polska S.A         |  | Ratibor, Poland         |  | CG, S         |  | 100.0               | 
|SGL Carbon SAS                |  | Chedde, France          |  | S             |  | 100.0               | 
|SGL Technic Ltd.              |  | Muir of Ord, Scotland   |  | SGL T         |  | 100.0               | 
|SGL Carbon Ltd                |  | Alcester, UK            |  | S             |  | 100.0               | 
|Asia                          |  |                         |  |               |  |                     | 
|SGL Carbon Japan Ltd.         |  | Tokio, Japan            |  | S             |  | 100.0               | 
|SGL Carbon Far East Ltd       |  | Shanghai , China        |  | S             |  | 100.0               | 
|                              |  |                         |  |               |  |                     | 

|* | SGL Carbon Beteiligung GmbH, SGL CARBON Holdings GmbH and SGL CARBON Holdings
    S.L. are 100% direct or indirect subsidiaries of SGL Carbon AG that serve
    as a holding companies for various other holding companies and operating
    subsidiaries within the SGL Group.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Property,
  Plants and Equipment

As of December 31, 2005, we operated 33 major manufacturing facilities worldwide of which are all located in Europe, North America and Asia. As part of the
restructuring program announced in December 2001, we closed or idled three plants during 2002. Effective January 2003, we sold our Berlin, Germany manufacturing facility. Effective January 2005, we sold the surface protection and plastic application
business with manufacturing facilities in Germany, USA, China, France and Italy. We also have other properties, including office buildings, research laboratories and warehouses, primarily in United States, Germany, Poland, France, Italy and Austria.
The size of land we own is approximately 1,913 thousand square meter in the US (473 acres), 804 thousand square meters (199 acres) in Germany, 727 thousand square meters (180 acres) in Poland, 619 thousand square meters (153 acres) in Italy, 341
thousand square meters (84 acres) in Canada, 174 thousand square meters (43 acres) in France, 168 thousand square meters (42 acres) in Austria and 114 thousand square meters (28 acres) in Spain. We own most of our manufacturing facilities and other
properties.


We are harmonizing
    our manufacturing processes throughout the Group to permit global sourcing
    from all locations with consistent and interchangeable quality levels. We
    produce graphite electrodes in the United States, Canada, Germany, Italy,
    Spain, Austria and Poland. Carbon electrode production is concentrated in
    Italy and Poland and cathodes and furnace linings are manufactured in Germany
    and Poland. Our feeder stock for specialty graphite products is manufactured
    in Germany, France and the United States. In Europe, we have further optimized
    production by concentrating extruded, molded and isostatic pressed graphite
    product grades in the facilities best suited for this work. We have taken
    similar restructuring measures in North America, discontinuing manufacture
    of 28   Back
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  molded and isostatic
    products in the United States. We produce our process technology products
    in Germany, with additional production facilities in France and the United
    States. About four-fifths of our fibers and composites are manufactured outside
    of Germany, primarily in the United States and the United Kingdom.


We conduct major maintenance of our facilities on an ongoing basis. We currently have capacity to manufacture approximately 280,000 metric tons of heavy carbon
and graphite products annually (excluding Specialties). This capacity includes approximately 225,000 metric tons of graphite electrodes. In 2005 , we sold approximately 222,000 metric tons of graphite electrodes compared with 209,000 metric tons in
2004.


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As of December 31, 2005 we operated the following major facilities


|                             |  | Primary Use   | 
|---------------------------- |  | ------------- | 
|                             |  |               | 
|Location                     |  | Manufacturing | 
|                             |  |               | 
|Europe                       |  |               | 
|Wiesbaden, Germany1          |  |               | 
|Meitingen, Germany           |  | x             | 
|Griesheim, Germany3          |  | x             | 
|Bonn, Germany                |  | x             | 
|Steeg, Austria               |  | x             | 
|Milan, Italy2                |  |               | 
|Verdello, Italy              |  | x             | 
|Narni, Italy                 |  | x             | 
|Ascoli Piceno, Italy         |  | x             | 
|Chedde, France               |  | x             | 
|Grenoble, France             |  | x             | 
|La Coruna, Spain             |  | x             | 
|Madrid, Spain                |  | x             | 
|Ratibor, Poland              |  | x             | 
|Nowy Sacz, Poland3           |  | x             | 
|Inverness, Scotland          |  | x             | 
|Engis, Belgium               |  | x             | 
|Alcester, England            |  |               | 
|North America                |  |               | 
|Charlotte, North Carolina4   |  |               | 
|Morganton, North Carolina    |  | x             | 
|Hickman, Kentucky            |  | x             | 
|Ozark, Arkansas              |  | x             | 
|Valencia, California         |  | x             | 
|Lachute, Quebec, Canada      |  | x             | 
|Kitchener, Ontario, Canada   |  | x             | 
|St. Marys, Pennsylvania      |  | x             | 
|Strongsville, Ohio           |  | x             | 
|Arkadelphia, Arkansas        |  | x             | 
|Sinking Spring, Pennsylvania |  | x             | 
|Gardena, California          |  | x             | 
|Cheshire, Connecticut        |  | x             | 
|Asia                         |  |               | 
|Nantong, China               |  | x             | 
|Shanghai, China              |  | x             | 
|Daegu City, Korea            |  | x             | 
|Pune, India                  |  | x             | 
|                             |  |               | 

|1) | Corporate Headquarters.                                                                                                                            
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------
|2) | Head Office, Italy.                                                                                                                                
|3) | Right to construct buildings on land owned by a third party in Germany (Erbbaurecht)
    under German law, comparable to a long- term ground lease.
|4) | Head Office, North America.                                                                                                                        

As of December 31,
    2005 we had material encumbrances on our property under the syndicated loans.
    These agreements entailed the pledging of equity interests of most Group
    companies. The rights of use of intangible assets have been assigned for
    all German members of the Group, for two U.S. subsidiaries, and for SGL CARBON
    SpA in Italy. Real estate liens were taken out against SGL CARBON AG and
    two U.S.
companies in the amount of €320 million and USD 168.4 million. Inventories and movable plant and equipment of €252.5 million were assigned as collateral. Trade receivables and receivables due from subsidiaries in the total amount of €147.5 million
were assigned as collateral. In addition, intercompany receivables of €1,096.7 million and bank balances totaling €88.1
million were pledged as collateral by individual companies.


For
      more details to the encumbered properties; see Item 10, “Additional Information  Material Contracts”.
      We believe that our facilities, which are of varying ages and types of
      construction, are in good condition, are suitable for our operations and
      generally provide sufficient capacity to meet our requirements for the
foreseeable future.


Item
  4A.  Unresolved Staff Comments

None.


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ITEM
  5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS

You should read
      this operating and financial review together with the description of our
      business,
    the general information about SGL and the consolidated  financial statements,
    including the notes thereto contained elsewhere in this annual report. We
    prepared our consolidated financial information in accordance with IFRS or,
    where indicated, in accordance with U.S. GAAP. IFRS differs in certain
significant respects from U.S. GAAP. See “– U.S. GAAP reconciliation” and “– Significant
differences between IFRS and U.S. GAAP” as well as notes 34 and 35
to our consolidated financial statements  contained elsewhere in this annual
report. These forward-looking statements are subject to risks, uncertainties
and other factors that could cause our actual results to differ materially from
those expressed or implied by our forwardlooking
statements. See “Forward-looking statements” and “Risk
Factors.”


Overview

We are one of the largest producers worldwide of carbon and graphite products, used primarily in electric arc furnace steel production and aluminum smelting. We
also manufacture natural and synthetic graphite products for, and provide services in connection with, a variety of industrial applications worldwide. Our customers are located in industrialized countries throughout the world. In 2005, we sold
products in approximately 100 countries, with sales outside Germany accounting for approximately 87% of our sales revenue.


Until December 31,
    2004, 18 subsidiaries and two joint ventures were excluded from consolidation
    and accounted for at cost. In the consolidated financial statements as of
    December 31, 2005, these subsidiaries have been included in consolidation
    and the joint ventures have been accounted for using the equity method. In
    this context, the opening balances of assets, liabilities and equity as of
    January 1, 2004, as well as the consolidated balance sheet as of December
    31, 2004 and the consolidated income statement and cash flow statement for
    the year then ended, have been restated retrospectively.


IFRS
      2 “Share-based payment” is effective for annual periods
      beginning on or after January 1, 2005. The IFRS is to be applied retrospectively
      on all share-based payments granted since November 7, 2002, that still
      existed when the standard became effective and requires comparable information
      to be restated. This also includes a restatement to the opening balances
      of the
retained earnings in the earliest period presented.


The
      revised IAS 1 “Presentation of financial statements” defines a presentation of current and non-current assets and liabilities as
separate groups in the balance sheet. The standard must be used for reporting periods of a fiscal year beginning on January 1, 2005 or later. The companys consolidated balance sheet was structured accordingly and the previous years figures
were restated. In prior years, we presented costs related to antitrust proceedings
and restructuring expenses separately in our statement of operations. Beginning
with the year ended December 31, 2005, we have stopped reporting these itmes
separately and the prior years statements have been adjusted to reflect his change.


Business realignment

Since
      the beginning of 2005, we manage our operations in three business areas
      that reflect the products that we produce and market  Carbon and
      Graphite, Specialties, and SGL Technologies. Prior to 2005, we operated
      a fourth business area, Corrosion Protection. We discontinued the Corrosion
      Protection business area in January 2005 due to the sale of our Surface
      Protection and Plastic Process
Technologies businesses, which represented more than 70% of the sales of this
      business area. The remaining process technology business was reclassified
      from Corrosion Protection to Specialties. The segment reporting for all
      previous years has been adjusted to reflect this reorganization. The divested
      surface protection business is shown separately as a discontinued operation
      for the years discussed in this report. All other descriptions and discussions
      refer to the continuing
operations.


Cost reduction
  program SGL Excellence

In 2001, we initiated
    a continuing cost reduction and restructuring program that includes cost containment
    measures and other steps to improve our financial results and cash flows from


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operations. As part
  of this restructuring program, we significantly reduced our total number of
  employees. With a large number of cost reduction, productivity-enhancing projects,
  our activity focused on the area of Operational Excellence. However,
  additional activity also addressed administrative processes. Total cost savings
  attributable to these and other initiatives amounted to approximately €21
  million, approximately €36 million, and approximately €24 million
  in 2005, 2004 and 2003, respectively. We are targeting further cost reductions
  in the future. Our planned measures include:

| | • | concentrating
      operations in lower-cost facilities;              
| | - | ----------------------------------------------------------------------
|
| | • | reduction
      of maintenance costs;                                 
|
| | • | outsourcing
      and/or streamlining of non-core functions;          
|
| | • | further
      headcount reductions; and                               
|
| | • | continuous
      improvements in raw materials and energy utilization.

Our ability to achieve
    cost savings will depend on a number of factors. These factors include our
    ability to accurately estimate the magnitude of costs incurred in connection
    with the implementation of our cost reduction measures and our ability to
    achieve targeted operating efficiencies with a leaner production base.


Currency
exchange exposure

We generate revenue primarily in U.S. dollars and in euro. The remainder of our revenue is denominated principally in other European currencies (primarily British
Pounds and Polish Zloty). Purchases of our principal raw material, petroleum coke, which on average comprise approximately 25% of the total production costs of the Carbon and Graphite business area, are denominated in U.S. dollars. Other principal
production costs, such as labor and energy, are denominated in the currency of the country in which the relevant production facilities are located. We currently operate our main manufacturing facilities in Europe and North America.


Fluctuations
      in currency rates, especially between the U.S. dollar and the euro, can
      influence our operating and financial results. Through early 2001, the
      value of the U.S. dollar generally increased relative to the euro. The
      relative strength of the dollar positively impacted our operating results.
      In early 2002, the value of the dollar began to decline relative to the
      euro. This decline continues during
2004 and reached a low-point at the end of 2004. In 2005 the U.S. dollar strengthened
      against the euro. Currency fluctuations have several effects on our results,
      some of which could offset others. A weak dollar tends to have a negative
      effect on
revenue and results. See “Risk Factors  Risks relating to our business  We are exposed to currency exchange rate risks and interest rate risks.” In addition, we have major assets, debts and other liabilities in the
United States or denominated in U.S. dollars. Fluctuations in the Euro-U.S. dollar exchange rate can cause currency translation effects in our consolidated balance sheet. A continued increase in the value of the euro relative to the dollar would
reduce our dollar denominated liabilities. On the other hand, it would also tend to reduce the contribution of our U.S. businesses to our consolidated results of operations. A stronger dollar will tend to increase, and a weaker dollar to decrease,
our non-current and current assets as well as equity and liabilities. In the 2003 fiscal year, the translation effect of all exchange rate fluctuations reduced our equity by €33.1 million and by a further €2.3 million during 2004. In the 2005 fiscal
year our equity increased by €20.5 million due to a stronger U.S. dollar. The
ultimate impact of currency exchange rate fluctuations on our net income will
depend on the circumstances at any given time.


Fluctuations
over the course of the year

Our sales revenue
    for a number of our products, in particular graphite electrodes, fluctuates
    from quarter to quarter due to such factors as customer inventory levels,
    scheduled customer plant shutdowns, changes in customer production schedules
    in response to seasonal changes in energy costs, weather conditions, and strikes
    and work stoppages. In addition, customers may change their order patterns
    in response to price changes. During the period prior to the effective date
    of a price increase, customers tend to buy additional quantities of graphite
    electrodes at the then lower price, which adds to our sales revenue during
    that period. During the period following a price increase, customers tend
    to use those additional quantities before placing further orders, which reduces
    our sales revenue during that period. Similarly, customers tend to use up
    their inventories and delay purchases when


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  they expect price reductions. Sales from project related businesses, such as
  for process technology and furnace linings, are normally lowest in the first
  quarter and highest in the fourth quarter.


Sales revenue

We generate revenue primarily through the manufacture and sale of carbon and graphite products to customers from several industries, including steelmaking,
aluminum production, chemicals, mechanical and systems engineering, automotive and electronics. Our revenue from trading and other sources is not significant.


Our consolidated sales revenue reflects net sales, that is, sales revenue after elimination of intersegment sales. The following table shows the sales revenue of
the SGL Group and its year-on-year change on a consolidated basis as well as by business area and geographical region from 2003 to 2005. After the divesture of the Surface Protection and Plastic Process Technologies businesses in beginning of 2005
we reclassified the remaining Process Technology business into the Specialties business area and no longer present a Corrosion Protection business area. All prior periods have been adjusted accordingly.


|                             | Year ended December 31, | 
|---------------------------- | ----------------------- | 
|                             |                         | 
|                             |                         | 
|                             | 2005                    | 
|                             |                         | 
|                             | (€ in                   | 
|                             | millions)               | 
|                             |                         | 
|SGL Group consolidated total | 1,068.8                 | 
|By business area:            |                         | 
|Carbon & Graphite            | 643.7                   | 
|Specialties *                | 263.4                   | 
|SGL Technologies             | 159.0                   | 
|Other                        | 2.7                     | 
|By geographical region:      |                         | 
|Germany                      | 142.7                   | 
|Rest of Europe               | 380.4                   | 
|North America                | 283.8                   | 
|Rest of World                | 261.9                   | 

| 
|-
|*
| 

Sales revenue is recognized at the time of transfer of risk, following delivery of a product or rendering of the services, net of any discounts and rebates
granted. We grant discount to our customers for early payment of amounts outstanding. We also provide volume discounts to our customers based on their total purchases during a specified term. Such discounts are recorded as a reduction of revenue
based on our estimate of the number of customers that will ultimately earn these discounts. We record most of our revenue under purchase contracts with major industrial customers, with the timing of revenue recognition dependant on the specific
terms of these contracts. If product sales are subject to customer acceptance, we do not recognize revenue until the customer accepts the product.


Our sales revenue from graphite electrodes is subject to fluctuations resulting from changing customer behavior, changes in inventory and production plans, plant
closings, fluctuating energy costs, strikes, business interruptions and economic fluctuations in the steel industry. As a result of the long production cycles for graphite electrodes and changes in purchasing patterns and inventory policy in our
customer industries, it may take a long time for changes in demand to have an effect on our business.


Over the last decade,
    we have significantly broadened the geographical range of our sales. Although
    a decline in North American steel production has reduced revenue in that market,
    the first consolidation of our Polish subsidiary SGL CARBON Polska S.A (formerly
    Zaklady Elektrod


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  Weglowych S.A.
    (ZEW)) in 2001 increased European sales revenue. In 2001 we also increased
    our revenue in Asia, a trend that we expect will continue over the next years
    with the ongoing industrialization of eastern and southeastern Asia. We believe
    that our broad product portfolio across many industries and the global distribution
    of our business reduces our exposure to economic cyclicality in any single
    region or customer industry. In particular, the Specialties business areas
    large number of target industries is more strongly diversified, thereby reducing
    to some degree the exposure to economic slow-down in any one key industry.


Cost of sales

Major components of cost of sales include personnel expenses and the cost of raw materials and energy. Personnel expenses, including wages, salaries, social
security and pension expenses, are the most significant items in our cost of sales. Raw materials costs in the Carbon and Graphite business area consist primarily of purchases of petroleum-based needle coke and coal tar binder and impregnation
pitch. Historically, we have not had difficulty obtaining these raw materials. Using procurement agreements with key suppliers, SGL secures the necessary raw materials for production, especially for needle coke. These agreements normally last for
one year and contain minimum quantities to be purchased by SGL. The prices for the deliveries are settled on a base price, which is adjusted by variable components. We incur substantial energy costs, primarily for electricity, in connection with the
production of our graphite electrode and other graphite and carbon products. Energy costs over the last several years have been highly volatile and trending upwards. Specialties production uses similar raw materials as well as additional forming
techniques, treatments and combinations of other raw materials. Our cost of sales includes straight-line depreciation of property, plant and equipment having estimated useful lives ranging from four to 41 years. In the periods discussed below, raw
material and energy prices have generally increased, reducing gross profit margin (calculated as sales revenue less cost of sales, divided by sales revenue).


Selling expenses

Selling expenses consist primarily of the expenses of our sales organization as well as distribution expenses, such as packaging materials, freight charges and
sales commission expenses. We include in sales organization expenses wages and salaries, social security, pension expense, office space and expenses, in each case related to our sales force.


Research
costs

We incur research costs in connection with the development of new materials and compounds for high technology applications, particularly for development of
products in the SGL Technologies business area, such as carbon ceramics for the automotive and aviation industries and components for fuel cells. This expense decreased in the 2003 fiscal year increased in the 2004 fiscal year and decreased again in
the 2005 fiscal year.


In
      2005, we merged the previously decentralized research and development activities
      into the newly created central function “Technology &
Innovation”. The development focus is on the future growth markets of energy, electronics, automotive, environment and safety. Combining our almost 100 employees in the central R&D
function leads to synergies in the acceleration of developments, promotes the
constant exchange of knowledge and focuses activities. As well as further developing
the technology of our existing products as a service for all Business Areas,
new market potential is analyzed as part of our Company
portfolio and supported from the project stage through to product launch. By
stringently applying a newly defined selection process in the forefront of the
real project phase, project selection considering key commercial and technical
feasibility data is optimized. With the newly created Technology and Innovation
organization, we are securing our market position today and for the future through
targeted work on projects to improve customer benefit, using methods from the
SGL Excellence
Initiative to increase efficiency and effectiveness.


We have invested
    considerable amounts in carbon ceramics technology and commenced production
    of carbon-ceramic brake discs at our plant in Meitingen, Germany. Another
    principal area of research expense has been the development of a fuel cell
    components business, which is currently in the research phase. The further
    development of large-diameter graphite electrodes has contributed significantly
    to research and development costs in the Carbon and Graphite business area.
    Research


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and development
  costs in the Specialties business area have been concentrated on the development
  of highly refined graphite powder for lithium batteries, which are used in notebook
  computers, mobile telephones and other mobile communication devices.

General and
  administrative expenses

Our general and
    administrative expenses comprise personnel and non-personnel costs attributable
    to the SGL Groups parent holding company and other administrative centers.
    These costs include accounting and legal expenses, the cost of professional
    advisors and pension expense related to personnel in general administration.
    We also incurred general and administrative expenses in connection with the
    development of a common management information system and external advisory
    expenses related to acquisitions, divestments and other corporate projects.
    Beginning in 2005 general and administrative expenses include expenses related
    to the implementation of the requirements of the Sarbanes-Oxley Act.


Other operating
  income (expense) (net)

The major components
    of other operating income (expense) include costs relating to antitrust proceedings,
    restructuring expenses, insurance payments received, exchange gains and losses
    from operating activities, gains and losses from sales of property, plant
    and equipment, bank charges and income and/or loss from additions to and releases
    of provisions. In addition, until 2003, other operating income (expense) included
    amortization of goodwill from acquisitions until 2003. Since that time, such
    goodwill is no longer amortized; see “ [General Accounting Principles
    in Note 1 to the financial statements]”.


Starting in 2005
    restructuring expenses for and expenses in connection with antitrust proceedings
    are included in other operating expenses. This also affects the previous years
    presentation. Expenses related to the continuing restructuring programs (initiated
    in prior years) and other measures to improve efficiency and optimize costs
    resulted in a total expense of €20.8 million during 2005 (€19.7 million in
    2004 and €12.1 million in 2003). This also relates to the increase of our
    antitrust provision in 2005 by €1.9 million and by €19.5 million in the 2003
    fiscal year, primarily to increase our reserve for legal expenses and for
    EU fines. Until such date as they may be paid, the amounts of these fines
    bear interest at an annual rate of 3.50% to 6.04% . The interest portion of
    the increase in EU antitrust fines are presented in net financing costs.


Net financing
  costs

Our financial result
    comprises interest expense and interest income as well as other financing
    costs, including the non-cash currency impact of antitrust liabilities and
    other non-cash financing costs. Interest expense includes, among other things,
    interest expense on loans, the interest component of appropriations to pension
    provisions and accrued interest on liabilities from antitrust proceedings.
    When the DOJ imposed a fine on SGL in connection with an antitrust investigation
    in 1999, we discounted the resulting antitrust fine to its present value and
    recorded this amount as a liability on our balance sheet using an interest
    rate of 4%. In each succeeding reporting period, we have recalculated the
    present value of this liability, which has resulted in a regular interest
    expense from the discounting of the liability. In the first half of 2002,
    we agreed to an amended fine payment schedule with the DOJ. This amended payment
    schedule resulted in a one-time reduction in our net financing costs due to
    a reduction in the present value of the outstanding antitrust liability, which
    was paid in full in 2005.


Because the antitrust
    liability was denominated in U.S. dollars, changes in the Euro/U.S. dollar
    exchange rate from period to period may give rise to translation effects on
    our balance sheet. To reduce the resulting exposure to currency exchange rates,
    we hedged the antitrust liability. However, we retained exposure to non-cash
    adjustments in the amount of the remaining antitrust liability. We recorded
    these non-cash adjustments under other financial results at the end of each
    reporting period. As of December 31, 2005, the DOJ antitrust liability was
    paid in full. We also included an accrued interest portion for the EU fines
    starting in 2003. This is reflected in a separate line within the net interest
    result. As a result of the financing of payments related to antitrust proceedings,
    the funding of our brake disc and fuel cell component businesses and the acquisition
    of the KCH group (a major part of the former SGL Acotec Group) and ZEW (now
    SGL CARBON Polska S.A.), our interest


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expense has increased
  significantly in recent years. We expect that our net interest expense has reached
  its highest level in 2005 due to the new financing completed in February 2004.
  We successfully managed throughout 2005 and 2004 to reduce our financial debt
  and expect to lower financial debt also in 2006 and following years, which will
  lower the interest burden. Increasing interest rates may increase our interest
  expense since part of our financial debt is subject to variable interest rates.

Income tax benefit
  (expense)

Tax expenses include
    current and deferred income tax expenses. Our income tax expense reflects
    income tax liabilities in respect of pre-tax earnings from our consolidated
    group companies, which cannot offset these earnings against existing tax loss
    carryforwards or other tax credits in other consolidated group companies.
    Deferred tax benefits and expense result from the capitalization of deferred
    taxes or the revaluation of capitalized deferred tax assets that arose from
    tax loss carry-forwards as well as from temporary differences between the
    carrying amounts of assets and liabilities in financial statements prepared
    under IFRS as compared to the amounts prepared under local tax accounting
    rules (calculated by the balance sheet liability method). In 2005 and 2004
    deferred tax assets from tax loss carry-forwards were uniformly recognized
    in the consolidated financial statements on the basis of a rolling projection
    of the estimated earnings to be taxed at the level of individual subsidiaries
    or on the level of tax groups. Uncertainties about certain planning assumptions
    and other underlying conditions are taken into account. Based on the restructuring
    measures taken, the disposal of the loss generating Surface Protection business,
    the significant reduction of the net debt and the improved economic market
    environment for our business segments, we assume that the capitalized deferred
    tax assets on loss carry-forwards can be utilized in the future.


German corporations
    are subject to a uniform 25% corporate income tax on both distributed and
    retained earnings. Furthermore, a solidarity surcharge of 5.5% is added to
    the corporation tax rate, resulting in an overall corporation income tax rate
    of 26.4% for 2005 and 2004. German corporations are also subject to the trade
    tax. The amount of the trade tax depends on the municipality in which a company
    maintains its operations. The trade tax generally amounts to between approximately
    15% and 20% of taxable earnings, depending on the municipalitys tax
    assessment rate. Trade tax is deductible as an operating expense in the calculation
    of the companys income that is subject to corporation tax. With an average
    trade tax burden of 12%, the overall German income tax rate amounts to 38.4%
    . Due to changes in German legislation in 2004, generally only 60% of tax
    loss carry-forwards may be offset from current annual income. Losses up to
    an amount of €1 million can be completely deducted from corporation income
    tax as well as from trade tax.


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Operating
  Results

The following table
    shows our consolidated statements of operations for the 2005, 2004 and 2003
    fiscal years.


|                                                  | Year ended December 31, |  
|------------------------------------------------- | ----------------------- | -
|                                                  |                         |  
|                                                  |                         |  
|                                                  | 2005                    |  
|                                                  |                         |  
|                                                  | (€
      in             |  
|                                                  | millions)               |  
|Sales
      revenue                               | 1,068.8                 |  
|Cost
      of sales                               | (746.7                  | )
|Gross
      profit                                | 322.1                   |  
|Selling
      expenses                            | (126.8                  | )
|Research
      costs                              | (18.0                   | )
|General and administrative
      expenses         | (48.1                   | )
|Other
      operating income (net)                | (16.4                   | )
|Profit
      from operations                      | 112.8                   |  
|Net
      financing costs                         | (65.6                   | )
|Profit
      / loss before tax                    | 47.2                    |  
|Income
      tax benefit (expense)                | (19.1                   | )
|Net profit (loss)
      before minority interests | 28.1                    |  
|Minority
      interests                          | 0.1                     |  
|Discontinued
      operations                     | 0.0                     |  
|Net
      profit (loss)                           | 28.2                    |  

The following table
    shows selected consolidated statement of operations data expressed as a percentage
    of total sales revenue for the years 2005, 2004 and 2003:


|                                                                                                        | Year ended December 31, |  
|------------------------------------------------------------------------------------------------------- | ----------------------- | -
|                                                                                                        |                         |  
|                                                                                                        |                         |  
|                                                                                                        |                         |  
|                                                                                                        | 2005
      (%)          |  
|                                                                                                        |                         |  
|Sales
      revenue                                                                                     | 100.0                   |  
|Cost
      of sales                                                                                     | (69.9                   | )
|                                                                                                        |                         |  
|Gross
      profit                                                                                      | 30.1                    |  
|Selling,
      research and development, general administration and other
      operating expenses, net | (19.5                   | )
|                                                                                                        |                         |  
|Profit
      from operations                                                                            | 10.6                    |  
|Net
      financing costs                                                                               | (6.2                    | )
|Income
      taxes                                                                                      | (1.8                    | )
|                                                                                                        |                         |  
|Net
      Profit (loss) (includes minority interests)                                                   | 2.6                     |  
|                                                                                                        |                         |  
|Discontinued
      operations                                                                           | 0.0                     |  
|                                                                                                        |                         |  
|Net
      Profit (loss) attributable to shareholders                                                    | 2.6                     |  
|                                                                                                        |                         |  

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2005 Compared
  to 2004

Overview



| | The
      fiscal year 2005 was characterized by the following major topics:
| | ---------------------------------------------------------------------------
| |                                                                            
| | •                                                                          
|
| | •                                                                          
|
| | •                                                                          
|
| | •                                                                          
|
| | •                                                                          
|
| | •                                                                          
|
| | •                                                                          

The further growth
    in the world economy in 2005 resulted in a favorable development in most of
    our customer industries. Our Carbon and Graphite business area benefited in
    particular from the continuing positive development in the steel industry,
    which enjoyed another very good year in 2005. In the Specialties business
    area, there was a significant increase in demand for high-temperature applications
    in the energy and semiconductor industries. For the Process Technology business
    there was an above average rise in project invoicing. The significant sales
    revenue increases in the Technologies (T) business area were mainly attributable
    to our increased sales of carbon-ceramic brake discs, carbon fibers and composite
    materials for the automotive and aerospace industries and for industrial applications.


Profit from operations
    increased considerably by 91% from €59.0 million in 2004 to €112.8
    million in 2005. All three business areas of the SGL Group contributed to
    this improvement. Beside favorable developments of prices and volume, mainly
    the savings generated by the Group-wide improvement initiative, SGL Excellence,
    and the newly established improvement program within administrative functions,
    SGL Ten, were contributing to the growth in earnings.


Sales revenue

Consolidated sales
    revenue increased by 13.2% from €944.0 million in 2004 to €1,068.8 million
    in 2005. Currency exchange rate fluctuations had no impact on the consolidated
    sales revenues in 2005 compared to 2004.


Based on the positive
    development in all three Business Areas, the respective shares in sales revenues
    remained virtually unchanged. Sales revenue of Carbon and Graphite totaling
    €643.7 million increased by 14.4% compared to the previous years level
    of €562.5 million. Specialties (including business of process technology)
    increased its sales revenue from €246.3 million to €263.4 million. Technologies
    generated an increase in sales from €133.5 million to €159.0 million.


The regional sales
    revenue structure during fiscal year 2005 remained largely unchanged from
    2004: Germany 13%, other European countries 36%, North America 27%, rest of
    the world 24%.


The Carbon and
    Graphite (CG) business area sales revenue totaled €643.7 million
    in 2005, an increase of 14.4% compared to the previous years level of
    €562.5 million. During 2005, volume and price effects impacted the reported
    sales revenues with 7% and 8%, respectively. Shipments of the core product
    graphite electrodes increased to a record level of 222,000 metric tons (2004:
    209,000 metric tons). Year on year, the increase can be attributed mainly
    to the economic upswing in Europe as well as to market and customer-specific
    developments. In the other regions the good sales level of the previous year
    was maintained. Significant price increases could be achieved in both the
    euro and the USD zones. Based on local currency, average prices for graphite
    electrodes increased by approximately 13% in the USD zone and approximately
    5% in the euro zone in 2005. The sustained positive trend in the steel economy
    continued to have a positive impact on our order backlog at year-end. Sales
    of cathodes at around 27,000 tons were slightly lower than in the previous
    year. By contrast, there was a slight increase in the proportion of graphitized
    cathodes an indication of recovery in the aluminum industry. This was also
    apparent in a clear upturn in demand for our


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products, which began
  in the second half of 2005. The significant price increases set for 2006 reflect
  both the rise in raw materials and energy costs and the improved market situation.
  As in the previous year, our production capacities for furnace linings for the
  crude steel industry were fully utilized in 2005. We were able to record another
  slight increase in sales revenues. The market for carbon electrodes for the
  production of silicon and phosphorous, which accounted for approximately 4%
  of CG sales revenue in 2005, was characterized by widespread stagnation of global
  demand. Moreover, this market is shaped by excess capacities among suppliers
  and strong cost competition from low-wage countries, which negatively impacts
  the price development.

Sales revenue in
    the Specialties (S) business area was up by 6.9% from €246.3 million
    in 2004 to €263.4 million in 2005. Due to increased demand, sales revenue
    grew in all activities during 2005. While there was a significant rise in
    demand for high temperature applications and in the energy sector, the automotive
    business slowed down slightly. The semiconductor business also developed favorably.
    Project invoicing in the Process Technology business increased above average.
    Asia and North America, in particular, provided positive growth impetus. There
    was a marked increase in business volume in Europe as result of the strong
    export activity. Outside Europe, we were able to gain market shares in regions
    with rising demand. In Europe, we were able to maintain our market share despite
    the difficult market environment.


In the Technologies
    (T) business area sales revenue increased by 19.1% from €133.5 million in
    2004 to €159.0 million in 2005. The growth was mainly attributable to increased
    sales of carbon-ceramic brake discs, carbon fibers for niche markets (such
    as medical equipment) and yarns for the automotive industry.


Cost of sales and
  gross profit

Consolidated cost
    of sales increased by 9.6% from €681.3 million in 2004 to €746.7
    million in 2005. Compared to the consolidated sales revenue growth of 13.2%,
    the increase in cost of sales could be limited despite higher raw material
    and energy costs in 2005 as a result of disproportionately lower increases
    in personnel expenses. We mainly use petroleum coke and energy in our manufacturing
    processes. Total cost of raw materials and consumables used increased from
    €192.8 million in 2004 to €242.0 million in 2005. In addition
    to higher product volumes, this is partly related to the result of exchange
    rate changes, as we pay for petroleum coke exclusively in U.S. dollars and
    the U.S. dollar strengthened slightly relative to the euro in 2005. Total
    cost of materials, which also includes the cost of purchased services, increased
    from €271.9 million in 2004 to €331.6 million in 2005, mainly
    due to costs for additional services in connection with the maintenance of
    our buildings, machinery and equipment. Overall staff costs also increased
    from €289.5 million in 2004 to €309.5 million in 2005. While direct
    wages and salaries (including bonuses) increased by €26.1 million year-on-year,
    mainly due to the higher level of bonus provisions in 2005 compared to 2004,
    costs for social security contributions, retirement and other benefits decreased
    by €6.1 million.


The gross profit
    increased by €59.4 million or 22.6% from €262.7 million in 2004 to €322.1
    million in 2005. The gross return on sales revenue, representing gross profit
    as a percentage of sales revenue, increased from 27.8% to 30.1% . Contributing
    substantially to this were the favorable price and volume developments in
    all business areas. We managed to more than recuperate the significant increases
    in energy (electricity, gas) and raw material prices by adhering to our cost
    reduction programs and by implementing price adjustments.


Selling expenses,
  research costs, general and administrative expenses, other operating expense
  (net)

In
  spite of increased sales revenues, we succeeded in limiting the increase in
  selling expenses including freight costs, to around €7.7 million; selling
  expenses amounted to €126.8 million in 2005 (previous year: €119.1
  million). At €18.0 million, research and development costs (R&D costs)
  were slightly lower than in 2004. Part of the development costs were capitalized
  in 2005 in accordance with IAS 38. Due to the early product life-cycle of our
  T businesses, significant cost components related to our research and development
  activities are also included into the current operating costs of the T business
  area. As a result of the higher build-up in bonus provisions than in the prior
  year and due to increased costs for Sarbanes Oxley Act compliance, general administrative
  costs totaled €48.1 million, around €4.5 million more than in 2004.
  Net other operating expenses improved to €16.4 million in 2005 from €21.8
  million in 2004. This also includes the income related proceeds from


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the cooperation agreement
  with Audi. The expenses mainly related to the continuation of our various optimization
  programs.

Profit (loss) from
  operations

Profit from operations
    increased by 91.2% to €112.8 million in comparison with €59.0 million in 2004.
    Contributions came from all business areas. The return on sales for the Group
    (based on profit from operations) rose from 6.3% in 2004 to 10.6% in 2005.
    A significant contribution was made by the results of our SGL Excellence Initiative,
    which led to savings of €21 million on the basis of the SIX SIGMA method as
    well as other programs continued during the reporting year. The continuation
    of our cost and production site optimization programs resulted in expenses
    which were included in the segment results.


Profit from operations
    in the Carbon and Graphite business area improved more than proportionately
    by 40.7% from €86.4 million in 2004 to €121.6 million in 2005. The return
    on sales rose from 15.4% in 2004 to 18.9% in 2005. Major contributing factors
    to this positive development were price and volume effects as well as cost
    reductions from our SGL Excellence efficiency enhancing programs. Adjusting
    costs to eliminate the impact of the 10% increase in raw materials and energy
    costs the unit costs of graphite electrodes decreased by 7% in comparison
    with 2004. We expect that the relocation of carbon electrode production from
    Ascoli, Italy to Nowy Sacz, Poland, which began in 2005, will be completed
    by the end of 2006. At the end of 2005, an agreement on redundancy payments
    was reached with 112 employees in Ascoli. The appropriate fixed asset write
    downs are fully reflected in the 2005 earnings. Moreover, additional flexible
    early retirement agreements were concluded at the Griesheim site in Germany
    to improve our competitiveness and allow us to compensate for business-cycle-related
    decreases in demand.


In the Specialties
    business area (including the process technologies business) the profit from
    operations increased by 42.4% from €13.9 million in 2004 to €19.8 million
    in 2005. In addition to volume and price effects, site-specific product streamlining
    and the expansion of production in Poland contributed to the improved margin.
    The return on sales increased from 5.6% in 2004 to 7.5% in 2005. In comparison
    with 2004, further savings of €5 million were made, which roughly compensated
    for material cost increases. The ongoing efforts to lower the personnel cost
    portion of the total production costs also led to expenses during the reporting
    year which are included in the earnings. The measures concentrated primarily
    on the facilities in Bonn, Germany and Chedde, France.


Profit from operations
    in the Technologies business area was €0.2 million (2004: (€10.6)
    million) and contributed significantly to the general improvement in earnings
    year on year. In addition to the volume growth in almost all Business Lines,
    price increases were also implemented, which partially offset factor cost
    increases. Significant milestones were reached in 2005. One was a cooperation
    agreement with Audi for further development of our carbon-ceramic brake disc.
    The objective of this cooperation is the use of our brake discs in new models
    produced by the Volkswagen/Audi Group and the further development of product
    characteristics and technical production processes with the goal of industrial
    serial production. In connection with the cooperation agreement, Audi made
    a significant cash contribution. The payment covers past and future developments
    performed by SGL Carbon and contributed to the business areas positive
    earnings. Due to this, T reported a positive profit from operations for 2005
    under IFRS. In the carbon-fiber business, we entered into a strategic alliance
    with Mitsubishi Rayon Co. Ltd., Japan at the beginning of 2005, concerning
    the supply of raw materials to our plant in Scotland in exchange for fiber
    production capacities. This cooperation is expected to bear fruit beginning
    in the second quarter 2006 and strengthen the value chain within the T business
    area. T will therefore be able to enter new markets with high-quality fibers
    and improve the supply for captive use of composites. Corporate costs
    decreased by around €1.9 million to €28.8 million in 2005 (2004:
    €30.7 million). In addition to the costs of the management holding and
    the assigned central service areas, costs related to the compliance with the
    US Sarbanes Oxley Act in 2005 were reported centrally. Section 404 of the
    Sarbanes Oxley Act and the implementing rules and regulations, which will
    apply to us for the first time when we report on our 2006 fiscal year, require
    our auditors to certify the functionality of our internal control systems.
    In this context, all processes which affect financial reporting must be systematically
    analyzed and documented to provide evidence of a functioning internal control
    system. During the review sessions, control processes are modified or changed,
    where appropriate. If


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necessary, the business
    procedures on which they are based have to be completely realigned. In order
    to cope with this task, we have established a project team, which is supported
    by external consultants. Around 15,000 man-hours were spent internally on
    this project in 2005. Corporate costs in 2005 were also affected by higher
    share-based remuneration programs and higher provisions for performance-related
    bonus payments.


Net financing
  costs

The net financing
    costs amounted to €65.6 million during the 2005 fiscal year (2004: €61.9
    million). Interest on borrowings increased by €3.4 million to €38.5
    million in comparison with the previous year. Reasons for higher interest
    expenses were the interest expenses for our 8.5% interest-bearing corporate
    bond issue, which were not included until mid-February in 2004 as well as
    interest rate derivates, which had been settled in cash. These factors were
    partially offset by a decrease in our other financial debt over the year (in
    particular the repayment of our U.S. senior facility and our convertible bonds
    reducing our interest payments accordingly). Since we paid the North American
    antitrust liabilities in full ahead of time in 2005, the net financing costs
    included imputed interest expense for the last time in 2005. The foreign currency
    valuation and foreign currency hedging costs for the North American antitrust
    liabilities also led to expenditures in the net financing costs for the last
    time. As part of the amortization of our capitalized financing costs, the
    refinancing of our U.S. senior facility in 2005 had a non-cash impact of approximately
    €1.2 million. The increase in other financial expenses from €0.8
    million in 2004 to €5.4 million in 2005 mainly results from the mark-to-market
    valuations of our interest and currency derivatives as of December 31, 2005.


Income taxes

The income tax expense
    for fiscal year 2005 of €19.1 million reflects an overall tax rate of
    40%, which is a normal average tax rate level for the Group. A significant
    portion of our overall tax expense is attributable to tax expenses of foreign
    subsidiaries.


Net income from
  continuing operations

Net income from
    continuing operations increased by €32.6 million to €28.1 million in 2005
    (2004: loss of €4.5 million).


Net income/loss
  from discontinued operations

In the consolidated
    statements of operations, we reclassified the surface protection business
    as a discontinued operation for 2004 and for the previous years. For the fiscal
    year 2004, surface protection posted a net loss of €86.4 million. During 2005
    no more losses occurred in connection with the divestment of the surface protection
    business.


Net income/loss

Overall, our consolidated
    net income for the year 2005 reached €28.1 million after a net loss
    of €86.3 million in 2004. Earnings per share therefore reached €0.50
    (2004: loss of €1.66).


2004 Compared
  to 2003

Overview

The fiscal year
    2004 report is characterized by the following major topics: The successful
    completion of our refinancing in February 2004, the divestiture of our surface
    protection business in January 2005, favorable development in most of our
    customer industries and the ongoing efforts to restructure and streamline
    our cost base. Profit from continuing operations considerably improved by
    165% from €22.3 million in 2003 to €59.0 million in 2004. In February 2004,
      we successfully concluded arrangements for therefinancing package
      for the Group in the total amount of €866 million. The three pillars
      of this refinancing package  a capital increase resulting in gross
      proceeds of €266 million, senior subordinated notes amounting to €270
      million and syndicated loans including credit lines and guarantees totaling
      €330 million  fundamentally improved our balance sheet structure
      and secured the Companys long term liquidity. As a result, the equity
      ratio rose from 8.3% at the end of 2003 to 20.3% as of December 31, 2004.
      Our net financial liabilities were considerably reduced from €451.8
      million at 2003 year-end to €321.6


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million as of December
  31, 2004. Further on our debt maturity profile has been substantially extended
  into medium  and long-term financial liabilities.



On January 6, 2005,
    we completed the sale of our interest in SGL Acotec GmbH, which had conducted
    our Surface Protection and Plastic Process Technology Business, to the Munich/Germany-based
    ADCURAM Industriekapital AG. This financial investor, specialized in the acquisition
    of medium-sized companies, took over approximately 1,400 employees as well
    as assets and liabilities including pension obligations totaling approximately
    €30 million. No assurances were made to ADCURAM within the framework
    of the sale that could become a material burden to the SGL CARBON Group in
    the future. Since the surface protection business generated a net loss of
    €21.0 million in 2004 (2003: €23.4 million), this portfolio restructuring
    will have a favorable impact on the future development of income and cash
    flow for the continuing operations. Besides the period loss, the divestiture
    resulted in a €60.8 million non-cash write down of the carrying amount
    in the consolidated financial statements presented here. The surface protection
    business is shown as a discontinued operation within the fiscal years under
    review. Previous years have been reclassified accordingly. The remaining profitable
    process technology business of our former Corrosion Protection business area
    will be integrated within the Specialties business area. In view of this,
    the figures reported for the Specialties business area have been adjusted
    accordingly.


The improvement
    of the world economic situation resulted in a favorable development in most
    of our customer industries. Our Carbon and Graphite business area benefited
    in particular from the upswing in the steel industry, which enjoyed an exceptionally
    good year in 2004. The Specialties and SGL Technologies business areas participated
    in the growth of the engineering, electrical engineering, and aviation industries.
    Investment activity in the chemical industry continued to be restrained in
    the first half of 2004, but gained momentum at year-end. The market environment
    in the semiconductor sector improved considerably, although the favorable
    trend weakened towards the end of 2004.


In 2004, our ongoing
    efforts to restructure and streamline our cost base resulted in total restructuring
    expenses for our continiuing operations of €19.7 million (2003: €9.4
    million) and generated gross savings of €36 million. The half of the
    incurred restructuring expenses are related to our established and planned
    saving programs. Our restructuring and cost saving activities focused on additional
    steps to increase efficiency and productivity at our locations in Italy, Poland
    and the U.K.. The number of our employees in continuing operations decreased
    by 299 at the year-end 2004. These measures also included the expenses for
    the newly established cost reduction program in our administrative functions,
    which is expected to generate overall annual savings of approximately €11
    million starting fiscal year 2006. Non-recurring expenditures are scheduled
    to amount to approximately €5 to €6 million during fiscal year
    2005. The remaining second half of our 2004 restructuring expenses primarily
    relate to non-cash write-downs with regard to the planned or completed sale
    of the already closed-down locations in Hillsboro, Oregon and Niagara Falls,
    New York, in the U.S.. These restructuring expenses also included the expenses
    recorded at fiscal year-end, for the resignation by mutual agreement of Dr.
    Klaus Warning from his Board of Management mandate. Profit from operations
      increased considerably by 165% from €22.3 million in 2003 to €59.0
      million in 2004. All three business areas of the continuing operations contributed
      to this improvement. Beside favorable developments of prices and volume,
      mainly the savings generated by the Group-wide improvement initiative SGL
      Excellence and the newly established improvement program within administrative
      functions named SGL Ten were contributing to the growth in earnings. The
      Carbon and Graphite as well as the Graphite Specialties business areas generated
      remarkable profit increases. Due to additional preparatory work for new
      projects, contrary to our original projection, the loss of SGL Technologies
      was reduced only by approximately 25%.


Continuing
    operations

Sales
    revenue

Consolidated sales
      revenue increased by 1.3% from €931.5 million to €944.0 million
      in 2004. Currency exchange rate fluctuations had a negative impact of approximately
      5%. Adjusting for these currency effects sales revenue increased by 6% in
      2004 compared to 2003. Major driver for this development was the turnaround
      of the steel and semiconductor industries, where we were able to increase
      both volume and prices.


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The sales revenue
    structure of our Business Areas correspondingly changed. Sales revenue of
    CG totaling €562.5 million was at around the previous years level of €564.4
    million. S (including business of process technology) raised its sales revenue
    from €239.1 million to €246.3 million. SGL T generated an increase in sales
    from €125.2 million to €133.5 million.


The regional sales
    revenue structure during fiscal year 2004 remained largly unchanged from 2003:
    Germany 15%, other European countries 34%, North America 26%, rest of the
    world 25%.


The Carbon and
    Graphite business area sales revenue totaled €562.5 million, nearly
    unchanged from previous year sales revenue of €564.4 million. For the
    core product graphite electrodes negative exchange rate effects were more
    than compensated for by volume and price increases. Sales volume of graphite
    electrodes further rose by 3% over the previous year to 209,000 tons (2003:
    202,000 tons). Besides the economic upswing in the steel industry, especially
    in East Asia and North America, also the structural changes in the graphite
    industry as a result from the insolvency of two smaller competitors in 2003
    contributed to this volume development. During 2004 our production capacities
    were almost fully utilized throughout the year. The average prices in euros
    for graphite electrodes remained at the previous years level due to the impact
    of the strong euro exchange rate. In local currencies, in 2004 the respective
    average prices rose by 14% in U.S. dollar regions and by 1% in the euro region.
    The ongoing lack of new projects in the aluminum industry, the decline in
    demand in the silicon metal industry and US dollar translation effects negatively
    impacted sales revenue from cathodes and carbon electrodes. In contrast, sales
    revenue from furnace linings increased.


The Specialties
    business area (including process technology business) sales revenue increased
    by 3.0% from €239.1 million in 2003 to €246.3 million in 2004. The traditional
    S businesses gained from the economic upswing in the key markets semiconductors,
    engineering, and plant engineering. Heavy demand for high performance batteries
    and products for the solar power industry contributed to the increase in sales
    in 2004.


The SGL Technologies
    sales revenue increased by 7%  despite considerable negative exchange
    rate flucturations  from €125.2 million in 2003 to €133.5 million in
    2004. Major drivers for this development resulted from the increasing demand
    for fibers and carbon-ceramic brake discs. After adjusting for currency changes,
    13% growth in sales revenues would have been realized. Approximately 60% of
    the business area revenues are invoiced in U.S. dollars, which in 2004 again
    declined significantly in value against the euro.


Cost of sales
  and gross profit

Consolidated costs
    of sales decreased by 2% from €693.6 million in 2003 to €681.3
    million in 2004. Despite higher sales our raw material costs, mainly petroleum
    coke and energy remained almost unchanged in 2004 compared to in 2003. This
    is primarily the result of exchange rate changes, as we pay for petroleum
    coke exclusively in U.S. dollars. Total cost of materials, which also includes
    the cost of purchased services, increased due to additional services rendered
    in connection with the maintenance of our buildings, machinery and equipment.
    Overall staff costs also slightly increased mainly due to higher accrued bonus
    provisions in 2004 compared to 2003. Gross profit increased
      by €24.8 million or 10.4% from €237.9 million in 2003 to €262.7
      million in 2004. Our gross profit margin on sales, which we define as sales
      revenue less cost of sales divided by sales revenue increased from 25.5%
      to 27.8% . Besides positive price and volume developments in all three business
      areas, also the ongoing optimization and restructuring efforts contributed
      to this improvement.


Selling expenses,
    research costs, general and administrative expenses, other operating expense
    (net)

Our selling expenses
      decreased by more than 6% from €125.8 million in 2003 to €119.1
      million in 2004. This decrease is mainly due to reductions in the sales
      staff expenses, lower commission expenses and the continuous improvements
      in our supply chain management. In addition we recorded valuation allowances
      for receivables from Canada, Switzerland and other countries in an amount
      of €4.6 million as selling expenses in 2003. Research and development
      costs remained stable at €19.2 million in 2004 compared to €19.0
      million in 2003. General and administrative expenses increased from €38.2
      million in 2003 to €43.6 million in 2004. This increase was mainly
      the result of higher provisions for variable remuneration components as
      well as the first-time amortization of the capitalized cost incurred for
      the implementation of our newly established Group-wide IT platform.


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Net other operating
  expense was €21.8 million in 2004 compared to €32.6 million in 2003.
  The difference is mainly made up by reduced expenses for antitrust of €19.5
  million, the missing income from the sale of our former electrical contact business,
  sale of other non-current assets of €4.0 million and the amortization
  of negative goodwill of €2.6 million in 2003. Offsetting the missing 2003
  effects were increased restructuring expenses of €7.6 million, the amortization
  of positive goodwill, in the amount of €5.4 million, not being recorded
  in 2004 as we adopted IFRS 3 as of January 1, 2004. Other operating expenses
  include antitrust proceedings and restructuring costs which were reported as
  a separate item in the prior years.



In 2004 no further
    expenses relating to antitrust proceedings had to be recorded. The expenses
    in 2003 of €19.5 million were primarily attributable to an increase in provisions
    resulting from the €23.6 million fine imposed by the European antitrust authority
    in fiscal year 2003.


Total restructuring
    expenses increased from €12.1 million in 2003 to €19.7 million in 2004 and
    generated gross savings of €36 million. Half of our incurred restructuring
    expenses are related to our established and planned savings programs. Activity
    focused on additional steps to increase efficiency and productivity at our
    locations in Italy, Poland and the U.K. The number of our employees in continuing
    operations decreased by 338 by year-end 2004. These cost-cutting measures
    also included the expenses for the newly established cost reduction program
    in our administrative functions, which is expected to generate overall annual
    savings of approximately €11 million starting fiscal year 2006. Non-recurring
    expenditures are scheduled to amount to approximately €5 to €6 million during
    fiscal year 2005. The remaining second half of our 2004 restructuring expenses
    primarily relates to non-cash write-downs with regard to the planned or completed
    sale of the already closed-down locations in Hillsboro, Oregon and Niagara
    Falls, New York, in the U.S. These restructuring expenses also included the
    expenses, which were recorded at fiscal year-end, for the resignation by mutual
    agreement of Dr. Klaus Warning from his Board of Management mandate.


We incurred the
    following restructuring expenses by business area : CG business area with
    €8.4 million (2003: €6.4 million) attributable to expenses for headcount reduction
    and asset write downs in Poland, Italy, Germany and Spain; GS business area
    with €1.6 million (2003: €3.7 million) largely the result of the partial closure
    of a plant in the U.K.; SGL Technologies business area with €1.4 million (2003:
    €1.8 million) in relation to write-down of assets in the U.S.; and other expenses
    recorded within corporate costs totaling €8.3 million (2003: €0.2 million)
    mainly in connection with the planned or completed sale of two U.S. locations
    (€4.9 million) and expenses in connection with the resignation of a member
    of the Board of Management (€1.7 million).


Profit (loss) from
  operations

Profit from operations
    increased by 165% from €22.3 million in 2003 to €59.0 million
    in 2004. All three business areas of the continuing operations contributed
    to this improvement. In addition to favorable developments of prices and volume,
    mainly the savings generated by the Group-wide improvement initiative SGL
    Excellence and the newly established improvement program for administrative
    functions named SGL Ten were the main factors contributing to the growth in
    earnings. Total gross savings of approximately €36 million were realized
    during 2004. After deducting the restructuring expenses of €19.7 million
    net savings totaled €16 million. Profit from operations
      in the Carbon and Graphite business area increased by 40% from €61.5
      million in 2003 to €86.4 million in 2004. This increase was attributable
      largely not only to price and volume effects, but also to cost reductions
      within the SGL Excellence efficiency enhancing program. Restructuring expenses
      for headcount reductions and depreciation of fixed assets in Italy and Poland
      of €8.4 million contrasted with savings of approximately €25
      million during fiscal year 2004. On balance, the net cost reductions thereby
      amounted to approximately €17 million. The cost per metric ton of
      graphite electrodes produced was cut by approximately 9% in 2004. In the
      Specialties business area (including the process technologies business)
      the profit from operations increased from €12.2 million in 2003 to
      €13.9 million in 2004 due to marked volume growth, significant cost
      reductions, and structural changes. Special effects on the 2003 profit are
      attributable to the invoicing of one large process technology project that
      had generated an additional €6 million profit contribution in 2003
      and the sale of the electrical contact business that had generated additional
      income of around €2.8 million in fiscal year 2003. Beside the cost
      reduction measures initiated under the SGL Excellence program, further restructuring
      initiatives generated overall savings


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of approximately
  €8 million in 2004. These savings were partially offset by expenses of
  €1.6 million resulting from the shutdown of machining capacities in the
  U.K. and the transfer of these activities to locations in Poland and Germany.
  In the SGL Technologies business area, the loss from operations decreased
  by 24.3% from €14.0 million in 2003 to €10.6 million in 2004. In
  2004 most areas of SGL T  with the exception of the brake discs segment
   realized improved earnings in line with original projections. The primary
  reason for the business areas continued losses was the expenses incurred
  in connection with customary preparatory work for new projects in the civilian
  and military aerospace industries, which will not generate income before 2005
  or 2006. One example of such projects is a large order for the Airbus 380. We
  also incurred additional start-up costs for our carbon-ceramic brake discs,
  primarily in connection with the expected accelerated transformation of the
  pilot plant for carbon-ceramic brake discs at our Meitingen location to large-scale
  production. These costs include expenses for process and quality development
  and for production plant planning and design, with a total amount of €3
  million in development costs being capitalized. As part of the SGL Excellence
  program, we reduced costs by approximately €3 million in 2004. Expenses
  for restructuring measures resulted from non-cash corrections in carrying amounts
  in the United States totaling €1.4 million.



Net financing costs

The net financing
    costs of our continuing operations decreased from €73.7 million in 2003
    to €61.9 million in 2004. The improvement in the net financing costs
    is primarily attributable to the costs of the former refinancing package totaling
    €16.1 million, which had been recorded entirely to expenses in fiscal
    year 2003. A total of €3.8 million was expensed during the fiscal year
    for the successfully completed new refinancing in 2004. IFRS provisions require
    that we expense the 2004 cash costs of our corporate bond issue as well as
    costs of the new syndicated credit and guarantee lines, in line with the individual
    terms of the instruments. Interest on borrowings and other interest expenses
    increased by €8.2 million to €35.1 million in 2004 (2003: €26.8
    million). This development was primarily attributable to the rise in the average
    interest rate from 4.7% in 2003 to 6.3% in 2004 in connection with the corporate
    bond component of the refinancing package, which pays 8.5% interest. Foreign
    currency valuation and foreign currency exchange rate hedging of liabilities
    arising from antitrust proceedings entailed non-cash expenses of €2.7
    million in 2004 (previous year: non-cash income of €0.2 million). The
    expenses resulted from updated market forecasts affecting the measurement
    of hedging instruments.


Income taxes

The income tax expense
    for fiscal year 2004 resulted mainly from tax expenses of foreign subsidiaries.
    The partial capitalization of deferred tax assets for loss carry-forwards
    in the United States and in Germany could only partly compensate the current
    income tax expense. During 2004, the group only recognized in part the high,
    tax-deductible losses that resulted in Germany from the refinancing measures
    as well as the sale of the surface protection business. This was largely attributable
    to the amount of our tax loss carry-forwards, which are usable without restriction,
    exceeding the expected income resulting from the tax group in Germany over
    the next four years, and to the recently enacted tax legislation concerning
    minimum taxation rules. A comprehensive tax optimization program has been
    agreed and will be implemented during 2005.


Net income(loss)
  from continuing operations

Net loss from continuing
    operations decreased by €28.3 million to €4.5 million in 2004
    (2003: €32.8 million).


Net loss from discontinued
  operations

In the consolidated
    statements of operations, we reclassified the surface protection business
    as a discontinued operation for 2004 and for the previous years. For the fiscal
    year 2004, surface protection posted a net loss of €81.8 million. This loss
    was comprised by a loss from the sale of this business (mainly to a write-down
    of assets) and the accumulated loss for the year of €21.0 million (2003: €23.4
    million).






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Net loss

Overall, our consolidated
    net loss for the year increased to €86.4 million (2003: €56.5
    million). Loss per share reached €(1.66) (2003: €(2.55)) .


During the past
    three years, the effects of inflation on our operations in Germany and other
    countries have generally been immaterial.


Critical Accounting
  Policies

The Securities and
    Exchange Commission issued disclosure guidance for “critical accounting
    policies.” The SEC defines “critical accounting policies”
    as those that are the most important to the portrayal of our financial position
    and results and that require application of managements most difficult,
    subjective or complex judgments, often as a result of the need to make estimates
    about the effect of matters that are inherently uncertain and may change in
    subsequent periods.


The preparation
    of our financial statements requires our management to make estimates and
    judgments that affect the reported amounts of assets, liabilities, revenues,
    and expenses, and related disclosure of contingent assets and liabilities.
    On an on-going basis, we evaluate our estimates, including those related to
    business combinations, pensions and other post-employment benefits, deferred
    tax assets, impairment of assets, allowance for doubtful accounts, inventory
    valuation and obsolescence, litigation and contingencies, restructuring of
    operations, and tax contingencies. We base our estimates on historical experience
    and on various other assumptions that are believed to be reasonable under
    the circumstances, the results of which form the basis for making judgments
    about the carrying values of assets and liabilities that are not readily apparent
    from other sources. Actual results may differ from these estimates under different
    assumptions or conditions.


We believe the following
    critical accounting policies are the most important to the portrayal of our
    financial condition and results and require managements more significant
    judgments and estimates in the preparation of our consolidated financial statements.


Accounting for
  Business Combinations

During the past
    years, we have completed several significant business combination transactions.In
    the future, we may continue to grow our business through business combinations.
    We accounted for our past combinations using the purchase method. Accounting
    for business combinations, by the purchase method, is complicated and involves
    the use of significant judgment.


Under the purchase
    method of accounting, a business combination is accounted for at a purchase
    price based upon the fair value of the consideration given, whether it is
    in the form of cash, assets, stock or the assumption of liabilities. The assets
    and liabilities acquired are measured at their fair values, and the purchase
    price is allocated to the assets and liabilities based upon these fair values.
    Fair values are recognized, and any remaining excess of cost of acquisition
    over net assets acquired is recognized as goodwill. IFRS requires that goodwill
    be tested for impairment at the cash generating unit level. The fair value
    of the cash generating unit is compared to the book value including goodwill.
    In order to determine the fair value of the cash generating unit, significant
    management judgment is applied in order to estimate the underlying discounted
    future free cash flows. In the case, that the fair value of the cash generating
    unit is less than its book value, the difference is recorded as an impairment.
    In 2005, 2004, and 2003 no goodwill was impaired based on the present value
    of estimated future cash flows. The actual cash flows may differ significantly,
    thereby requiring an impairment in later periods.


Determining the
    fair values of the assets and liabilities acquired involves the use of judgment,
    since the majority of the assets and liabilities acquired do not have fair
    values that are readily determinable. Different techniques may be used to
    determine fair values, including market prices, where available, appraisals,
    comparisons to transactions for similar assets and liabilities and present
    value of estimated future cash flows, among others. Since these estimates
    involve the use of significant judgment, they can change as new information
    becomes available.


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Our pension benefit
    costs and credits are determined in accordance with actuarial valuations,
    which rely on key assumptions, including discount rates and expected returns
    on plan assets. We determine the market-related value of plan assets for the
    SGL pension funds based on the fair value of plan assets in each fund at their
    measurement dates. Due to the underfunded status of certain pension plans
    at their respective measurement dates, an additional minimum liability is
    recorded in other comprehensive income. Our postretirement benefit costs and
    credits are determined in accordance with actuarial valuations, which rely
    on key assumptions, including discount rates, and increase or decrease in
    health care trend rates. The discount rate assumptions reflect the rates available
    on high-quality fixed-income investments of appropriate duration at the measurement
    dates of each plan. The expected return on plan assets assumption is determined
    on a uniform basis, considering long-term historical returns, asset allocation,
    and future estimates of long-term investment returns. Other key assumptions
    for our pension and postretirement benefit costs and credits are based in
    part on current market conditions. Pension and related postretirement benefit
    costs or credits could change due to variations in these underlying key assumptions.
    Under IFRS, we included €13.5, €13.3 million and €14.0 million
    of interest costs associated with our provision for pension and similar obligations
    in interest expense in 2005, 2004 and 2003, respectively.


Deferred income
    taxes are recognized for the tax consequences in future years for the differences
    between the tax basis of assets and liabilities and their financial reporting
    amounts at each period end based on enacted tax laws and statutory tax rates
    applicable to the periods in which the differences are expected to affect
    taxable earnings. Valuation allowances are established when necessary to reduce
    deferred tax assets to the amount more likely than not to be realized.


Deferred tax assets
    from tax loss carry-forwards are uniformly recognized in the IFRS consolidated
    financial statements on the basis of a rolling projection of the estimated
    earnings to be taxed at the level of individual subsidiaries or on the level
    of tax groups. Uncertainties about certain planning assumptions and other
    underlying conditions are taken into account. Based on the restructuring measures
    taken, the disposal of the lossgenerating Surface Protection business, the
    significant reduction of the net debt and the improved economic market environment
    for our business segments, we assume that the capitalized deferred tax assets
    on loss carry-forwards can be utilized in the future. Out of the loss carry-forwards
    in the U.S. and Germany, we have capitalized deferred tax assets according
    to our estimate of their expected future utilization. As in the past, we did
    not recognize deferred tax assets on the losses we incurred in the United
    Kingdom. In total we have capitalized tax loss carryforward as deferred tax
    assets amounting to €87.6 million as of December 31, 2005. The amounts capitalized
    are based on estimates and assumptions about the impact of tax planning strategies
    and future earnings. The actual results may differ significantly, thereby
    requiring a valuation allowance in later periods.


We review the carrying
    values of property, plant and equipment and intangible assets with finite
    useful lives for impairment whenever events or changes in circumstances indicate
    that the carrying amount of an asset may not be recoverable. An impairment
    loss is recognized when the fair value of an asset is less than its carrying
    value. For assets to be disposed of, an impairment loss is recognized when
    the fair value of the asset, less costs to dispose, is less than the carrying
    value of the asset. The fair value of the assets is generally based on discounted
    estimated cash flows using annual pre-tax rates of 8% to 11%. The estimates
    reflect our assumptions about selling prices, production and sales volume
    levels, costs, and market conditions over the estimated remaining operating
    period which can range from three months to over fifteen years. If our assumptions
    related to assets to be held and used are inaccurate, additional write-downs
    may be required in the future. If estimates of fair value less costs to sell
    are revised, the carrying amount of the related assets is adjusted, resulting
    in recognition of additional expense or income (but only up to the original
    cost of the asset less depreciation that should have been recorded had no
    impairment been recognized).


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Each quarter we
    review the balances of or accounts and other receivables and determine the
    necessary bad debt reserve based on the probability of potential default.


If circumstances
    change for example, if the rate of default is higher or lower than expected
    or if a major customers ability to meet its financial obligations to
    us changes unexpectedly and materially, our estimates of the recoverability
    of amounts due to us could be reduced or increased by a material amount.


The cost of all
    inventories is determined by the weighted average cost method. We write down
    our inventories for estimated obsolescence or unmarketable inventory equal
    to the difference between the cost of inventory and the estimated market value
    based upon assumptions about future demand and market conditions. If actual
    market conditions are less favorable than those projected by management, additional
    inventory write-downs may be required.


At December 31,
    2005, we reported inventory of €280.6 million. Each quarter we review the
    inventory and make an assessment of the realizable value. There are many factors
    that management considers in determining whether or not a reserve should be
    established. These factors include the following:


| | a) | return or rotation
      privileges with vendors,                                  
| | -- | -----------------------------------------------------------------------------------
|
| | b) | expected usage
      during the next twenty-four months,                           
|
| | c) | whether or not
      a customer is obligated by contract to purchase the inventory,
|
| | d) | current market
      pricing, and                                                  
|
| | e) | risk of obsolescence.                                                              
|

If circumstances
    change for example, if there are unexpected shifts in market demand or there
    could be a material impact on the net realizable value of our inventory.


Litigation and
  Contingent Liabilities

Antitrust and
  competition matters

We have accrued
    amounts for estimated settlements of antitrust actions pending against us
    as of December 31, 2005. Computing our future liability for pending antitrust
    actions requires us to make judgments as to the probable outcome of litigation,
    future settlements and judgments to be paid for open claims. We estimate the
    cost of final judgments by reviewing the probable outcome of pending appeals
    with our legal counsel. If the actual cost of settlements and final judgments
    differs from our estimates, our reserves for open claims may not be sufficient.
    Any such deficiency would be a loss that we would be required to recognize
    at the time it becomes reasonably estimable.


We are currently
    involved in other legal proceedings resulting from the antitrust investigations
    and settlements. As discussed in Note 21 of our consolidated financial statements
    as of December 31, 2005, we have accrued an estimate of the probable costs
    for the resolution of these claims. Attorneys in our legal department specializing
    in litigation claims monitor and manage all claims filed against us. Our management
    estimates probable costs related to these claims in consultation with outside
    legal counsel who are defending us in these actions. We base our estimates
    on an analysis of potential results, assuming a combination of litigation
    and settlement strategies. We attempt to resolve claims through mediation
    and arbitration where possible. If the actual settlement costs and final judgments,
    after appeals, differ from our estimates, our future results may be adversely
    affected.


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Restructuring of
  operations

When required, we
    record restructuring charges incurred in connection with consolidation or
    relocation of operations, discontinued businesses, or shutdowns of specific
    sites. These restructuring charges, which reflect managements commitment
    to a termination or exit plan are based on estimates of the expected costs
    associated with site closure, legal and environmental matters, demolition,
    contract terminations, or other costs directly related to the restructuring.
    If the actual cost incurred exceeds the estimated cost, an additional charge
    to earnings will result. If the actual cost is less than the estimated cost,
    a credit to earnings will be recognized.


Given the complexity
    of estimates, actual expenses could differ from managements estimates.
    If actual results are different from original estimates, we will record additional
    expense or income in the statement of operations.


For years ended
    December 31, 2004 and prior years, we had presented expenditures for restructuring
    costs separately in the statement of operations. Beginning in 2005, we discontinued
    this presentation and began including restructuring expenses as part of other
    operating expenses. For comparability, amounts for prior years were adjusted
    to conform to the 2005 presentation. Expenses associated with the divestiture
    of the Surface Protection business, in fiscal year 2004 are a component of
    discontinued operations.


Tax contingencies

We believe we have
    a reasonable basis in applicable tax law for the positions we take on the
    various tax returns we file. However, we maintain tax reserves in recognition
    of the fact that various tax authorities may take opposing views on some issues,
    that the costs and hazards of litigation in maintaining the positions that
    we have taken on various returns might be significant and that the tax authorities
    may prevail in their attempts to overturn these positions. The amounts of
    these reserves, the potential issues they are intended to cover and their
    adequacy to do so, are topics of frequent review internally and with outside
    tax professionals. Where necessary, adjustments are periodically made to such
    reserves to reflect the lapsing of statutes of limitations, closings of ongoing
    examinations or the commencement of new examinations.


Significant Differences
  Between IFRS and U.S. GAAP

This section describes
    the significant differences between IFRS and U.S. GAAP as they relate to the
    SGL Group. See also Notes 34 and 35 to our consolidated financial statements.


Business Combinations

Prior to the adoption
    of IAS 22 (revised 1993) on January 1, 1995, the Group wrote-off all goodwill
    directly to equity in accordance with IFRS existing at that time. The adoption
    of IAS 22 (revised 1993) did not require prior period restatement. Accordingly,
    a U.S. GAAP difference exists with respect to the recognition of goodwill
    and its related amortization before January 1, 1995 and for the amortization
    of goodwill after January 1, 2002 and until December 31, 2003. For the purpose
    of the reconciliation to U.S. GAAP, the pre-1995 goodwill was amortized through
    the statement of operations over the estimated useful lives between five and
    20 years. Since January 1, 2002 under U.S. GAAP goodwill is no longer being
    amortized over the estimated useful live but an annual impairment test per
    SFAS 142 (“Goodwill and other Intangible Assets”) must
    be performed. Starting January 1, 2004 in accordance with IFRS 3 goodwill
    is no longer amortized under IFRS also.


In accordance with
    IFRS, any negative goodwill resulting in a business combination as an excess
    of the acquirers interest in the fair value of the indentifiable assets
    and liabilities over the cost of the acquisition is presented as a deduction
    from the assets of the reporting enterprise, in the same balance sheet classification
    as goodwill, and recognized in the income statement over its remaining estimated
    useful live. Accordingly, under U.S. GAAP an excess of the acquirer interest
    in the fair value of the identifiable assets and liabilities over the cost
    of the acquisition was allocated to reduce proportionately the values assigned
    to non-current assets. The remainder of the excess over costs (“negative
    goodwill”) was classified as a deferred credit. As of January 1,
    2002 these amounts were written off and recognized as the effect of a change
    in accounting principle. Subsequent to January 1,


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    GAAP any negative goodwill arising from a business combination is recognized
    as income immediately.


Internal Use
  Software, Intangible Assets and Interest Capitalization on Tangible Fixed Assets

Statement of Position
    (SOP) 98-1 (“Accounting for the Costs of Computer Software developed
    or obtained for internal use”) provides U.S. GAAP guidance on accounting
    for the costs of computer software developed or obtained for internal use.
    Under U.S. GAAP overhead costs should not be capitalized as costs of internally
    developed software while under IFRS directly allocated overhead costs are
    allowed to be capitalized. During the year ended December 31, 2004 and 2003
    the SGL Carbon Group capitalized software costs in the amount of €2.9 million
    and €4.2 million, respectively under U.S. GAAP.


Under IFRS development
    expenses can be capitalized if future economic benefits will flow to the company.
    In 2004 SGL capitalized development cost of €2.9 million for its ceramic disc
    brake. U.S. GAAP does not allow the capitalization of such costs. Accordingly
    a reconciliation difference of €2.9 million exists at the end of 2004. In
    connection with the cooperation agreement with Audi we expensed the capitalized
    development costs under IFRS, whereas under US-GAAP the amount was already
    expensed in 2004 and accordingly an additional reconciliation difference exists.


U.S. GAAP requires
    the capitalization of interest costs as part of the historical cost of fixed
    assets requiring a period of time to construct. Per IFRS benchmark treatment,
    interest cost (“Borrowing Costs”) should be recognized
    as an expense in the period in which they occur. The company has elected to
    use the IFRS benchmark treatment, which results in a reconciliation difference
    to U.S. GAAP for the capitalization of borrowing costs. During the years ended
    December 31, 2005, 2004 and 2003 the SGL Carbon Group did not capitalize interest
    under U.S. GAAP. The years 2005, 2004 and 2003 include amortization of previous
    capitalized interest of €0.3 million, €0.3 million and €0.8 million respectively.


Inventory

IAS 2 “Inventories”
    identifies two alternatives as valuation methods, the first in, first out
    (FIFO) method and the weighted-average cost method. In valuing inventories
    for IFRS reporting, we have elected to apply the weighted average cost method.


Certain pre-production
    expenses incurred by one of our U.S. subsidiaries did not meet the requirements
    as specified under EITF 99-5 (Accounting for Pre-Production Costs Related
    to Long-Term Supply Arrangements). Under EITF 99-5 costs to perform certain
    services related to the design and development of the products it will sell
    under long-term supply arrangements and costs to design and develop molds,
    dies, and other tools that will be used in producing those products should
    be expensed as incurred, unless they are reimbursed. Accordingly we recorded
    an U.S. GAAP adjustment of €0.3 million in 2003, that remained unchanged in
    2004 and 2005.


Pension Provisions

Under IFRS, pension
    costs and similar obligations are accounted for in accordance with IAS 19,
    “Employee Benefits”. For purposes of U.S. GAAP, pension
    costs for defined benefit plans are accounted for in accordance with SFAS
    No. 87 “Employers Accounting for Pensions” and
    the disclosure is presented in accordance with SFAS No. 132 “Employers
    Disclosures about Pensions and Other Post-retirement Benefits”.
    IAS 19, as we apply it, is substantially similar to the methodology required
    under SFAS No. 87. The adjustment between IFRS and U.S. GAAP comprises amortization
    of the unrecognized transition obligation over the remaining average service
    lives of employees and the recognition of an additional minimum liability
    under SFAS No. 87, which is not required under IAS 19. Under IFRS, changes
    in the market value of plan assets are recognized in the calculation immediately;
    under U.S. GAAP they are deferred over five years. The interest component
    of additions to the pension provision is shown as an expense in the financial
    result under IFRS, which is below operating profit, while under U.S. GAAP
    it is included in operating profit.


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Incentive Plans

As of January 1,
    2005 the SGL Group adopted IFRS 2 “Share-based payment”.
    IFRS 2 deals with accounting for share-based payment transactions, including
    grants of share options to employees and specifies the financial reporting
    by an entity when it undertakes a share-based payment transaction and requires
    an entity to reflect in its profit or loss and financial position the effects
    of share-based payment transactions, including expenses associated with transactions
    in which share options are granted to employees. The IFRS was applied retrospectively
    on all share-based payments granted since November 7, 2002, that still existed
    when the standard became effective and required comparable information to
    be restated. This also includes a restatement to the opening balances of the
    retained earnings in the earliest period presented. IFRS 2 is similar to the
    accounting under FAS 123(R). All prior years under IFRS as well as the U.S.
    GAAP adjustments had to be restated, because the retrospective implementation
    of IFRS 2 also impact the US-GAAP adjustments for all prior years. Because
    of the application of IFRS 2 in 2004, the equity had to be restated by €1.8
    million as of January 1, 2004.


The SGL Carbon Group
    provides a bonus compensation for certain employees meeting specified performance
    targets. The bonus is satisfied in form of cash for management and in form
    of SGL Carbon stock for all other employees. The numbers of shares given to
    the employees is calculated by dividing the bonus amount by the market price
    of the shares. Previously the expense in the income statement was recognized
    using the nominal value (€2.56) of the shares. After adoption of IFRS 2 we
    expense the bonus compensation for all employees using the current market
    price of the shares. This was adjusted restrospectively for all periods presented.U.S.
    GAAP matches the cost of the bonus with the period in which the services are
    rendered.


Restructuring
  / Early retirement

One of the significant
    differences between the restructuring guidance under IAS 37, “Commitments
    and Contingencies” and the relevant U.S. GAAP standards, is found
    in the criteria for the initial recognition of a restructuring provision.
    The applicable U.S. GAAP standard is SFAS No. 146 “Accounting for
    Costs Associated with Exit or Disposal Activities” for the year
    ended 2003, which supersedes Emerging Issues Task Force (EITF) Issue 94-3
    “Liability Recognition for Certain Employee Termination Benefits
    and Other Costs to Exit an Activity (including Certain Costs Incurred in a
    Restructuring)” used for all years presented prior to 2003. For
    employee termination benefits, SFAS 146 and EITF 94-3 require that prior to
    the date of the financial statements, the benefit arrangement be communicated
    to employees, including sufficient detail to enable employees to determine
    the type and amount of benefits they will receive when they are terminated.
    IAS 37 does not require that the communication to employees be so detailed
    but rather that the communication simply include the main features of the
    plan. As a result, there may be situations in which an enterprise following
    IAS 37 could recognize a restructuring provision before it would be permitted
    to do so if it were following SFAS 146 / EITF 94-3.


Included in the
    restructuring expenses are early retirement contracts in Germany, in which
    only incremental costs under IFRS are recognized once a binding contractual
    agreement has been entered into. The early retirement contracts in the SGL
    Group are generally set up according to the block model. During the employment
    phase the employee works full time although in this period he or she is only
    paid according to the part-time agreement. By this means, during the employment
    phase, the employer builds up arrears amounting to the as yet unpaid output
    that must be accounted for by accruing a provision. Under U.S. GAAP the complete
    compensation that the employee receives during the released phase are accrued
    over the employees remaining service period. The addition to provisions
    begins with the commencement of the part-time retiree relationship. Until
    the employment phase ends or the employee enters the released phase, the total
    compensation and the total accrued amount that the employee will receive during
    the released phase must be set aside. Accordingly a U.S. GAAP reconciliation
    difference of €0.7 million exists as of December 31, 2005.


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Revenue Recognition

Audi and SGL entered
    into a cooperation agreement in the third quarter of 2005, which targets to
    develop SGL's existing carbon ceramic brakes technology for mass production.
    Under IFRS the components of these cooperation agreement were accounted for
    as separate agreements in order to reflect the economic substance of the transaction
    as SGL transferred the significant risk and rewards of ownership. Pursuant
    to paragraph 9 of EITF 00-21, a delivered item is accounted for as a separate
    unit if 1) the delivered item has value on a standalone basis, 2) there is
    an objective and reliable evidence of the fair value of the undelivered items,
    and 3) the customer has a general right of return relative to the delivered
    item, delivery or performance of the undelivered item is considered probable
    and substantially in the control of the vendor. After testing for these conditions
    two items were seen as one unit for revenue recognition purposes and a determinable
    period of performance existed from July 2005 to December 2006 and therefore
    revenue is recognized per ``Proportional-Performance Method'' (SAB 104) ratably
    over that period of performance. Accordingly the profit of such parts was
    recognized immediately under IFRS and was deferred under U.S. GAAP.


Deferred taxes

The items discussed
    above create differences between the U.S. GAAP book and tax basis of assets
    and liabilities, requiring the recognition of associated deferred tax assets
    and liabilities. With some exceptions, deferred tax assets and liabilities
    are recognized for all differences between the book and tax basis of the assets
    and liabilities using future statutory tax rates. In addition, a valuation
    allowance is established when it is more likely than not that deferred tax
    assets will not be realized.


U.S. GAAP Reconciliation

We prepare our consolidated
    financial statements in accordance with IFRS, which differ in certain significant
    respects from U.S. GAAP. See “ Significant Differences Between
    IFRS and U.S.GAAP” as well as Notes 34 and 35 to our consolidated
    financial statements for a discussion of these differences.


|€ (in millions)                             | 2005 |   | 2004restated |   | 2003restated |  
|------------------------------------------- | ---- | - | ------------ | - | ------------ | -
|                                            |      |   |              |   |              |  
|Net
      profit/ (loss) per IFRS           | 28.2 |   | (86.4        | ) | (56.5        | )
|                                            |      |   |              |   |              |  
|Goodwill
      amortization                 | (0.0 | ) | (0.0         | ) | 3.4          |  
|Intangible/tangible
      fixed assets      | 3.2  |   | (1.5         | ) | (3.6         | )
|Inventory                                   | (0.7 | ) | (0.0         | ) | (0.4         | )
|Pension
      provisions                    | 0.3  |   | 0.9          |   | 1.3          |  
|Incentive
      plans                       | 0.0  |   | 1.3          |   | 0.7          |  
|Restructuring
      /Early retirement       | 0.7  |   | (1.2         | ) | 1.7          |  
|Revenue
      Recognition                   | (8.9 | ) |             |   |             |  
|Deferred
      tax on U.S. GAAP adjustments | 0.0  |   | (1.0         | ) | 1.0          |  
|                                            |      |   |              |   |              |  
|Net
      profit/loss per U.S. GAAP         | 22.8 |   | (87.9        | ) | (52.4        | )
|                                            |      |   |              |   |              |  
|                                            |      |   |              |   |              |  

Under
  U.S. GAAP our operating profit (loss) for the years ended December 31, 2005,
  2004 and 2003 was €94.0 million, €45.4 million and €(2.8)
  million, respectively, compared to an operating profit (loss) under IFRS for
  the same periods of €112.8 million, €59.0 million and €22.3
  million, respectively. Our U.S. GAAP operating profit in 2005, 2004 and 2003
  differed from our IFRS operating profit for the same years, primarily due to
  differences in goodwill amortization, deferred taxes, provisions, reserves and
  valuation, as well as differing additions to provisions for pensions. Furthermore,
  we reclassified the interest component associated with our annual pension provision
  of €13.5 million in 2005 (2004: €13.3 million; 2003: €14.0
  million) as interest expense under IFRS. See Note 34 to our consolidated financial
  statements for a description of the differences between our IFRS accounting
  policies and those that would be required under U.S. GAAP.


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Basic profit (loss)
    per Share in accordance with U.S. GAAP in 2005 was €0.40, compared to €(1.68)
    in 2004 and to €(2.36) in 2003. Basic loss per ADR in accordance with U.S.
    GAAP in 2005 was €0.13, compared to €(0.56) in 2004 and to €(0.79) in 2003.
    Because there was no dilutive effect in 2005 and a net loss in the years 2004
    and 2003, the diluted profit or loss per Share for 2005, 2004 and 2003 was
    identical to the respective profit or loss per Share.


Recent Accounting
  Pronouncements

U.S.
  Statement of Financial Accounting Standards (SFAS)

In June 2005, the
    FASB ratified Emerging Issues Task Force (EITF) Issue 05-5, Accounting for
    Early Retirement or Post-employment Programs with Specific Features (such
    as Terms Specified in Altersteilzeit Early Retirement Arrangements). Altersteilzeit
    (AZT) in Germany is an incentive and benefit program for early retirement.
    Under this plan, employers are required to recognize a participants
    salary ratably over their remaining employment period. Employer granted bonuses
    would be accrued ratably over the period commencing with the employees
    entry into the AZT program to the end of their employment period. At the time
    the criteria to receive them is met, any related government subsidies are
    accounted for separately from the ATZ benefits. The adoption of EITF 05-5
    is not expected to have a material impact on our consolidated financial statements.




In May 2005, FASB
    issued SFAS 154, Accounting for Changes and Error Corrections  a replacement
    of APB No. 20 and FASB Statement No. 3 (SFAS 154). This statement changes
    the requirements for the accounting for and reporting of a change in accounting
    principle. It applies to all voluntary changes in accounting principle, error
    corrections and required changes due to new accounting pronouncements, which
    do not specify a certain transition method. Unless it is impracticable to
    determine either the period-specific effects or the cumulative effect of a
    change in accounting principles, SFAS 154 generally requires retrospective
    application to the prior periods financial statements. SFAS 154 also
    requires that any retrospective application of a change in accounting principle
    be limited to the direct effects of the change. It also requires that a change
    in depreciation, amortization or deletion method for long-lived, non-financial
    assets be accounted for on a prospective basis. In accordance with the effective
    date for fiscal years ending after June 15, 2005, SGL Carbon has adopted SFAS
    154 effective January 1,2005 and it did not have a material impact on our
    consolidated financial statements.


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International
  Financial Reporting Standards (IFRS)

IFRS 7, Financial
    Instruments: Disclosures, requires more extensive disclosure regarding financial
    instruments. International Accounting Standards (IAS) 32, Financial Instruments:
    Disclosure and Presentation disclosure requirements were incorporated in IFRS
    7 and expanded. In addition to the existing disclosure requirements, information
    regarding the type and extent of risks stemming from financial instruments
    in financial statements prepared under IFRS is now required. IFRS 7 is to
    be adopted for reporting years beginning on or after January 1, 2007. Management
    does not expect the adoption to have a material impact on our consolidated
    financial statements.


IFRIC 8, Scope of
    IFRS 2, clarifies that IFRS 2, Share-based Payment, also includes agreements
    whereby an entity makes payments for which it does not receive any goods or
    services or inadequate consideration. If the identifiable consideration is
    or appears to be less than the fair value of the equity instruments granted
    or liability incurred, IFRIC 8 interprets this circumstance to indicate that
    other consideration (i.e. goods or services) has or will be received. Therefore,
    IFRS 2 is to be applied in such cases. IFRIC 8 is to be adopted for reporting
    years beginning on or after May 1, 2006 and is not expected to have a material
    impact on our consolidated financial statements.


We did not consider
    any other IFRS pronouncements that are scheduled for adoption after December
    31, 2005 to be applicable to the activities of SGL covered by this annual
    report.


Liquidity
  and Capital Resources

The following is
    a presentation of our capital resources for the fiscal years ending December
    31, 2005 and 2004. On March 16 and 17, 2006 SGL Carbon announced and completed
    a capital increase of 5,583,529 shares at a price of €15.00 per share, resulting
    in gross proceeds totaling €83.7 million. The shares were placed with German
    and international institutional investors. The application of the proceeds
    from the capital increase is not reflected in the table below.


Overview
  of Bank Debt And Cash Flows

|                                                             | Year ended December 31, |  
|------------------------------------------------------------ | ----------------------- | -
|                                                             |                         |  
|(millions
      of Euros)                                    | 2005                    |  
|                                                             |                         |  
|Short
      term debt and current maturities                 | 9.2                     |  
|Long
      term debt                                         | 348.9                   |  
|                                                             |                         |  
|Total
      financial debt                                   | 358.1                   |  
|                                                             |                         |  
|Cash
      and cash equivalents                              | (93.4                   | )
|Restricted
      cash in “Convert Deposit Account”           | (0.0                    | )
|Restricted
      cash for debt repayment from sale of assets | (0.0                    | )
|                                                             |                         |  
|Net
      financial debt                                     | 264.7                   |  
|                                                             |                         |  
|Restricted
      cash in “Antitrust Deposit Account”         | (0.0                    | )

As of December 31,
    2005 we had an aggregate amount of €358.1 million financial debt outstanding,
    consisting of €270 million 8.5% senior notes due 2012 (the “notes”)
    and €85.4 million outstanding under our syndicated credit facilities (the
    “Senior Facilities”) and €2.7 million other bank debt.


The notes bear annual
    interest at 8.5% on their principal amount, with interest payable semi-annually,
    and mature on February 01, 2012. As of December 31, 2005 the notes traded
    at 108.5% of their principal amount. At any time prior to February 1, 2007,
    we may redeem up to 35% of the aggregate principal amount of the notes at
    a redemption price of 108.5% of the principal amount, plus accrued and unpaid
    interest, with the proceeds of certain equity offerings. We may make that
    redemption only if, after the redemption, at least 65% of the aggregated principal
    amount of the notes
    remain outstanding following each such redemption. On or after February 1,
    2008, we may


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redeem the notes at
  our option, in whole or in part, at a redemption price equal to the principal
  amount plus a redemption premium, which will be 4.25% as of February 1, 2008
  and decline to zero over the remaining term of the notes, plus accrued interest.
  See also “Additional Information  Material Contracts 
  8.5% Senior Notes.”

Our Senior Facilities,
    which we entered into on February 3, 2004, originally consisted of a German
    Senior Facility (consisting of Term Loans A, B and C and a multicurrency revolving
    credit facility) and a U.S. Senior Facility. On September 1, 2005 we repaid
    our U.S. Senior Facility in the amount of US$111.1 million in full and
    replaced it in part with an additional USD Tranche in the amount of US$80.0
    million under the German Senior Facility. As of December 31, 2005, the German
    facilities without Term B for the EU funding consisted of an aggregate amount
    of €127.4 million, of which €85.4 million were outstanding and
    €42 million were still available for drawings. The €85.4 million
    outstanding under the syndicated credit facilities as of December 31, 2005
    were subject to interest rates of up to 7.4% €13.8 million carried fixed
    interest rates of up to 7.4% and €74.3 million carried variable interest
    rates of up to 6.3% . See also “Additional Information  Material
    Contracts  The Senior Facilities  German Senior Facilities.”


In addition, as
    of December 31, 2005, we had PLN60 million available under our Polish facility
    with BNP Paribas Polska S.A. See “Additional Information 
    Material Contracts  Polish Facility.”


On December 31,
    2005 we drew €109.4 million under our Term B facility of €117.7 million.


On September 18,
    2005, upon maturity, we repaid in full the remaining €50.0 million of our
    €133.7 million 3.5% convertible bond due 2005 out of an escrow account entitled
    “Convert Deposit Account” (in 2004 we had repurchased
    an aggregate principal amount of €83.7 million of the convertible bond in
    a voluntarily tender offer at 100.5% of the principal amount, plus accrued
    interest).


In February 2004
    an aggregate amount of €125.3 million was deposited in an escrow account entitled
    “Antitrust Deposit Account” for the payment of obligations
    from the North American antitrust penalties and from civil law settlements
    as well as the fine imposed in 2003 by the European antitrust commission.
    In 2004, the European fine (€23.9 million) was deposited on an interest bearing
    escrow account of the antitrust authorities until the closure of the legal
    proceedings using the funds from the “Antitrust Deposit Account.
    A total of €24.2 million was paid to the North American antitrust authorities
    in 2004. In addition to the scheduled payments in March and June 2005 of €7.5
    million each, the outstanding liability in the amount of €54.2 million, including
    currency-hedging costs, was paid in full in August 2005. The residual credit
    balance on the Antitrust Deposit Account of €8.7 million was used for debt
    repayment. The restricted cash for debt service in 2004 represents the remaining
    amount of the proceeds from the Hillsboro sale in the U.S., which was used
    in 2005 for early debt repayment. The restricted cash was presented separately
    in the consolidated balance sheet in 2004.


The significant
    reduction of financial liabilities, the strong cash flow generation and the
    resulting improvement of the balance sheet structure were rewarded in 2005
    by both Moodys and Standard & Poors (S&P) rating agencies.
    S&P raised its credit rating for SGL Carbon AG from “B”
    to “B+” with the outlook “Stable”.
    At the same time, S&P raised its rating of the notes issued by SGL Carbon
    Luxemburg S.A. from “CCC+” to “B-”.
    During the reporting year, Moodys upgraded the rating of the notes from
    “Caa1” to “B3”.


In March 2006, following
    the capital increase described in the introductory paragraph above, Moody ́s
    rating of the SGL Carbon Group was raised by one notch from “B1”
    to “Ba3” with a stable outlook. The rating on secured
    facilities was increased from “B1” to “Ba3”,
    and the rating on senior notes of SGL Carbon Luxembourg from “B3”
    to “B2”.


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The following table
    summarizes our debt and significant obligations as of December 31, 2005 :


|                                    | Maturing in:  
|----------------------------------- | --------------
|                                    |               
|                                    |               
|Obligations                         | Total         
|                                    |               
|                                    | (millions     
|                                    | of
      Euro)
|Term
      Facility A               | 4.6           
|Term
      Facility C               | 13.0          
|Term
      Facility D               | 67.8          
|Senior
      notes                  | 270.0         
|Other
      bank debt               | 2.7           
|                                    |               
|Total
      bank debt***            | 358.1         
|                                    |               
|Acotec
      guarantees**           | 9.5           
|Letter
      of Credit Facilities** | 109.4         
|Purchase
      obligations**        | 2.2           
|Operating
      leases**            | 8.1           
|Capital
      leases **             | 1.4           
|Liabilities
      from tax payments | 16.1          
|Other
      obligations             | 54.4          
|                                    |               
|Total                               | 559.2         
|                                    |               

|   
|---
|*  
|** 
|***
|   

In
  2005 we used €69.2 million of the “Antitrust Deposit Account”
  to pay fines in connection with antitrust proceedings and related costs. We
  settled all current claims of the U.S. Department of Justice as well as the
  Canadian antitrust authorities (see “Legal Proceedings”).


In connection with
    the EU proceedings (see “Legal Proceedings”), the European
    Commission imposed a fine of €23.64 million on December 3, 2003. We have provided
    security of €23.6 million plus interest of €0.3 million as cash deposit from
    the “Antitrust Deposit Account”. In April 2006 we further
    deposited an amount of €88.9 million, covering the present level of the first
    fine including interest, in an interest bearing escrow account of the EU antitrust
    authorities until the final decisions of the courts are made. The other EU
    fine is secured by a bank guarantee.


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Consolidated
  cash flows

The following table
    shows our consolidated cash flows for the continuing businesses (adjusted
    for currency fluctuations) for the three years ending December 31, 2005:


|                                                                                             |                 |   | 2004     |   | 2003     |  
|-------------------------------------------------------------------------------------------- | --------------- | - | -------- | - | -------- | -
|                                                                                             | 2005            |   | restated |   | restated |  
|                                                                                             |                 |   |          |   |          |  
|                                                                                             | (€ in millions) |  
|Cash
      flows from operating activities:                                                  |                 |   |          |   |          |  
|Net
      profit (loss) before taxes                                                         | 47.2            |   | (2.9     | ) | (51.5    | )
|(Gain)/loss
      on sale of property, plant and equipment                                   | (9.7            | ) | (0.6     | ) | 0.2      |  
|(Gain)/loss
      on sale of equity investments                                              |                |   |         |   | (3.6     | )
|Depreciation
      and amortization expense                                                  | 65.1            |   | 67.6     |   | 71.8     |  
|Amortization
      of refinancing costs*)                                                    | 5.3             |   | 3.8      |   | 15.9     |  
|Taxes
      paid                                                                             | (22.6           | ) | (14.2    | ) | (4.4     | )
|Changes
      in provisions, net                                                             | 13.0            |   | 16.3     |   | 25.1     |  
|Change
      in working capital, net of changes in basis of consolidation:                   |                 |   |          |   |          |  
|Inventories                                                                                  | (10.1           | ) | (4.0     | ) | 0.3      |  
|Trade
      receivables                                                                      | (8.2            | ) | 0.9      |   | (31.2    | )
|Trade payables                                                                               | (4.8            | ) | 3.5      |   | (4.1     | )
|Other
      operating assets/liabilities                                                     | 12.5            |   | 27.0     |   | 13.3     |  
|                                                                                             |                 |   |          |   |          |  
|Cash
      provided by operating activities before payment of antitrust fines                | 87.7            |   | 97.4     |   | 31.8     |  
|Payments
      relating to antitrust proceedings                                             | (70.2           | ) | (52.0    | ) | (14.9    | )
|Thereof
      from Cash escrow accounts                                                      | (69.2           | ) | (49.6    | ) | 0.0      |  
|                                                                                             |                 |   |          |   |          |  
|Cash
      provided by (used in) operating activities                                        | 17.5            |   | 45.4     |   | 16.9     |  
|                                                                                             |                 |   |          |   |          |  
|Cash
      flows from investing activities:                                                  |                 |   |          |   |          |  
|Acquisition
      of property, plant and equipment and intangible assets, excluding goodwill | (44.7           | ) | (46.3    | ) | (43.9    | )
|Proceeds
      from sale of property, plant and equipment and intangible assets              | 16.1            |   | 4.5      |   | 1.5      |  
|Cost
      of acquisitions                                                                   | (2.3            | ) | (0.8     | ) | (1.7     | )
|Proceeds
      from sale of non current financial assets                                     | 0.3             |   | 2.0      |   | 5.7      |  
|                                                                                             |                 |   |          |   |          |  
|Cash
      used in investing activities                                                      | (30.6           | ) | (40.6    | ) | (38.4    | )
|                                                                                             |                 |   |          |   |          |  
|Cash
      flows from financing activities:                                                  |                 |   |          |   |          |  
|Repayment
      of fincancial liabilities from cash escrow accounts                          | (58.9           | ) | (89.3    | ) |         |  
|Net
      change in financial liabilities                                                    | (33.8           | ) | 38.6     |   | 60.5     |  
|Payments
      in connection with refinancing*)                                              | (0.8            | ) | (23.9    | ) | (15.9    | )
|Dividends
      paid                                                                         |                |   |         |   |         |  
|Net
      proceeds from capital increase                                                     | 2.5             |   | 244.1    |   | 1.0      |  
|                                                                                             |                 |   |          |   |          |  
|Cash
      provided by financing activities                                                  | (91.0           | ) | 169.5    |   | 45.6     |  
|                                                                                             |                 |   |          |   |          |  
|Cash
      used/provided from discontinued operations                                        | 0.0             |   | (24.6    | ) | 0.7      |  
|                                                                                             |                 |   |          |   |          |  
|Effect
      of foreign exchange rate changes                                                | 2.0             |   | (0.3     | ) | (0.3     | )
|                                                                                             |                 |   |          |   |          |  
|Net
      increase (decrease) in cash and cash equivalents                                   | (102.1          | ) | 149.4    |   | 24.5     |  
|Cash
      and cash equivalents at beginning of year                                         | 195.5           |   | 46.1     |   | 21.6     |  
|(thereof
      Cash escrow accounts )                                                        | (128.0          | ) | (0.0     | ) | (0.0     | )
|                                                                                             |                 |   |          |   |          |  
|Cash
      and cash equivalents at end of year                                               | 93.4            |   | 195.5    |   | 46.1     |  
|                                                                                             |                 |   |          |   |          |  
|(thereof
      Cash escrow accounts )                                                        | (0.0            | ) | (128.0   | ) | (0.0     | )

| 
|-
|*

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Operating
  cash flows

Our cash provided
    (used) by operating activities from continuing businesses) before payments
    of antitrust fines and adjusted for currency effects totaled €87.7 million
    in 2005, compared to €97.4 million in 2004, a net decrease of €9.7 million.
    This is due primarily to the fact that in 2005 we had two interest payment
    dates for our notes, which resulted in payments of around €23.0 million, compared
    to only one payment date with interest payments of approximately €11.5 million
    in 2004. Furthermore, our tax payments of €22.6 million were significantly
    higher than in the previous year (€14.2 million) due to higher pre-tax income
    in 2005. In addition, at €23.1 million in 2005, the increase in our working
    capital after adjusting for foreign currency changes was more than the previous
    years value of €0.4 million as a result of the considerable increase
    in business activity. The working capital development in 2003 was influenced
    by the termination of sale of accounts receivables. In 2005 we repaid all
    outstanding fines to settle the DOJ and Canadian antitrust liabilities, including
    accrued interest thereon, earlier than scheduled. In 2004 we paid the DOJ
    and Canadian antitrust liabilities as scheduled and provided security of €23.6
    million plus interest of €0.3 million as cash deposit from the “Antitrust
    Deposit Account” to the European Commission for the fine imposed in
    2003.


Non-cash expenses
    for depreciation and amortization of non-current assets decreased slightly
    from €67.6 million in 2004 to €65.1 million in 2005. The depreciation and
    amortization of €71.8 million in 2003 includes goodwill amortization of €2.3
    million, which was discontinued in 2004 due to the first time application
    of new IFRS rules. Expenses related to restructuring programs (initiated in
    prior years) and other measures to improve efficiency and optimize costs resulted
    in a total expense of €20.8 million during 2005. Included in this amount was
    the gradual relocation of our carbon electrode production of the CG Business
    Area from Italy to Poland, the related personnel measures (a headcount reduction
    of 112 employees) and the write down of the remaining fixed asset book value
    at the Ascoli, facility in Italy. By the end of 2005, the announcement of
    this measure along with the written agreements were completed. An additional
    focus of these measures during 2005 was the conclusion of further partial
    retirement agreements and direct gratuity payments in Germany. Restructuring
    expenses in 2004 amounted to €19.7 million, consisting mainly of personnel
    redundancies and the write-down of residual book values in Poland, Italy and
    Germany. In addition, a small plant in the UK was closed and non-cash write-downs
    were made in the USA. The non cash expense for restructuring expenses in 2005
    and 2004 were €11.6 million and €9.1 million, respectively.


Investing
  cash flows

Cash used for investing
    activities amounted €30.6 million in 2005, compared to €40.6 million in 2004
    and €38.4 million in 2003. Following the completion of SGL Ts major
    capital expenditure programs, we continued to streamline capital expenditures
    in property, plant and equipment as planned. Capital expenditures for property,
    plant and equipment increased slightly from €37.7 million in 2004 to €39.4
    million in 2005. Significant additions related to capital expenditures for
    replacements in our plants in Germany, the United States, Poland and Spain.
    Compared to the 2005 depreciation expense of €60.7 million, capital expenditures
    for the year, at €39.4, were lower by €21.3 million. Capital expenditures
    relating to intangible assets decreased by €3.5 million to €5.3 million in
    2005, primarily due to the finalization and implementation of our new Group-wide
    common IT platform based on SAP (SGL ONE). For the years ending December 31,
    2004 and 2003, we spent approximately €5.9 million and €9.3 million, respectively
    for the implementation of the IT platform. The new system was successfully
    implemented in our companies in Italy and Poland in 2005. For financial assets
    we spent €2.3 million in 2005 compared to €0.8 million in 2004.


Proceeds from the
    sale of property, plant and equipment and intangible assets increased to €16.1
    million (2004: €4.5 million), which includes the cash provided by the cooperation
    agreement with Audi and the sale of non-operational real estate.


Financing
  cash flows

Our liabilities
    to banks and bondholders decreased significantly in 2005 by €92.7 million
    from €439.9 million at the end of 2004 to €358.1 million excluding
    the netting of capitalized debt financing costs of €16.0 million and
    currency impacts of €10.9 million. We used the funds in the “Convert
    Deposit Account” and “Antitrust Deposit Account” of €58.9
    million and cash at hand of


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€33.8 million
  to repay the debt of €92.7 million. As scheduled, we repaid €10.0
  million of our Term loan A, €4.7 million Term loan C and repaid one installment
  under our old U.S. Senior Facility in the amount of €0.5 million. In September
  2005 we used €27.5 million to replace the U.S. Senior Facility with an
  additional USD Tranche under our German Senior Facility with a reduced commitment
  of USD 80.0 million.

We made payments
    in connection with our refinancing in the beginning of 2004 of €0.8 million
    in 2005 and €23.9 million in 2004.


We also received
    approximately €2.5 million in 2005 and €1.0 million in 2004 in
    connection with the issuance of shares to current and former employees and
    managers who elected to exercise stock options during those years or who were
    included into the German share bonus plan for tariff employees.


SGL Carbon AG has
    not distributed dividends since 1999. The payment of future dividends will
    be dependent on our earnings, the terms of our syndicated credit facility
    agreement, our financial condition and cash requirements, general business
    conditions in the markets in which we operate, legal, tax, and regulatory
    considerations and other factors. See Item 10, “Additional Information
    Material Contracts”


Discontinued
  operations

Discontinued operations
    for 2004 are shown in the cash flow statement as a net cash outflow of €24.6
    million. For the discontinued operations, cash used in operating activities
    amount to €23.9 million, cash used in investing activities to €0.4 million,
    and cash used in financing activities to €0.3 million.


Research
  and Development, Patents and Licenses, etc.

Faced with the need
    to achieve a better return on our R&D investments and to further improve
    the alignments of R&D activities with the business strategies, we optimised
    our R&D organization and activities in 2005. The former de-centralized
    business unit development activities were combined into one centralized R&D
    operation to ensure improved communication, better knowledge sharing and the
    potential to create innovations that a centralized organization can provide.
    The new center of Technology & Innovation (T&I Group) is located at
    our facility in Meitingen, Germany. Furthermore specific research and development
    activities are carried out at the US sites in Gardena and Valencia/California
    as necessary. We conduct research and development activities, both independently
    and in conjunction with suppliers to explore new market potentials and prepare
    business cases for Business unit approval. In addition, we prepare commercial
    projects with high profit growth potential, transfer new business proposals
    for new project generations and support all business directions in technical
    market discussions.


Supported by the
    development department of the business areas and the well educated technical
    staff in our manufacturing facilities, development activities are a full integrated
    part of the SGL Groups organization. As a consequence we are able to
    adapt our products quickly to the changing requirements of the markets in
    which we compete and also successfully enter into new product segments.


Our recently developed
    large diameter graphite electrodes, for use in ultra high power (UHP) furnaces
    which contribute to a more efficient and cost effective steel process, are
    the standard in the steel producing industry. We have meanwhile implemented
    the second generation of these electrodes, applying specific raw materials
    for customers furnace requirements. Moreover the 32-inch (800 mm) diameter
    electrode, for use in direct current mills is recognized as break-through
    in the industry, resulting in the world leading market position. In the automotive
    application arena we succeeded in extending our leading position as ceramic
    brake disc supplier by applying improved process technologies and material
    developments. In addition the effort to co-operate closely and continuously
    with key customers during the improvement process, the use of Six Sigma methodologies
    ensures a superior level of product and service quality. We sponsor educational
    and informal programs for our customers and create problem solving teams to
    improve customers value creation.


Our activities in
    the new product development area concentrate on high-tech innovations with
    substantial growth potential fitting with the SGL portfolio. Time to market
    and early profitability are


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important criteria
  for project selection. Our search for new product development focuses on the
  growth markets such as the energy, semiconductor, automotive and environmental
  markets. Our primary focus in the automotive market is currently the ceramic
  brake discs for cars, carbon components for lithium batteries and fuel cells
  supporting latest developments of hybrid car concepts. We are also increasing
  efforts to market non-sealing application for our expanded graphite materials
  and implement carbon fibre “prepregs” for composite applications
  in the alternative energy generation markets.

Further
  R&D projects in 2005:

CG: Cost
  reduction and value creation for customers

The further optimization
    of processes to reduce our manufacturing costs and the continuation of our
    SGL Excellence program had an important impact on the fiscal year 2005. We
    assisted our customers and suppliers to improve their value added production,
    based on the utilization of our products and their raw materials. The use
    of enhanced modeling supported the energy consumption optimization, especially
    in the area of thermal processing. In a series of extensive tests with our
    customers, we investigated the potential of latest raw material developments
    for specific applications with our customers and transferred the field results
    to product improvements. Our focus here was on product performance consistency,
    secure suppliers and efficient raw material utilization.


Using our application
    model for electric steel processing, developed especially for our customers
    processes optimization, we supported them in achieving higher productivities
    with the application of larger graphite electrodes. We supported the market
    implementation of a new graphitized cathode with lower consumption, thus impacting
    our customers return on their aluminium smelter investments.


We further thermally
    optimized the microporous stone for the most heavily used part of the blast
    furnaces and supported its market launch. This product will significantly
    extend the lifetime of current blast furnaces, resulting in improved return
    on investments for our customers.


S: New and
  improved materials for engineering solutions

We explored and
    tested new isotropic cokes, as a second source of raw materials, for various
    mechanical applications to ensure the efficient and consistent production
    of our products. We made these materials available to our customers during
    the fiscal year. An example of this progress is the sale of shut off valves
    for vacuum pumps with improved abraison resistance, which ensures prolonged
    lifetimes in our customers application. In the area of composites, we
    developed monolithic heating elements with higher purity as well as tailored
    carbon-fibre re-enforced heating elements with highest purities, enabling
    the semiconductor industries to produce the highest purity silicon. We also
    developed specific pure graphite materials to accommodate the construction
    needs of pebble bed reactor supporting the nuclear energy industry with safe
    generation technology. Our in-house development of rigid graphite felt, as
    a substitute for our former felt product, used as an insulating material in
    the construction of high-temperature furnaces was widely accepted by our customers
    as a substitute for our former felt product.


SGL T: Innovative
  solutions for energy, automotive and enviromental applications

Energy storage systems
  to control air-conditioning

Air-conditioning
    systems using latent heat storage, developed in prior years, were further
    improved and prepared for the market. Energy storage modules were optimized
    using highly-treat-conductive graphite structures ensuring the storage and
    release of cold on a daily specific cycle.


Innovative wet frictions
  for automotive application

Increasing torque
    in modern cars results in an increasing demand on friction linings for clutches
    and syncro-mesh rings. With our latest material improvements based on carbon-fibre
    reinforced linings, we set new standards for market requirements, such asconstant
    friction at low abraison level and superior oil resistance.


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Improved graphite
  foil meeting leakage criterias of the Association of German Engineers (VDI)

Graphite foils are
    used for various sealing applications. With our latest developments and improvements,
    we were able to reduce the gas diffusion significantly meeting the high criterias
    of VDI. This improvement will contribute to our position as the market leader.


Trend
  Information

Global
  economic growth set to continue

Economists forecast
    that the global economy will continue to expand in 2006 and 2007 and that,
    the pace of growth will be comparable to the 2005 level. The International
    Monetary Fund (IMF) forecasts global growth of 4.3% in 2006. In 2006, the
    economic growth centers are expected to remain in the countries of Asia and
    Central and Eastern Europe. In China, for instance, the State Planning and
    Development Commission anticipates a GDP growth of between 8.5% and 9.0% .
    For Russia, experts at the Organization for Economic Cooperation and Development
    (OECD) expect growth of 5.7% . The high price of raw materials is expected
    to have a dampening effect on growth rates in the USA (+3.5%) and Japan (+2.0%)
    . OECD experts are, however, more optimistic about the euro zone, forecasting
    growth of 2.1% . The key factor in the positive development of the euro zone
    are the expected improvements in the German economy. The Ifo Institute forecasts
    a growth potential of 1.7% for 2006, based on the continued strength of the
    export economy and, for the first time in years, positive signs for domestic
    demand.


The OECD also forecasts
    excellent opportunities for further economic growth in 2007, estimating a
    potential of 2.9% for all the industrialized member countries. While the USA
    anticipates growth of 3.3%, the forecasts for Japan (+2.0%) and the EU (+2.2%)
    are more conservative. Growth for Germany is expected to be 1.7% . The dynamism
    of the Chinese economy should remain high with a growth rate of +9.5% . Due
    to the anticipated increase in output, Russia can also look forward to growth
    of 5.3% .


According to the
    IMF and OECD, their forecasts could be affected mainly by a further sharp
    increase in raw material prices, a significant deterioration in the trade
    balance situation, especially in the USA, and strong sudden fluctuations in
    the most important exchange rates. High increases in long-term interest rates
    and a reversal of the current positive price performance on the capital and
    property markets would also lead to adverse international conditions.


Driven by encouraging
    expert opinions on the global economy, the key customer industries for SGL
    Carbon should also enjoy continued growth in 2006 and 2007. The outlook for
    the steel industry remains favorable. IISI, the international steel association,
    expects that the global demand for steel will rise by 4% to 5% in 2006. In
    the long term the experts are also optimistic; for instance, Deutsche Bank
    predicts that global production of crude steel will increase by 5% per year
    until 2015. In the automotive industry, the consistently high backlog demand
    in Asia and the stable demand in the Western industrialized nations should
    deliver a growth of around 4% to 68 million vehicles. The outlook for 2006
    is also positive for the chemical industry, with the German Chemical Association
    (Verband der Chemischen Industrie, VCI) anticipating expansion of the industry
    by 2.5 %. According to Deutsche Bank, global chemical sales should increase
    to €2,380 billion by 2010 (2005: €1,865 billion). Aircraft manufacturers are
    expecting 2006 to be a good year, albeit below the record levels of 2005.
    According to a study by the investment bank CSFB, the carbon fiber market
    will enjoy double-digit growth in the next few years, driven mainly by the
    demand from the aviation industry. Due to increasing cost sensitivity in the
    USA, the high defense spending is expected to decrease in 2006 and 2007. However,
    the energy sector should benefit from continued rises in global energy consumption
    due to the economic situation.


Stable
  development projected for Carbon and Graphite Business Area

The economic tailwind
    expected by industry experts for the steel sector in 2006 should also have
    a limited effect on the Carbon and Graphite Business Area, given that production
    for graphite electrodes was already at good capacity levels in February 2006.
    Our priority in 2006 is to implement price increases, which might be taken
    in precedence over volume in individual cases. This could result in the total
    volume of graphite electrodes sold being slightly below the record level of
    2005. Based on the development so far, we expect the sales and price situation
    of cathodes to develop favorably,


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owing to the anticipated
  improvement in the development of the aluminum industry. Volumes and prices
  of carbon electrodes are expected to stabilize at a low level in 2006. For furnace
  linings, we expect another excellent year, with a high utilization of our capacities.
  Where costs are concerned, we expect that CG will continue to be adversely affected
  on the raw materials and energy side in 2006, although this has been reflected
  in our price adjustments. Due to the efficiency-enhancing programs of recent
  years, we expect to see further cost savings in 2006, barring any unforeseen
  price developments. We largely hedged our European plants expected net
  USD position from invoiced deliveries and raw material purchases. In view of
  this situation, we anticipate a stable sales development and continued growth
  in earnings for CG in the fiscal year 2006.

Specialties
  continue to prosper

The positive trend
    in our key customer industries should produce a further increase in demand
    in the Specialties Business Area. In Asia in particular, where we have considerably
    increased our presence in recent years, above-average growth rates are possible.
    Also, the first sales revenues are expected from the major order with the
    South African nuclear technology firm PBMR. In contrast, business in the euro
    zone is expected to stagnate in 2006. Due to the acquisition of a number of
    major projects, we anticipate an increase in business activity for Process
    Technology. The expansion of our production activities in Shanghai (China)
    and Pune (India) are also expected to have a positive result. We intend to
    offset the expected cost increases for raw materials and energy by selective
    price increases. Further cost improvements also favorably influence earnings,
    so that on the whole, we anticipate moderately rising sales figures and a
    more than proportional growth in earnings for the Specialties Business Area.


SGL
  Technologies ahead of important strategic steps

For the SGL Technologies
    (SGL T) segment, 2006 will be a year of further important strategic decisions.
    We intend to intensify our focus in areas where we can achieve the highest
    growth rates and profitability in the medium term. In carbon fibers, the markedly
    improved capacity utilization as a result of the partnership with Mitsubishi
    Rayon, concluded in 2005, is expected tohave a positive effect. Furthermore,
    industry experts anticipate strong growth in the carbon fiber market, principally
    due to a surge in demand from the aviation industry. In carbon-ceramic brake
    discs, our partnership with Audi should deliver further increases in sales
    revenues, although the associated expenses for the planned serial production
    are set to continue in 2006. New applications and significant increases in
    demand from Asia should support revenues in our expanded graphites and industrial
    composites. As a result of a full order books, the structural and component
    business in the aviation and aerospace technology industry is also starting
    on a sound basis. Subject to strategic and structural changes, we expect a
    further increase in sales revenues for the SGL T Business Area combined with
    a positive contribution to operating earnings.


Further
  improvement in Group earnings expected

In view of the encouraging
    economic conditions and the confidence in the majority of our customer industries,
    and assuming that exchange rates remain stable and that no unpredictable events
    occur, SGL Carbon is by all means optimistic for 2006. Once again, we expect
    consolidated sales revenue to slightly exceed the 2005 level. EBIT should
    rise at a disproportionately higher rate compared to the growth in sales revenue,
    albeit not as high as in 2005. In view of the moderate improvement in the
    net financing costs and currently not visible significant restructuring expenses,
    profit before and after taxes should reach a higher rate of increase than
    EBIT. The same applies to the earnings per share. This development would have
    a positive impact on cash flow, which we intend to use to further reduce net
    debt. The equity ratio is expected to increase further in 2006, subject to
    uncertainties regarding the payments of the outstanding antitrust proceedings
    in Europe.


Procurement
  and production

In 2006, consistently
    high raw material and energy prices will again burden the cost structure,
    increasing once more by double digits over 2005. However, we have already
    considered this factor in the price negotiations with our customers. In view
    of the long-term supplier relationships, we do not anticipate bottlenecks
    on the procurement side in 2006, despite the high demand.


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Thanks to the current
    financial framework and the anticipated positive development in cash flow
    and net debt, we currently expect to have sufficient funds to cover peak financial
    requirements in the course of the year.


Increase
  in capital expenditure in 2006

At up to €60 million,
    capital expenditure in the 2006 fiscal year is expected to exceed the previous
    years figure and thus slightly surpass depreciation for the first time
    in years. This development affects all three Business Areas and is the result
    of new projects along with the major alignment of our business to Asia, especially
    China.


Costs
  for research and development and the environment at previous years level

Research and development
    costs in 2006 should reach similar levels to 2005. Expenses that we will require
    for the current environmental protection measures plus those planned in the
    new fiscal year will be approximately the same as last years amount.


No
  significant changes planned for the headcount or the Group structure

The Group headcount
    in 2006 is expected to remain at roughly the same level. While the relocation
    of production within Europe, initiated in 2005, is expected to reduce the
    number of employees in this region by the end of the fiscal year, the high
    demand from the Far East and the expansion of locations there to establish
    a local presence is expected to increase the total headcount. There are currently
    no changes planned to the Group structure, organization or administration
    in 2006.


At this time we
    do not use “off-balance sheet financing arrangements”,
    related to the securization of receivables or access to assets through special
    purpose entities or variable interest entities.


SGL Group companies
    provide standby letters of credit to support associated and related Group
    companies. Performance bonds and guarantees of advanced payments received
    guarantee the fulfillment of contractual commitments of partners in a consortium
    where SGL may be a partner. In the event of non-performance under the contract
    by the consortium partner(s), the Company will be required to pay up to an
    agreed upon maximum amount.


Furthermore, the
    Company has provided indemnifications in connection with divestments of business
    entities, which protect the buyer from tax, legal, and other risks related
    to the purchased business entity. Provisions have been provided for in the
    financial statements in the event that the Company is required to make a payment
    under these indemnifications. In addition, provisions have also been established
    for the non-contingent component of the outstanding guarantees. Most of the
    guarantees of the Company have fixed or scheduled expiration dates, and in
    the Managements experience, such guarantees are rarely drawn upon. For
    additional information with respect to the Companys outstanding guarantees,
    see Note 24 to the Consolidated Financial Statements.


SGL has set up credit
    lines for guarantees in connection with the financing of project-related business
    in the Surface Technology and Plastics Process Technology businesses. Due
    to the sale of these operations as of January 6, 2005, SGL will continue to
    carry the credit lines existing at that date in the amount of approximately
    €9.5 million at the end of 2005 (December 31, 2004: €16.0 million) until each
    individual guarantee will expire. The average utilization of such guarantees
    in the past has been less than 1%. After careful assessment of possible future
    utilization, we established an appropriate provision at year-end.


Rental and lease
    obligations relating to land and buildings, IT equipment, motor vehicles and
    other items of property, plant and equipment amounted to €9.2 million and
    €8.6 million at December 31, 2005 and 2004, respectively. Payment obligations
    of €32.2 million for a contract regarding a right to construct buildings on
    land owned by a third party in Germany are outstanding for the next 61 years.


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SGL has provided
    guarantees to the European Commission regarding the imposed antitrust fines.
    A provision was established on the balance sheet to provide for the estimated
    payment. The major part of the guarantee obligation of €34.5 million at December
    31, 2005 (December 31, 2004: €55.1 million) represents the difference between
    the guarantee and the accrued provision.


Tabular
  disclosure of contractual obligations

|                                    | Maturing in:   | 
|----------------------------------- | -------------- | 
|                                    |                | 
|                                    |                | 
|Obligations                         | Total          | 
|                                    |                | 
|                                    | (millions      | 
|                                    | of
      Euro) | 
|Term
      Facility A               | 4.6            | 
|Term
      Facility C               | 13.0           | 
|Term
      Facility D               | 67.8           | 
|Senior
      notes                  | 270.0          | 
|Other
      bank debt               | 2.7            | 
|                                    |                | 
|Total
      bank debt***            | 358.1          | 
|                                    |                | 
|Acotec
      guarantees**           | 9.5            | 
|Letter
      of Credit Facilities** | 109.4          | 
|Purchase
      obligations**        | 2.2            | 
|Operating
      leases**            | 8.1            | 
|Capital
      leases **             | 1.4            | 
|Liabilities
      from tax payments | 16.1           | 
|Other
      obligations             | 54.4           | 
|                                    |                | 
|Total                               | 559.2          | 
|                                    |                | 

|   
|---
|*  
|** 
|***

For details and
    a description see ITEM 5 “Liquidity and capital resources”
    and the Note 22 and 24 to the financial statements.


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ITEM
  6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

Directors
  and Senior Management

In accordance with
    the German Stock Corporation Act (Aktiengesetz), SGL has two separate boards
    of directors. These are the Board of Management, which we refer to as our
    Executive Committee (Vorstand) and the Supervisory Board (Aufsichtsrat). The
    two boards are separate and no individual may be a member of both boards.


The Board of Management
    is responsible for managing our business in accordance with applicable laws
    and with our articles of association (Satzung).


The principal function
    of the Supervisory Board is to supervise the Board of Management, including
    appointing and removing the members of the Board of Management. Certain transactions
    beyond our ordinary course of business, such as purchases and sales of real
    estate, commencement or discontinuance of business lines, the granting of
    guarantees, or the purchase or sale of equity interests, require the prior
    consent of the Supervisory Board. To ensure that these functions are carried
    out properly, the Board of Management must, among other things, regularly
    report to the Supervisory Board with regard to current business operations
    and future business planning. The Supervisory Board is also entitled to request
    special reports at any time. The Supervisory Board monitors the activities
    of the SGL Groups management and is not permitted to make management
    decisions.


The members of the
    Board of Management and the members of the Supervisory Board are solely responsible
    for and manage their own areas of competency (Kompetenztrennung). In carrying
    out their duties, the individual board members must exercise the standard
    of care of a diligent and prudent businessman. In complying with this standard
    of care, the boards must take into account a broad range of considerations,
    including the interests of SGL and its shareholders, of employees and of creditors.


As a general rule
    under German law, a shareholder has no direct recourse against the members
    of the Board of Management or the Supervisory Board in the event that they
    are believed to have breached their fiduciary duty toward SGL. Apart from
    insolvency or other special circumstances, only SGL has the right to claim
    damages from members of either board. SGL may only waive these damages or
    settlements of claims if at least three years have passed and if the shareholders
    approve the waiver or settlement at the annual shareholders meeting
    with a simple majority of the votes cast, provided that opposing shareholders
    do not hold, in the aggregate, one tenth or more of our share capital and
    do not have their opposition formally noted in the minutes maintained by a
    German notary.


Board of Management

Since January 1,
    2005 our Board of Management consists of four members (the total number is
    determined by the Supervisory Board) who are appointed by the Supervisory
    Board in accordance with the German Stock Corporation Act. These Board of
    Management members are appointed for a maximum term of up to of five years
    and may be reappointed for one or more terms of up to five years. Under certain
    circumstances, such as a serious breach of fiduciary duty or a bona fide vote
    of no confidence by the shareholders at the annual general meeting,
    the Supervisory Board prior to the expiration of his or her term may remove
    a member of the Board of Management. A member of the Board of Management may
    not attend or vote on matters relating to proposals, arrangements or contracts
    between himself and the SGL Group.


Effective January
    1, 2005 Sten Daugaard replaced Dr. Bruno Toniolo , who retired as of the end
    of 2004, as the Chief Financial Officer and member of the Board of Management.


Pursuant to our
    articles of association, Board of Management decisions are made by a simple
    majority vote of the board members, as long as law does not require a larger
    majority. In the event of a tie, the Chairman of the Board of Management has
    the decisive vote. In practice, our Board of Management reaches its decisions
    by consensus. In addition, any two members of the Board of Management or one
    member of the Board of Management together with the holder of a general power
    of attorney (Prokura) may bind SGL.


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The Board of Management
    must report regularly to the Supervisory Board, in particular, on proposed
    business policy and strategy, profitability and on the current business of
    the SGL Group as well as on any exceptional matters that may arise from time
    to time.


The following table
    shows the members of our Board of Management, including the year in which
    they were appointed and the end of their term:


|                             |  | Year      |  |                   |  |                       |  |                                  
|---------------------------- |  | --------- |  | ----------------- |  | --------------------- |  | ---------------------------------
|Name                         |  | Appointed |  | End
      of Term |  | Title                 |  | Other
      activities           
|                             |  |           |  |                   |  |                       |  |                                  
|Robert
      J. Koehler      |  | 1994      |  | December          |  | Chairman
      of the |  | Member
      of the Supervisory  
|                             |  |           |  | 2011              |  | Board
      of        |  | Board
      of AXA               
|                             |  |           |  |                   |  | Management            |  | Lebensversicherungs
      AG,    
|                             |  |           |  |                   |  | (CEO)                 |  | Cologne,
      Benteler AG(1),   
|                             |  |           |  |                   |  |                       |  | Paderborn;
      Heidelberger    
|                             |  |           |  |                   |  |                       |  | Druckmaschinen
      AG,         
|                             |  |           |  |                   |  |                       |  | Heidelberg
      , Lanxess AG,   
|                             |  |           |  |                   |  |                       |  | Leverkusen
      (since 07/2005),
|                             |  |           |  |                   |  |                       |  | Pfleiderer
      AG, Neumarkt ,  
|                             |  |           |  |                   |  |                       |  | Wacker-Chemie
      GmbH,        
|                             |  |           |  |                   |  |                       |  | Munich
      (until 08/2005)     
|                             |  |           |  |                   |  |                       |  |                                  
|Sten
      Daugaard          |  | 2005      |  | December          |  | Member
      of the   |  | SGL
      Carbon Luxemburg       
|                             |  |           |  | 2007              |  | Board
      of        |  | S.A.(1),
      Luxembourg SGL    
|                             |  |           |  |                   |  | Management            |  | Carbon
      GmbH (1),           
|                             |  |           |  |                   |  | (CFO)                 |  | Meitingen;
      SGL CARBON      
|                             |  |           |  |                   |  |                       |  | S.p.A.,
      Milan, Italy, SGL  
|                             |  |           |  |                   |  |                       |  | CARBON
      S:A:, La            
|                             |  |           |  |                   |  |                       |  | Coruña,
      Spain;             
|                             |  |           |  |                   |  |                       |  |                                  
|Theodore
      H. Breyer     |  | 1999      |  | June
      2008   |  | Member
      of the   |  | Member
      of the Supervisory  
|                             |  |           |  |                   |  | Board
      of        |  | Board
      (within SGL Group)   
|                             |  |           |  |                   |  | Management            |  | of
      HITCO CARBON            
|                             |  |           |  |                   |  |                       |  | COMPOSITES
      Inc.,           
|                             |  |           |  |                   |  |                       |  | Gardena,
      USA;, SGL         
|                             |  |           |  |                   |  |                       |  | CARBON
      LLC, Charlotte,     
|                             |  |           |  |                   |  |                       |  | USA                              
|                             |  |           |  |                   |  |                       |  |                                  
|Dr.
      Hariolf Kottmann . |  | 2001      |  | March
      2007  |  | Member
      of the   |  | Member
      of the Supervisory  
|                             |  |           |  |                   |  | Board
      of        |  | Board
      of SF Chem, Basel,   
|                             |  |           |  |                   |  | Management            |  | Switzerland,
      Member of the 
|                             |  |           |  |                   |  |                       |  | Supervisory
      Board or other 
|                             |  |           |  |                   |  |                       |  | Control
      Bodies (within     
|                             |  |           |  |                   |  |                       |  | SGL
      Group) of; SGL         
|                             |  |           |  |                   |  |                       |  | CARBON
      ASIA PACIFIC        
|                             |  |           |  |                   |  |                       |  | Sdn
      Bhd(1), Malaysia; SGL  
|                             |  |           |  |                   |  |                       |  | CARBON
      Japan Ltd.(1),      
|                             |  |           |  |                   |  |                       |  | Tokyo,
      Japan; SGL          
|                             |  |           |  |                   |  |                       |  | TOKAI
      CARBON Ltd.(1),      
|                             |  |           |  |                   |  |                       |  | Shanghai,
      China; SGL       
|                             |  |           |  |                   |  |                       |  | CARBON
      Far East Ltd.(1),   
|                             |  |           |  |                   |  |                       |  | Shanghai,
      China            

|                                                                                              
|----------------------------------------------------------------------------------------------
|(1)                                                                                           
|The
      members of the Board of Management may be contacted at SGLs business
      address.

Robert J. Koehler
    has served as Chairman of the Board of Management since SGLs transformation
    into a stock corporation in 1994. From 1992 until that time, he served as
    Chairman of the Board of Managing Directors of SGL CARBON GmbH. Prior to joining
    the SGL Group, he held various positions with the Hoechst Group. From 1989
    to 1991, Mr. Koehler was Head of


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Corporate Planning of Hoechst AG, and from 1987 until 1989, he served as President
  of Hoechst Colombiana S.A. From 1985 to 1987, he was responsible for the Industrial
  Division of Hoechst U.K. Limited and was a member of the Management Committee.
  Prior to serving as Director of the Chemical
  Division of Hoechst U.K. Limited from 1975 to 1985, he was Product Manager of
  Organic Chemicals at Hoechst AG from 1971 to 1975. In addition to his activities
  at SGL, he also serves as a member of the supervisory boards of Axa Lebensversicherungs
  AG, Ko ̈ ln, Benteler AG, Paderborn (Chairman); Heidelberger Druckmaschinen
  AG, Heidelberg, Lanxess AG, Leverkusen (since July 2005), Pfleiderer AG, Neumarkt
  and Wacker-Chemie GmbH, Munich (until August 2005).

Sten Daugaard was
    appointed to the Board of Management as Chief Financial Officer effective
    January 1, 2005. He joined SGL as Executive Vice President Finance at January
    1, 2004. Prior to joining the SGL Group he has served as Chief Financial Officer
    and Chief Executive Officer of LTU Group Holding and LTU International Airways
    from the year 2000 to 2003. Between 1992 and 1997, Mr. Daugaard has served
    as Finance Director and European Treasurer at ITT Corporation, ITT Industry
    Europe and ITT Automotive before he joined the SAirGroup as Corporate Treasurer
    from 1997 to 2000. From 1986 to 1988 he was Head of the Foreign Department
    at Nykredit and from 1989 to 1992 Management Board Member of Frankfurter Bodenkreditbank.
    In 1977, Mr. Daugaard joined the Den Danske Bank Kopenhagen and held various
    positions in Kopenhagen and in the USA until 1986, last as Head of Foreign
    Currency Financing Department and Treasury. In addition to his activities
    at SGL, he also serves, within the SGL Group, as a member of the supervisory
    boards of SGL CARBON S.p.A. Milan, Italy, SGL CARBON S.A., La Coruña,
    Spain and as Chairman of the supervisory boards of SGL Carbon Luxemburg S.A.,
    Luxembourg and SGL Carbon GmbH, Meitingen.


Theodore H. Breyer
    was appointed to the Board of Management in 1999. In addition to this appointment,
    he took over the responsibility for the global Carbon and Graphite business
    area effective January 1, 2002. In 1995, Mr. Breyer joined the SGL Group.
    From 1997 to 1999, Mr. Breyer served as Chairman of our Carbon and Graphite
    North America business unit. In 1970, Mr. Breyer joined the Caltex Petroleum
    Corporation. Between 1974 and 1995, Mr. Breyer held various positions at Hoechst
    Celanese, most recently as Vice President and General Manager for Bulk Pharmaceuticals
    Products of the Specialty Chemicals Group. IIn addition to his activities
    at SGL, he also serves, within the SGL Group, as a member of the supervisory
    boards of HITCO CARBON Composites Inc., Gardena, USA and SGL CARBON LLC, Charlotte,
    USA.


Hariolf Kottmann
    was appointed as a member of the Board of Management in 2001. In addition
    to this appointment, he took over the responsibility for our global Specialties
    business area effective January 1, 2002. Prior to joining the SGL Group, Mr.
    Kottmann acted as Executive Vice President of Celanese Ltd. (Dallas, Texas).
    Mr. Kottmann has also held several management positions as divisional head
    of research and development, divisional head of production and head of divisions
    with Hoechst AG or affiliated companies. In addition to his activities at
    SGL, he also serves as a member of the supervisory board of SF Chem, Basel,
    Switzerland, and, within the SGL Group, as chairman of the supervisory boards
    of SGL CARBON ASIA PACIFIC Sdn. Bhd., Malaysia, SGL CARBON Japan Ltd., Tokyo,
    Japan, SGL TOKAI CARBON Ltd., Shanghai, China, and SGL CARBON Far East Ltd.,
    Shanghai, China.




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Other Senior Management

The table below
    sets forth the SGL Groups senior executive officers, the year they were
    appointed and their positions within the SGL Group:


|                              |  | Year      |  |                                                           | 
|----------------------------- |  | --------- |  | --------------------------------------------------------- | 
|Name                          |  | Appointed |  | Management
      Position                                 | 
|                              |  |           |  |                                                           | 
|Armin
      Bruch             |  | 2005      |  | Carbon
      and Graphite business area                   | 
|Britta
      Döttger          |  | 2004      |  | Group
      Coordination Treasury                        | 
|Wilhelm
      Hauf            |  | 2001      |  | Group
      Coordination
      Accounting                | 
|Dr.
      Joachim Heins-Bunde |  | 1992      |  | Group
      Coordination
      Corporate Planning        | 
|Helmut
      Mühlbradt        |  | 1989      |  | Group
      Coordination Human
      Resources and Legal | 
|Christian
      Pagel         |  | 2004      |  | Corporate
      Business Systems                          | 
|Dr.
      Jan Verdenhalven    |  | 2001      |  | Managing
      Director    SGL Technologies              | 
|Dr.
      Gerd Wingefeld      |  | 2005      |  | Specialties
      business area                           | 

Mr. Bruch was appointed
  Chairman of the Carbon Graphite business area effective January 1, 2005. He
  had joined SGL as the Carbon Graphite Business area Head of Commercial Business.
  in 2001. Prior to joining the SGL Group he has held various positions in marketing,
  sales and general management within Celanese AG and in the Hoechst Group.

Ms. Döttger
    joined SGL as Head of Group Treasury on October 1, 2004. Prior to joining
    the SGL Group she held the position as Head of Finance at Fraport AG and has
    served several years in various positions at Deutsche Bank AG, e.g. as credit
    analyst and account manager.


Mr. Hauf was appointed
    Head of Group Accounting in 2001. From 1994 until 2001, he was Controller
    of the Carbon and Graphite Europe business unit. He joined SGL Group in 1992
    as a member of the Corporate Planning and Coordination Department. Prior to
    joining the SGL Group, Mr. Hauf was in the Central Auditing Department of
    Hoechst AG.


Mr. Heins-Bunde
    has served as Head of Corporate Planning and Coordination since 1992. He joined
    SGL Group in 1982, holding various positions in sales, business unit management
    and central coordination.


Mr. Mühlbradt
    joined SGL as Head of Human Resources and of the Legal Department in 1989.
    Prior to joining the SGL Group, he held similar positions with other companies
    of the Hoechst Group.


Mr. Pagel was appointed
    Head of Corporate Business Systems effective October 1, 2004. He joined SGL
    as Head of Information Technology at SGL Acotec in October 2003. Prior to
    joining the SGL Group he held various positions as an Information Technology
    (IT) strategy and management consultant at Deloitte & Touche, Berentzen
    Group AG and CCE AG. Most recently he was the Managing Director of Edding
    Informationstechnologie GmbH.


Mr. Verdenhalven
    was appointed Managing Director of SGL Technologies in May 2001. He joined
    the SGL Group in March 2000 as Head of Corporate Controlling and Development.
    Prior to joining the SGL Group, he held several management positions within
    Hoechst AG and a consulting company.


Mr. Wingefeld was
    appointed Chairman of the Specialties Business area effective January 1, 2005.
    He joined SGL as Head of Global Business Line Feedstock within the Specialties
    business area in 2001. Prior to joining the SGL Group he held various positions
    in research & development, production, operation and manufacturing at
    Celanese AG and within the Hoechst Group.


Supervisory Board

Our Supervisory
    Board currently consists of twelve members, six of whom were elected by the
    shareholders at the annual general meeting in accordance with the provisions
    of the Stock Corporation Act and six of whom were elected by the employees
    in accordance with the Co-Determination Act (Mitbestimmungsgesetz).


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A member of
      the Supervisory Board elected by the shareholders may be removed by a simple
      majority vote at a general meeting of the shareholders. A member of the
      Supervisory Board elected by the employees may be removed by a majority
      of at least three-quarters of the votes cast by the relevant class of employees.
      The Supervisory Board appoints a chairman and a deputy chairman from among
      its members. The Chairman of the Supervisory Board must be elected by a
      majority of two-thirds of the members of the Supervisory Board. If this
      majority is not reached in the first vote, the chairman will be elected
      in a second vote solely by the representatives of the shareholders. At least
      half the members of the Supervisory Board must be present to constitute
      a quorum. Unless otherwise provided for by law or the articles of association,
      resolutions are passed by a simple majority of the Supervisory Board. In
      the event of a tied vote, another vote is held. In the event of a second
      tied vote, the chairman has the decisive vote.
 The members
      of the Supervisory Board are each elected for a term of approximately five
      years (the year in which the members term begins is not counted towards
      the term calculation and therefore, a Supervisory Board members term
      expires at the end of the annual general meeting of shareholders the fourth
      fiscal year after the beginning of the members term). The remuneration
      of the Supervisory Board members is fixed by our articles of association.
 The following table
    shows the current members of our Supervisory Board, the years in which they
    were first elected to the Supervisory Board of SGL or its predecessor companies,
    and their principal occupations:


|                                                     |  | Year
      first |  | End
      of |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | 
|---------------------------------------------------- |  | ---------------- |  | ------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | 
|Name                                                 |  | appointed        |  | term(1)      |  | Other
      activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | 
|                                                     |  |                  |  |              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | 
|Max
      Dietrich Kley (Chairman)                   |  | 2004             |  | 2008         |  | Former
      Member of the Board of Management of BASF
      AG, Ludwigshafen; Chairman of Börsensachverständigenkommission
      (BSK); President
      of Deutsches Aktieninstitut e.V., Frankfurt/Main
      (DAI); Member of the Board of Trustees
      of the International Accounting Standards
      Committee Foundation (IASCF); Supervisory
      board memberships: BASF AG, Ludwigshafen;
      Bayerische Hypo-und Vereinsbank AG,
      Munich (until November 28, 2005); Infineon Technologies AG (2),
      Munich; Schott AG,
      Mainz; Heidelberg Cement AG, Heidelberg; UniCredit
      S.p.A., Milan, Italy (as of January 11, 2006) | 
|                                                     |  |                  |  |              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | 
|Heinz
      Schroth(3)                               |  | 1988             |  | 2005         |  | Industrial
      sales manager, SGL Carbon GmbH                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | 
|(until
      April 27, 2005)                         |  |                  |  |              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | 
|                                                     |  |                  |  |              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | 
|Josef
      Scherer(3)                               |  | 2005             |  | 2008         |  | Chemical
      laboratory worker, SGL CARBON                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | 
|(since
      April 27, 2005)                         |  |                  |  |              |  | GmbH                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | 
|(Deputy
      Chairman)                              |  |                  |  |              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | 
|                                                     |  |                  |  |              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | 
|Prof.
      Dr. rer. nat. Utz- Hellmuth
      Felcht |  | 1992             |  | 2008         |  | Chairman
      of the Board of Management of Degussa
      AG Düsseldorf; Member of the Management
      Board of RAG AG Essen; Internal board
      membership: Goldschmidt AG(2), Essen (until
      14.01.2005); SKW Metallurgie AG(2), Trostberg
      (until 14.01.2005); Ru ̈tgers AG(2), Essen
      (until 30.06.2005), RAG Coal International, Essen,
      Degussa (China) Co. Ltd.(2); External board
      memberships: Gerling-Konzern Vesicherungs-Beteiligungs
      AG, Cologne                                                                                                                                                               | 
|                                                     |  |                  |  |              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | 
|Peter
      Fischer(3)                               |  | 1993             |  | 2008         |  | Attorney,
      SGL CARBON Aktiengesellschaft                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | 

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|                                  |  | Year
      first |  | End
      of |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--------------------------------- |  | ---------------- |  | ------------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Name                              |  | appointed        |  | term (1)     |  | Other activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|                                  |  |                  |  |              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Dr.-Ing.
      Claus Hendricks    |  | 1996             |  | 2008         |  | Former
      Member of the Management Board of Thyssen
      Krupp Stahl AG Duisburg; External board
      memberships: Pro Lean Consulting AG, Deputy(2), Düsseldorf; Schumag AG (2),
      Aachen; TSTG
      GmbH, Duisburg                                                                                                                                                                                                                                                                                        
|                                  |  |                  |  |              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Juergen
      Kerner(3)           |  | 2002
      (4)   |  | 2008         |  | First
      Authorized representative of IG Metall, Administrative
      Center Augsburg; External board memberships:
      Member of the Supervisory Board IWKA
      Aktiengesellschaft Karlsruhe; MAN B&W Diesel
      AG, Augsburg; MAN Roland AG, Offenbach                                                                                                                                                                                                                                                      
|                                  |  |                  |  |              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Dr.-Ing.
      Hubert H. Lienhard |  | 1996             |  | 2008         |  | Member
      of the Management Board of Voith AG, Heidenheim;
      Internal Board memberships: Voith Turbo
      Beteiligungs GmbH Heidenheim; Voith Paper
      Holding Verwaltungs GmbH, Heidenheim; Voith Siemens Hydro Power Generation
      Ltda., São Paulo, Brasil; Voith Siemens Hydro Power Generation Shanghai
      Ltd.; Shanghai, China; Voith
      Siemens Hydro Power Generation Inc., York,
      PA/USA; External board memberships: Sulzer
      AG, Winterthur, Switzerland (Board of Directors)
|                                  |  |                  |  |              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Jacques Loppion                   |  | 1993             |  | 2008         |  | Former President
      du Conseil dAdministration Groupe
      SNPE S.A., France ; External board memberships
      : GroupeGascogne, Saint-Paul-les-Dax, France (until 06/2005), S.A.I. Golf,
      Saint- Nom-la
      Bretèche, France ; KME AG, Osnabrück                                                                                                                                                                                                                                                        
|                                  |  |                  |  |              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Edelbert Schilling(3)             |  | 2003             |  | 2008         |  | Technical Assistant,
      SGL ACOTEC GmbH, Siershahn
      (until December 31, 2005); General Manager, K &W GmbH NL Europe, Montabaur
      (since January
      01, 2006)                                                                                                                                                                                                                                                                                                                                           
|                                  |  |                  |  |              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Andrew H. Simon(6)                |  | 1998             |  | 2008         |  | Advisor and
      Member of the Supervisory Board of several
      companies; External board memberships: Member
      of the Supervisory Board of Associated British
      Ports plc., London, United Kingdom; Brake
      Bros, Ltd., Ashford, United Kingdom, Dalkia
      UK plc, London, United Kingdom; Kaffee Partner Holding GmbH (2); Osnabrück
      (until 12/2005); Finning International Inc., Vancouver, Canada                                                                                         
|                                  |  |                  |  |              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Heinz Will(3)                     |  | 2005             |  | 2008         |  | Electrician,
      SGL CARBON GmbH, Frankfurt                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Electrician,
      SGL            |  |                  |  |              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|CARBON GmbH,                      |  |                  |  |              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Frankfurt                         |  |                  |  |              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(since April
      27, 2005)      |  |                  |  |              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                  |  |                  |  |              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Hans-Werner
      Zorn(3)         |  | 2003(5)          |  | 2008         |  | Mechanical engineering
      technician, SGL CARBON GmbH                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|                                  |  |                  |  |              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

|   
|---
|(1)
|(2)
|(3)
|(4)
|(5)
|(6)



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The members of
    the Supervisory Board may be contacted at the Companys business address.


Committees

For the purpose
    of handling complex issues, the Supervisory Board establishes various committees
    in line with and on the basis of our articles of association. The Supervisory
    Board has established a Codetermination Committee, a Personnel Committee,
    an Ad-hoc Committee, an Audit Committee, a Strategy Committee, a Refinancing
    Committee and a Technology Committee. The Supervisory Board may, at its own
    discretion, establish, permanently or temporarily, other committees. In its
    resolutions regarding the establishment of other committees, the Supervisory
    Board is required to expressly outline the tasks of the new committee, its
    composition and to state whether the new committee shall be entitled to pass
    resolutions.


The Supervisory
    Board has established an Audit Committee. The core tasks of the Audit Committee
    encompass the following areas: annual consolidated financial statements, risk
    management, independence of the auditor, preparation for issuing the audit
    mandate, determining the areas of emphasis of the audit
  and proposing the audit fees to the Supervisory Board. Tasks and procedures
  of the Audit Committee are incorporated into the SGL Carbon AG Corporate Governance
  Policy. Individual tasks of the Audit Committee cover the following areas:


| | • | Preparation
      of the Supervisory Boards recommendation to the General Meeting of shareholders
      on the election of the auditor, which includes a thorough review of the
      auditors independence.                                                                                                                                                                                                   
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | • | Preparation
      of the audit mandate, including discussing the areas of emphasis of the
      audit and the auditors remuneration. Approval of additional non-audited
      related services of the auditor.                                                                                                                                                                                                 
|
| | • | Review and discussion
      of the annual financial statements of SGL Carbon AG and of the consolidated
      financial statements, management report and Group management report and
      the proposal for the appropriation of the net profit. Preparation of Supervisory
      Board resolutions regarding the approval of the annual financial statements
      and the consolidated financial statements.

Other responsibilities
    of the Audit Committee include, but are not limited to, the risk management
    and the internal control system of the Company, the handling of complaints
    on accounting matters addressed to the Audit Committee and the preparation
    and discussion of the Board of Managements report on allocation of charitable
    donations that exceed €10,000. The Supervisory Board, upon proposal
    of its chairman, may delegate the approval of the increase in share capital
    from authorized capital (pursuant to article 3, para. 6 and 7 of the Articles
    of Incorporation) to the Audit Committee. The members of the Audit Committee
    are Andrew Simon (chairman and financial expert), Max Dietrich Kley, Ju ̈
    rgen Kerner, Heinz Schroth (until April 2005) and Josef Scherer (since April
    2005).


The Personnel Committee
    must approve all compensation paid by SGL to members of the Board of Management.
    The Personnel Committee is comprised of three members who meet four times
    per year or as and when required. The chairman and the vice-chairman of the
    Supervisory Board are permanent members of the committee. The third member
    of the committee is a Supervisory Board member who represents the shareholders
    and who is elected into the committee by the other members of the Supervisory
    Board. The members of the Personnel Committee are Max Dietrich Kley (chairman),
    Utz-Hellmuth Felcht, Heinz Schroth (until April 2005) and Josef Scherer (since
    April 2005).


Compensation

We have entered
    into service agreements with all current members of the Board of Management.
    These agreements generally provide for a base salary, associated fringe benefits,
    an annual bonus plan, and a pension plan.


We believe that
    the service agreements between SGL and the members of the Board of Management
    provide for payments and benefits upon termination of employment that are
    in line with customary market practices. The following table shows the remuneration
    components of those


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individual members of our Board of Management who were active on the Board
    as of December 31, 2005.

Remuneration of
    the Members of the Board of Management


|                      |                   |  |       |  |                |  | Stock   |  |           |  |            | 
|--------------------- | ----------------- |  | ----- |  | -------------- |  | ------- |  | --------- |  | ---------- | 
|                      |                   |  |       |  | SGL            |  | Options |  |           |  |            | 
|                      |                   |  |       |  | shares         |  | Granted |  | Stock     |  | SARs       | 
|                      |                   |  |       |  | owned
      in |  | (2000  |  | Options   |  | Granted(1) | 
|                      | Base
      salary |  | Bonus |  | total          |  | 2004)   |  | Exercised |  | (2005)     | 
|                      | T€                |  | T€    |  | no.            |  | no.     |  | no.       |  | no.        | 
|                      |                   |  |       |  |                |  |         |  |           |  |            | 
|R.
      J. Koehler   | 424               |  | 424   |  | 79,389         |  | 120,000 |  | 20,000    |  | 50,000     | 
|T.
      H. Breyer    | 294               |  | 294   |  | 31,296         |  | 72,000  |  | 0         |  | 30,000     | 
|S.
      Daugaard     | 294               |  | 200   |  | 1,152          |  | 6,000   |  | 0         |  | 30,000     | 
|Dr.
      H. Kottmann | 294               |  | 294   |  | 27,861         |  | 57,000  |  | 0         |  | 30,000     | 
|                      |                   |  |       |  |                |  |         |  |           |  |            | 
|Total                 | 1,306             |  | 1,212 |  | 139,698        |  | 255,000 |  | 20,000    |  | 140,000    | 
|                      |                   |  |       |  |                |  |         |  |           |  |            | 

|   
|---
|(1)

In addition, the
    members of the Board of Management also receive a variable compensation component
    in the form of management incentive plans (see also Note 30). The Board of
    Managements stock options include option rights from the Stock Option
    Plan, granted from 2000 to 2004 and not yet expired. In addition, stock appreciation
    rights (SARs) were granted in 2005. The settlement of the Matching Shares
    Plan of 2003 resulted in a grant of 12,648 SGL shares as well as a €60.000
    payment to the members of the Board of Management in 2005. Total expense for
    the active members of the Board of Management under the Matching Shares Plan
    was €212 thousand in 2005, and for the LTCI Plans, lasting over several
    years the expense was €1,256 thousand. For fiscal year 2005 , the expensed
    remuneration of the Board of Management amounted to a total of €3.2
    million including payments in kind and bonuses, which are to be paid in 2006.


To cover the pension
    obligations to members of the Board of Management the Company entered into
    reinsurance policies with two large insurance companies. As of December 31,
    2005, the asset value included in the pension provisions amounted to €5.7
    million. Claims under these reinsurance policies were pledged to the respective
    Board of Management members. The total remuneration of former members of the
    Board of Management and executive management and their surviving dependents
    amounts to €0.4 million. Provisions of €3.4 million have been
    recognized to cover pension obligations to former members of executive management
    and their surviving dependents.


The active members
    of the Board of Management hold shares and American Depository Receipts (ADRs)
    in SGL CARBON AG as part of their private assets. At December 31, 2005, members
    of the Board of Management held 119,110 shares and 61,764 ADRs, corresponding
    to a total of 139,698 shares.


The aggregate amount
    of compensation paid by SGL to its senior executive officers who held office
    in 2005 (excluding members of the Board of Management) was €2.3 million.


The members of the
    Board of Management also receive a variable compensation component in the
    form of rights under management incentive plans. From 2000 to 2005, the members
    of the Board of Management were granted option rights under SGLs Stock
    Option and SAR Plans, which have not yet expired. The members of the Board
    of Management were granted a total of 68,000 options in an aggregate value
    of €418 thousand in 2004 (€6.15 per option) and in 2005 a total
    of 140,000 SARs in an aggregate value of €616 thousand (€4.40
    per SAR). The actual values of these stock options and SARs upon exercise
    will likely differ from the estimated values at issuance and may be either
    higher or lower (see “Management Incentive Plans” below). The
    total remuneration of the Supervisory Board totaled €339 thousand. The
    following amounts were paid in 2005:


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  to Contents

Remuneration of the Supervisory Board

|                                              | Base         |  | Additional   |  |       | 
|--------------------------------------------- | ------------ |  | ------------ |  | ----- | 
|in
      T€                                   | remuneration |  | remuneration |  | Total | 
|                                              |              |  |              |  |       | 
|Max
      Dietrich Kley                       | 40.0         |  | 12.6         |  | 52.6  | 
|Chairman                                      |              |  |              |  |       | 
|Heinz
      Schroth*                          | 9.6          |  | 4.2          |  | 13.8  | 
|Deputy
      Chairman (until April 27, 2005)  |              |  |              |  |       | 
|Josef
      Scherer* (since April 27, 2005)   | 26.8         |  | 10.6         |  | 37.4  | 
|Prof.
      Dr. rer. nat. Utz-Hellmuth Felcht | 20.0         |  | 6.6          |  | 26.6  | 
|Peter
      Fischer*                          | 20.0         |  | 0.6          |  | 20.6  | 
|Dr.-Ing.
      Claus Hendricks                | 20.0         |  | 6.6          |  | 26.6  | 
|Jürgen
      Kerner*                          | 20.0         |  | 2.5          |  | 22.5  | 
|Dr.-Ing.
      Hubert Lienhard                | 20.0         |  | 6.6          |  | 26.6  | 
|Jacques
      Loppion                         | 20.0         |  | 2.6          |  | 22.6  | 
|Bert
      Schilling*                         | 20.0         |  | 2.6          |  | 22.6  | 
|Andrew
      H. Simon                         | 20.0         |  | 6.6          |  | 26.6  | 
|Heinz
      Will (since April 27, 2005)*      | 13.6         |  | 0.3          |  | 13.9  | 
|Hans-Werner
      Zorn*                       | 20.0         |  | 6.6          |  | 26.6  | 
|                                              |              |  |              |  |       | 
|Total                                         | 270.0        |  | 69.0         |  | 339.0 | 
|                                              |              |  |              |  |       | 

An asterisk * identifies
    employee representatives, who receive salaries from us unrelated to their
    work on the Supervisory Board. Supervisory board members receive additional
    remuneration from meeting attendance as well as for their participation as
    active committee members. The basic remuneration of Supervisory Board members
    appointed for the first time in 2004 will be paid in 2005.


In addition, as
    of December 31, 2005, the employee representative members of our Supervisory
    Board held an aggregate number of 422 shares of SGL CARBON AG, 5,000 stock
    options and 2,500 SARs (the stock options and SARs concern only the employee
    representative members of the Supervisory Board, who participate in the management
    and employee share incentive plans of SGL).


Annual Bonus Plan.

Approximately 500
    key managers are eligible for participation in our annual bonus program. This
    program provides for annual bonus payments subject to the following factors:
    (i) the SGL Groups income before taxes, (ii) the operating results of
    the respective business area and (iii) the personal performance of the participating
    manager. Depending on the seniority and the position held by the participating
    manager, these bonus payments can equal between 25% and 70% of base salary.


Since 1998, a similar
    bonus plan was introduced for all non-exempt employees in Germany, replacing
    the previous profit-sharing plan. The bonus payment under this plan can amount
    up to 20% of an employees yearly base salary and is distributed in form
    of shares (30% of which are subject to a lock-up of one year). A similar bonus
    plan for exempt employees generally provides that 50% of the bonus payment
    be distributed in the form of shares.


Management Incentive
  Plans

SGL currently has
    five different management and employee incentive plans. The Long-Term Incentive
    Plan, which was approved in 1996, originally comprised the Stock Appreciation
    Rights Plan (“SAR Plan 1996”) and the Long-Term Cash Incentive
    Plan (“LTCI Plan”). Whereas the exercise period of the SAR Plan
    runs through 2006, the term to maturity of the LTCI Plan was limited to three
    years and has already expired on December 31, 1998. The current Long Term
    Cash Incentive Plan is valid for the period from 2005 through 2007 (the LTCI
    Plan 2005  2007) and replaced the expired LTCI Plan 2002  2004
    at the end of 2004. Furthermore, on April 27, 2000, the Companys Annual
    General Meeting approved the introduction of a Share Plan or Matching Shares
    Plan (“Share Plan”) as well as a Stock Option Plan (“Stock
    Option Plan”). The Share Plan was launched in


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March 2001. The Stock
  Option Plan, which was implemented in July 2000, superseded the SAR Plan 1996,
  whose eligibility period ended in 2001, and has a maturity of five years. As
  a successor plan for the Stock Option Plan that expired at the end of 2004,
  the Annual General Meeting of April 30, 2004, approved the introduction of a
  Stock Appreciation Rights Plan (“SAR Plan 2005”) for Board of Management
  and the top three management levels. The plan provides for the issue of SARs
  beginning on January 1, 2005 over a period of five years, whose increase in
  value provides their holders with the right to subscribe to shares of SGL.

Beginning in fiscal
    year 2005 stock options and Stock Appreciation Rights (SAR’s) granted
    since fiscal year 2003 must be treated as an expense in accordance with IFRS
    2. For details see Note 30 to the consolidated financial statements.


Stock Appreciation
  Rights Plan 1996 (SARPlan)

Under the SAR Plan,
    the members of the Board of Management and certain members of senior management
    of the SGL Group have been granted stock appreciation rights (“SARs”).
    Each SAR represents (i) with respect to members of the Board of Management,
    the right to receive an amount equal to the difference, on the one hand, between
    the average SGLs middle share price officially quoted on the Frankfurt
    Stock Exchange on March 16 of the year in which the option is exercised, and
    on the other hand, the respective exercise price, which, prior to adjustment
    for dilution, ranges from €33.03 to €102.26; and (ii) with regard
    to employees of the SGL Group, the right to purchase one share at the respective
    exercise price.


One SAR is associated
    with one share. A total of 840,500 shares are linked to the SAR Plan, representing
    approximately 3.79% of all shares outstanding at the time. Until December
    21, 2004, SARs representing a total of 746,800 shares had been granted to
    members of the Board of Management and to 60 members of senior management.
    Of these SARs, 637,350 had been exercised as of December 31, 2005.


Under the SAR Plan,
    an option representing a specific number of SARs (a “SAR Option”),
    as determined by the Board of Management, or, if the beneficiary was a member
    of the Board of Management, by the Supervisory Board, was granted to each
    beneficiary at the beginning of the SAR acquisition period (January 1, 1996
     January 1, 2000). The SARs allotted via this SAR Option during the
    eligibility period (January 1, 1997  January 1, 2001) are vested on
    January 1 for the preceding fiscal year in five equal annual tranches of 20%
    each. Each vested SAR may be exercised during the period March 1 to March
    15 each year, on March 15, 2006, at the latest or upon termination of service
    (as described below). Board of Management members exercising SAR Options must
    utilize a portion of the net proceeds corresponding to 15% of the gross proceeds
    to purchase shares of the Company in the stock market. For this purpose, the
    Company instructs a financial institution to acquire the shares for the account
    and in the name of the member of the Board of Management. SGL or the relevant
    subsidiary provides the financial means to effect the purchase directly to
    the bank and deduct the amounts from the funds due to the beneficiary from
    exercising the SAR. The bank retains these shares in safekeeping on behalf
    of the member of the Board of Management for the successive twelve months.
    The remaining net proceeds are paid out to the member of the Board of Management.


All the shares earned
    by an employee of the SGL Group upon exercise of the SARs must immediately
    be resold. An exception is made for the number of shares that can be purchased
    with 15% of the gross proceeds from the sale of all the shares. Such retained
    shares may not be sold and are blocked for a period of twelve months. As the
    exercise price of these SARs from 1996 is considerably higher than the current
    share price, the fair value of these options is zero euros.


LongTerm
  Cash Incentive Plan (LTCI Plan)

LTCI Plan 2002-2004

Under the LTCI Plan
    2002-2004, the members of the Board of Management and 36 senior managers were
    granted cash awards by SGL subject to the achievement of certain performance
    targets over a three-year period. The plan period was 2002 through 2004. The
    maximum aggregate award was €7.8 million.


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The performance
    target that the SGL Group must reach in order for participating senior managers
    and Board of Management members to be entitled to the maximum award under
    the LTCI Plan was set at a 2.3 to 1 ratio of net debt to EBITDA. The minimum
    requirement for the payment of any bonus is a ration of 3.6 to 1. The committee
    that is responsible for the administration of the LTCI Plan 2002-2004 may
    change these performance targets at the beginning of any year. The minimum
    requirement for a bonus payment was a ratio of 3.6 to 1.


Participants in
    the LTCI Plan 2002-2004 must use a certain amount of the net proceeds of the
    plan that equals 15% of the gross proceeds to buy shares of SGL. For this
    purpose, SGL will instruct a financial institution to acquire the shares for
    the account and in the name of the relevant participant. The Company will
    provide the financial means to effect the purchase of the shares directly
    to the financial institution from the participants non-disbursed bonus
    payments. These shares will subsequently be deposited with the financial institution
    on behalf of the participant. The remaining proceeds will become due for payment
    on April 30, 2005.


If the employment
    of a participant in the LTCI Plan 2002-2004 with the SGL Group terminates
    due to retirement, disability, death or termination without cause, the participant
    will have the right to obtain a prorated award proportional to such participants
    tenure in the LTCI Plan 2002-2004 until the date of termination of service.
    If the employment of a participant with the SGL Group terminates with reference
    to a change of control and without cause, the participant will keep his right
    to obtain the full award as if he had remained with the company until the
    end of the performance cycle of the LTCI Plan. If a participant terminates
    employment with the SGL Group due to a voluntary termination for good cause,
    the participant will have the right to receive a prorated amount proportional
    to the participants tenure in the LTCI Plan 2002-2004 until the date
    of termination of service. In all of these cases, the participant is not required
    to obtain shares of SGL, but will be paid the full net proceeds. In the case
    of termination for cause or voluntary termination that is not caused by a
    change of control, the participants right to obtain any LTCI award terminates
    and such award lapses.


In relation to the
    means of calculation, the Supervisory Board meeting on December 5, 2003 specified
    that any capital increase implemented is to be neutralized in the calculation
    of the performance target. The meeting of the Board of Management on December
    22, 2003 also approved the same measure for senior management. At the end
    of the three-year plan period the performance target under the plan was achieved
    to an extent of 45.7% . Members of the Board of Management and Senior Managers
    received an aggregate award of €3.4 million. According to the plan,
    all active plan participants have re-invested 15% of their gross proceeds
    to purchase in total 42,700 SGL shares, which were locked-up until March 31,
    2006.


LTCI-Plan 2005
   2007

Under the LTCI Plan
    2005  2007, over a three-year period SGL can grant the members of the
    Board of Management and 40 members of senior management a cash bonus payment
    that is linked to certain performance targets. The current planning period
    runs from 2005 through 2007. Bonuses totaling a maximum of €7.4 million
    may be paid out. The performance target that the SGL Group must reach in order
    for participating members of senior management and Board of Management members
    to qualify for the maximum bonus under the LCTI Plan 2005  2007 was
    set at a ratio of net debt to EBITDA of 3.4 to 1 as per December 31, 2005,
    2.7 to 1 as per December 31, 2006 and 2.3 to 1 as per December 31, 2007. The
    Plan also stipulates that 20% of the maximum bonus can be paid if the performance
    target is reached by December 31, 2005, 30% if the performance target is reached
    by December 31, 2006 and 50% if the performance target is reached by December
    31, 2007.


Beneficiaries of
    the LTCI Plan 2005  2007 must use a portion of the net proceeds of the
    LTCI premiums corresponding to 15% of the gross proceeds to buy shares of
    SGL on the stock market. For this purpose, the Company instructs a financial
    institution to acquire the shares for the account and in the name of the respective
    beneficiary and transfers the funds out of withheld bonus payments directly
    to the bank for the purchase of the shares. These shares are subsequently
    held by the financial institution in safekeeping on behalf of the beneficiary
    for the successive 12 months. The remaining proceeds are payable on April
    30, 2008.


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As per December
    31, 2005, the performance target of net debt to EBITDA of 3.4 : 1 was achieved.
    The participants in the Plan thus acquired a claim to 20% of the maximum bonus.
    A total of €2.6 million has been reserved for these bonus accrual that
    have already been earned as well as further possible bonus payments to members
    of the Board of Management and members of senior management.


Share Plan/Matching
  Shares Plan

In March 2001, SGL
    launched the Matching Shares Plan for the members of the Board of Management
    as well as the first three management levels below the Board of Management.
    Under the plan, participants may invest up to 50% of their annual bonuses
    in shares of the Company. If they hold these shares for at least two years,
    they receive the same number of shares (matching shares) against payment of
    a special bonus in a corresponding amount.


The Companys
    Share Plan was adopted by SGLs shareholders at the Annual General Meeting
    of April 27, 2000, and went into effect on March 31, 2001. Originally, a maximum
    of 250,000 new shares was reserved out of authorized capital for implementation
    of the Matching Shares Plan. At the end of March 2005, 36,025 new shares were
    granted from authorized capital out of the capital increase to those members
    of senior management and executive staff participating in the Share Plan during
    2003; a total of 12,648 outstanding shares, acquired on the stock market,
    were granted to members of the Board of Management. The value of the matching
    shares amounted to €9.96 per share on the reporting date of March 29,
    2005, which was regarded as compensation on which the individual plan participants
    paid taxes. The net amount corresponding to the number of matching shares
    was transferred to the individual securities accounts of the participants.
    Participants could subsequently freely dispose of these net matching shares
    as well as shares invested from 2003, whose two-year lock-up period expired
    on March 31, 2005.


Following the refinancing
    package of the SGL Carbon Group, which was implemented in 2004, and corresponding
    adjustment of authorized capital by the ordinary Annual General Meeting on
    April 30, 2004, a total of 350,000 new shares were available to service future
    share plans. In 2005, a total of 36,025 shares were used to process the Matching
    Shares Plan 2003. During the fiscal year, members of the Board of Management
    and 74 members of senior management took part in the Matching Shares Plan
    2005  2007, acquiring a total of 113,343 SGL shares from their taxed
    income at a price of €10.10 per share on the stock market.


Stock Option
  Plan

The Stock Option
    Plan is administered by the Supervisory Board for the members of the Companys
    Board of Management. Under the Stock Option Plan, the Supervisory Board is
    authorized to grant options on shares to members of the Board of Management.
    The Board of Management administered the Stock Option Plan for approximately
    150 members of senior management as well as the executive staff of the Company
    and its subsidiaries.


The options have
    a term to maturity of ten years from their date of grant; they expire without
    compensation if they are not exercised during this period. The options may
    only be exercised after expiration of a two-year waiting period. This period
    begins the day after an option is granted, thereby resulting in an exercise
    period of eight years. During the exercise period, options may only be exercised
    on trading days during predetermined days when trading windows are open. Following
    publication of the Companys operating results, two trading windows of
    ten days each are made available for each options tranche, during which time
    options may be exercised. The times these trading windows are open is determined
    by the Supervisory Board for options granted to members of the Board of Management
    and by the Board of Management for options granted to the remaining participants.
    Options may be exercised only if the SGL Group has met its performance targets
    at the time the options are exercised. The performance target is the increase
    in the total shareholder return of the SGL share. The Stock Option Plan defines
    this as the sum of the share price plus retained dividends plus the value
    of the options. For options to be eligible for exercising, total shareholder
    return must be at least 15% higher than the exercise price.


Calculation of the
    exercise price to be paid by beneficiaries under the Stock Option Plan is
    based on the average closing price of the shares in the XETRA securities trading
    system of the


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Frankfurt Stock Exchange
  for the last 20 trading days before the relevant options are granted, excluding
  transaction costs.

The options are
    subject to certain terms and conditions of sale. Thus, for an additional twelve
    months, beneficiaries must retain Companys shares in a minimum value
    of 15% of the gross proceeds (amounting to the difference between the subscription
    price and the exercise price of all options exercised by the participants)
    generated by the sale of the subscribed shares.


The conditions of
    the Stock Option Plan provide protection against dilution. Accordingly, the
    exercise price of the options is reduced if prior to maturity of the options
    the share capital of SGL Carbon AG, through the issue of new shares with the
    granting of subscription rights to the shareholders, is increased by an amount
    that is calculated based on the average price on the Frankfurt Stock Exchange
    on all trading days of the subscription right to which shareholders are entitled.
    The average price of the subscription rights to new shares during the subscription
    period for the capital increase approved by the extraordinary General Meeting
    on January 15, 2004, was €4.74.


The number of options
    granted, and their respective strike prices before and after dilution-related
    adjustments due to the capital increase implemented at the beginning of 2004,
    are as follows:


| | • | as of July 3,
      2000, 234,500 options were granted to the members of the Board of Management
      and 151 senior managers at a strike price of €72.45, after adjustment for
      dilution the exercise price is now €67.71;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | • | as of January
      16, 2001, 257,000 options were granted to the members of the Board of Management
      and 155 senior managers at a strike price of €57.82, now €53.08;                                                      
|
| | • | as of January
      16, 2002, 261,000 options were granted to the members of the Board of Management
      and 170 senior managers at a strike price of €25.00, now €20.26;                                                      
|
| | • | as of August
      12, 2002, 247,000 options were granted to the members of the Board of Management
      and 154 senior managers at a strike price of €17.65, now €12.91; and                                                   
|
| | • | as of January
      16, 2003, 258,500 options were granted to the members of the Board of Management
      and 168 senior managers at a strike price of €8.35, now €3.61.                                                        
|
| | • | as of January
      16, 2004, 254,000 options were granted to the members of the Board of Management
      and 161 senior managers at a strike price of €13.43, now €8.69.                                                       

Overall, a total
    of 1,512,000 options were granted within the framework of SGL ́s
    stock option plan, of which 289,500 options expired without compensation as
    a result of the termination of the employment relationship of plan participants
    due to employee turnover. Options that had been granted in 2003 were exercised
    for the first time in 2005. As a result, the participants exercised a total
    of 128,500 options from 2003 during the exercise window defined in accordance
    with the plan conditions at a subscription price of €3.61. This means that
    a total of 1,094,000 options are still available for exercise.


Stock
  Appreciation Rights Plan 2005 (SAR Plan 2005)

The SGL shareholders
    approved the SAR Plan 2005 at the ordinary Annual General Meeting of April
    30, 2004. This plan provides for the granting of stock appreciation rights
    (SARs), whose appreciation of value entitles those entitled to participate
    to subscribe to the Companys shares. A maximum of up to 1,600,000 new
    shares from contingent capital against contribution in kind has been provided
    to service the SAR Plan 2005.The SARs may be issued through the end of 2009.
    The SAR Plan 2005 went into effect on January 1, 2005.


The Supervisory
    Board administers the plan for the members of the Companys Board of
    Management. In accordance with the SAR Plan, the Supervisory Board is authorized
    to grant SARs to the members of the Board of Management. The Board of Management
    administers the SAR Plan for approximately 150 members of senior management,
    the executive staff of the Company and of members of its consolidated subsidiaries
    and is authorized to grant these SARs.


Of the total of
    1,600,000 subscription rights that can be granted to those entitled to be
    issued SARs, a maximum of 30% may be to members of the Board of Management
    of SGL CARBON Aktiengesellschaft, with a maximum of 20% to those participating
    in the SAR Plan who are members of the senior management of affiliated companies.
    Other members of senior management of SGL


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CARBON Aktiengesellschaft
  and of affiliated companies participating in the SAR Plan have access to the
  remaining 50% of the subscription rights. To the extent that the subscription
  rights of the members of the Board of Management of the Company or of the senior
  management of the affiliated company who participate in the SAR Plan do not
  fully use up the above-mentioned shares, these subscription rights may be granted
  to the other members of senior management of the Group. Those entitled to participate
  who belong to more than one of the above-mentioned groups may only receive subscription
  rights as a member of one of the groups and from the share of the subscription
  rights that is provided for that particular group.Those entitled to SARs may
  participate in a rise in the price of SGL shares during the period between the
  granting of the SARs and their exercise. A SAR entitles the participant to require
  from the company the grant of a variable remuneration amounting to the difference
  (appreciation of value) between the price of the SGL
  shares at the time the SAR is granted (strike price)
  and at the time the SAR is exercised (exercise price)
  plus dividends paid during this period by the Company and the value of subscription
  rights, and to subscribe to the number of SGL shares at the exercise price whose
  market price corresponds to the appreciation of value. One SAR grants those
  entitled to participate the right to subscribe to a fraction of a new SGL share
  that results from dividing the appreciation of value by the exercise price 
  however, to a maximum of one SGL share.

The strike price
    is calculated based on the average closing prices of SGL shares for the last
    20 stock market trading days in the XETRA trading system (or in a successor
    system) before the day on which the SAR is granted. The exercise price is
    calculated in the same manner as the strike price, however with reference
    to the last 20 stock market trading days before the day the SAR is exercised
    rather than to the last 20 stock market trading days before the day the SAR
    is granted.


The SAR has a maturity
    of up to ten years, beginning at the grant date. The SAR expires without compensation
    if it is not exercised during its term. The granting of the SAR to those entitled
    to participate may only occur within defined annual periods  the so-called
    reference windows. A reference window may be a period
    of up to ten stock market trading days following, respectively, the fiscal
    year-end or the disclosure of the SGL CARBON Aktiengesellschaft for its first,
    second or third quarter results.


A SAR that has been
    granted may be exercised at the earliest after expiration of a waiting period
    of two years after the SAR is granted (waiting period)
    and only during defined periods (exercise window).
    Exercise windows are open for a period of up to ten stock market trading days,
    beginning on the day following the Companys disclosure of its financial
    results for the first, second and the third quarters.


Furthermore, a SAR
    may only be exercised if after the expiry of the waiting period at the beginning
    of the exercise window the targets set out in the SAR conditions have been
    met. For 75% of the SARs granted to each of those entitled to participate,
    the target is the increase in total shareholder return (TSR)
    of a SGL share (absolute performance target). Only
    a relative target is applicable for the remaining 25% of the SARs. This portion
    of the SAR may only be exercised if the development of the SGL share corresponds
    at least to the development of the MDAX.


The TSR is defined
    as the absolute rise of the SGL share price between the time the SAR is granted
    and the time it is exercised plus the dividends paid by the Company during
    this period and the value of the subscription rights. The target is met if
    the TSR has reached at least 15% of the striking price.


The relative performance
    target is defined as the relative rise of the SGL share price between the
    period when the SAR is granted and is exercised plus dividends paid by the
    Company during this period and the value of subscription rights compared with
    the development of the benchmark index during the same period. The benchmark
    index is the MDax of the German Stock Exchange (Deutsche Börse), or a
    substitute index representing mid-cap values. For the target to be met, the
    development of the relative rise of the SGL share price must be at least equivalent
    to the benchmark index.


If one of the two
    performance targets in an exercise window is not met, only those SARs may
    be exercised whose target is met; the SARs whose target is not met during
    the exercise window, may be exercised during a later exercise window of the
    exercise period if the target is then met.


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Finally, in exercising
    their SARs-related shares, those entitled to participate must hold at least
    the number of shares of SGL CARBON Aktiengesellschaft for an additional twelve
    months, corresponding in value to 15% of gross proceeds.


In 2005, a total
    of 605,500 SARs were granted to members of the Board of Management and to
    members of senior management at a striking price of €9.74. The issue date
    was January 14, 2005.


Change in Control

In March 2002, the
    Personnel Committee (Personalausschuss) of the Supervisory Board resolved
    to enter into a Change in Control Agreement with the members of the Board
    of Management, and the Board of Management resolved to enter such an agreement
    with certain senior managers. For the purposes of this agreement with senior
    management (Board of Management members and other selected senior managers),
    a change in control will occur if an investor or a group of investors directly
    or indirectly acquires more than 30% of the voting rights in SGL; the general
    meeting of shareholders consents to a combination by merger with another entity,
    a takeover by another entity or the new formation of another entity; or the
    consolidated company in which the senior managers are employed leaves the
    SGL Group.


If, following a
    change in control, SGL or a consolidated company intends to terminate without
    cause the employment of a manager who is party to the change in control agreement,
    or if the manager intends to end the employment relationship with good reasons,
    the manager will be offered a separation agreement terminating employment
    with a notice period of three months from the end of the then current month.
    This offer will lapse if the manager is offered a position appropriate to
    his qualifications in another SGL Group company.


The settlement under
    the separation agreement will include payment of three times annual salary
    for the chairman of the Board of Management and two times annual salary (in
    each case including bonuses) for other members of the Board of Management
    and senior managers. The initial term of the agreement ran until December
    31, 2004, and the agreement is renewed automatically for one-year terms unless
    it is terminated at the end of the year. Senior managers may assert a claim
    for a separation agreement only within 18 months following the change in control.


Board
  Practices

We have entered
    into service agreements with all current members of our Board of Management.
    These agreements generally provide for base salary, an annual bonus plan,
    a pension plan and fringe benefits. For a discussion of the stock option and
    similar plans in which the management of the SGL Group participate, see “
    Management Incentive Plans”. We believe that the service agreements
    between SGL and the members its Board of Management provide for ordinary payments
    and benefits upon termination of employment that are in line with customary
    market practices.


All compensation
    paid to the members of SGLs Board of Management must be approved by
    the Personnel Committee of the Supervisory Board. The Personnel Committee
    consists of three members who meet four times annually, or on an as-needed
    basis. The chairman and the deputy chairman of the Supervisory Board sit on
    the Committee as permanent members, and the third member is a member of the
    Supervisory Board who represents the shareholders and is elected to the Committee
    by the other members of the Supervisory Board. For a discussion of the terms
    of office of the current members of the Supervisory Board and the Board of
    Management of SGL, see “Directors and Senior Management”.


Employees

At the end of 2005,
    we employed in our consolidated and non-consolidated operations a global workforce
    of 5,263 employees, 2 less than in the previous year (5,264 at the end of
    2004 including all non-consolidated companies). In our core business, Carbon
    Graphite, the further restructuring measures resulted in a decline in the
    number of employees by 100 from 2,550 to 2,450. The Specialties Business Area
    recorded an increase of 28 employees, from 1,788 to 1,816, which increase
    was accounted for by the Business Area ́ s Asian operations. The number
    of employees in SGL Technologies increased by 74 from 875 to 949. This resulted
    largely from the increased demand of


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our products of SGL
  Brakes in Germany as well as of Hitco Carbon Composites in the USA. At the end
  of 2005 approximately 37% of all employees were working in Germany (2004: 37%)
  and 38% were active in other European countries (2004: 38%) , 22% in North America
  (2004: 23%) and 3% in Asia (2004: 2%).

Average Employees
  by Activity *

|                             | Average |  | Change |  | Average |  | Change |  | Average | 
|---------------------------- | ------- |  | ------ |  | ------- |  | ------ |  | ------- | 
|                             | 2003    |  | in%    |  | 2004    |  | in%    |  | 2005    | 
|                             |         |  |        |  |         |  |        |  |         | 
|Production                   | 4,090   |  | 4%    |  | 3,910   |  | 2%    |  | 3,849   | 
|Sales
      and Marketing    | 453     |  | 5%    |  | 432     |  | 3%    |  | 420     | 
|Research
      & Development | 220     |  | 25%   |  | 164     |  | 3%     |  | 169     | 
|Administrative               | 1,031   |  | 13%   |  | 893     |  | 8%    |  | 819     | 
|                             |         |  |        |  |         |  |        |  |         | 
|Total                        | 5,794   |  | 7%    |  | 5,399   |  | 3%    |  | 5,257   | 
|                             |         |  |        |  |         |  |        |  |         | 
|                             |         |  |        |  |         |  |        |  |         | 

| 
|-
|*

Employees by
  Region at year-end *

|                     | Year-end |  | Change |  | Year-end |  | Change |  | Year-end | 
|-------------------- | -------- |  | ------ |  | -------- |  | ------ |  | -------- | 
|                     | 2003     |  | in%    |  | 2004     |  | in%    |  | 2005     | 
|                     |          |  |        |  |          |  |        |  |          | 
|Germany              | 2,000    |  | 2%    |  | 1,953    |  | 1%     |  | 1,968    | 
|Rest
      of Europe | 2,317    |  | 13%   |  | 2,025    |  | 2%    |  | 1,979    | 
|North
      America  | 1,154    |  | 3%     |  | 1,189    |  | 1%    |  | 1,177    | 
|Asia
      / Africa  | 132      |  | 26%   |  | 98       |  | 42%    |  | 139      | 
|                     |          |  |        |  |          |  |        |  |          | 
|Total                | 5,603    |  | 6%    |  | 5,265    |  | 0%     |  | 5,263    | 
|                     |          |  |        |  |          |  |        |  |          | 
|                     |          |  |        |  |          |  |        |  |          | 

| 
|-
|*

A number of SGLs
    non-management employees are members of different labor unions in different
    countries. In Germany, collective bargaining agreements for employees below
    management level are generally negotiated between the association of employers
    within a particular industry and the respective unions. In addition, under
    German law, employees elect a works council (Betriebsrat) that participates
    in determining company site policy, especially with regard to certain voluntary
    compensation matters and benefits.


SGL considers its
    labor relations to be positive and anticipates reaching future agreements
    with its labor unions on terms satisfactory to all parties. There can be no
    assurances, however, that new agreements will be reached without a work stoppage
    or strike or on terms satisfactory to SGL.


Neither the members
    of the Supervisory Board and Board of Management nor any other officers serving
    in the management of the SGL Group beneficially own 1.0% or more of the outstanding
    Shares or of the shares of any of SGLs subsidiaries.


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ITEM
  7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

Major
  Shareholders

As of end of April
    2006 , SGL had 62,789,251 shares outstanding.


The Shares are issued
    only in bearer form. We are therefore unable to determine how many shares
    any given shareholder owns. To the best of our knowledge, SGL is not controlled,
    directly or indirectly, by another corporation or by any government, and there
    are no arrangements known to us that may at a subsequent date result in a
    change in control of SGL.


As of March 2006
    , there were 380 registered holders of American Depositary Receipts (“ADRs”)
    under our sponsored program with JPMorgan Chase Bank. Our ADRs are listed
    on the New York Stock Exchange. Each ADR represents one third of a share.


Under Section 21
    of the German Securities Trading Act (Wertpapierhandelsgesetz), holders of
    voting securities of a German company (including SGL) admitted to official
    trading on a stock exchange within the European Union or the European Economic
    Area are obliged to notify both the company and the German Federal Supervisory
    Authority for Financial Services (Bundesanstalt fuer Finanzdienstleistungsaufsicht)
    promptly and in writing of the level of their holdings whenever such holdings
    reach, exceed or fall below certain thresholds. These thresholds are set at
    5%, 10%, 25%, 50% and 75% of a companys outstanding voting rights. If
    a shareholder fails to notify the company as required, the shareholder will
    be disqualified from exercising the voting rights attached to its shares,
    for so long as such failure continues. The German Securities Trading Act contains
    various rules designed to ensure the attribution of shares to the person who
    has effective control over the shares.


From its latest
    Survey SGL has received the following information about major shareholders:


|                                                                     |                   |  |                 |  | beneficial         |  
|-------------------------------------------------------------------- | ----------------- |  | --------------- |  | ------------------ | -
|                                                                     |                   |  |                 |  | ownership
      in |  
|                                                                     |                   |  | number
      of |  | % of voting        |  
|Company                                                              | date              |  | shares          |  | rights             |  
|                                                                     |                   |  |                 |  |                    |  
|Hermes
      Investment Management Limited (BT
      Pension Scheme) | April,
      2006 |  | 4,245,681       |  | 6.8                | %
|Marshall
      Wace Asset Management Limited**                       | April,
      2006 |  | 3,819,134       |  | 6.1                | %
|Fidelity
      Management & Research Co.*)                           | April,
      2006 |  | 2,665,042       |  | 4.2                | %
|Nordea
      Investment Management (Denmark) A/S*)                   | April,
      2006 |  | 1,851,926       |  | 3.0                | %
|Merrill
      Lynch Investment Managers, Inc./Mercury Advisors*)     | April,
      2006 |  | 1,591,200       |  | 2.5                | %
|                                                                     |                   |  |                 |  |                    |  

|   
|---
|*) 
|**)

Related
  Party Transactions

In the course of
    its business activities, the SGL Carbon Group provides services to related
    companies and individuals. In turn, these individuals and companies act as
    suppliers and service providers for the SGL Carbon Group within the framework
    of their business activities. All these transactions are settled on an arms
    length basis. Receivables from associated companies amount to €3.7 million.
    Details are presented in the notes to the relevant balance sheet and income
    statement items. Sales with associated companies in 2005 totaled €7.0 million,
    and the interest income and expense of associated companies in the same year
    amounted to €0.1 million.


An outstanding capital
    contribution to an associated company amounting to USD 3.8 million was fulfilled.


Interest
  of Experts and Counsel

Not applicable.


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ITEM
  8.  FINANCIAL INFORMATION

Consolidated
  Statements and Other Financial Information

See Item 18.


Export Sales

In 2005 approximately
    75% of all products produced by the SGL Group in Germany, having an estimated
    total value of €384.5 million, and approximately 11% of all products produced
    by the SGL Group in the United States, having an estimated total value of
    €26.1 million, were exported to other countries.


Legal Proceedings

We cannot predict
    the ultimate outcome of the legal proceedings described below in which a final
    decision is still pending. However, in light of the nature of the allegations,
    the unspecified amounts of the damages sought and the potential for treble
    damages in antitrust suits, liabilities arising from these proceedings could
    substantially exceed the provisions we have established for this purpose and,
    as a result, could have a material adverse effect on our business, results
    of operations and financial condition. See “Risk Factors 
    Risks relating to our business  We are party to several antitrust proceedings.”


Antitrust Court
  Proceedings (Europe/Korea)

SGL has been subject
    to investigations by the competition directorate of the European Commission.
    This investigations refer to acts occurring in the 1990s.


On July 18, 2001,
    the European Commission imposed an €80.2 million fine on SGL with respect
    to graphite electrodes, bearing interest at 6.04% annually, which was secured
    by a bank guarantee. We lodged an appeal against the total amount of this
    fine before the European Court of First Instance (“CFI”) in Luxembourg.
    Our appeal contends primarily that the fine includes amounts penalizing the
    same actions more than once (ne bis in idem-principle), material procedural
    defects and that the total amount of the fine is disproportionate. On April
    29, 2004 the CFI reduced the fine to €69.1 million, primarily for procedural
    defects. The amount of €69.1 million plus accrued interest thereon was paid
    to an escrow account, without waiving the right of appeal, on April 11, 2006.
    We have filed a further appeal against the decision of the CFI with the European
    Court of Justice (“ECJ”) in Luxembourg, seeking a decision in
    principle regarding the application of the ne bis in idem-principle. We are
    expecting a decision of the ECJ at earliest in 2006. The ECJ Advocate General
    has issued his pleadings on January 19, 2006, suggesting to reject SGLs
    appeal and to partially follow the Commissions appeal.


The European Commission
    has also conducted a separate investigation of similar allegations with respect
    to specialty graphites (isostatic graphite and extruded graphite) for the
    period between 1992 and 1998. We cooperated fully with the Commission and
    were assessed a fine of €27.75 million on December 17, 2002, which currently
    bears interest at 4.75%, and is secured by a bank guarantee. Upon our appeal,
    the CFI reduced the fine imposed to €18.45 million in its judgment of June
    15, 2005. We have filed an appeal against this judgment to seek annulment
    of the decision altogether, substantially on the same grounds as in the graphite
    electrodes case. We are expecting a CFI decision during 2006 or 2007.


In connection with
    the proceedings described above, the European Commission continued its investigations
    into other carbon and graphite products (for acts during the period through
    the late 1990s) and, in May 2003, filed complaints against SGL and other specialty
    graphites manufacturers regarding allegations related to the “Electrical
    and Mechanical Carbon and Graphite Products” area of our business.
    In this proceeding, the European Commission imposed a fine of €23.6 million
    on us on December 3, 2003. This amount was paid to an escrow account 
    without waiving the right to appeal  as part of the Companys refinancing
    in February 2004. We are currently appealing the amount of this fine before
    the CFI and are expecting a decision at earliest during mid 2006.


On March 20, 2002,
    the Korean Fair Trade Commission decided to impose a fine of 963 million Korean
    won (approximately €0.7 million) against SGL for alleged cartel activities
    in violation of


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Korean antitrust
  laws. We filed an appeal to the KFTC in May 2002. After the KFTC confirmed its
  original ruling, we appealed this decision to the Seoul High Court in September
  2002. This appeal was rejected on September 3, 2003. On August 18, 2004 we paid
  the fine but filed an appeal against this decision with the Korean Supreme Court.
  This appeal was dismissed on March 23, 2006.

Civil suits resulting
  from antitrust violations

Three lawsuits alleging
    violations of Section 1 of the Sherman Act have been filed in the United States
    District Court for the Eastern District of Pennsylvania against SGL and a
    number of other graphite electrode manufacturers or their affiliates by predominantly
    non-U.S. based purchasers of graphite electrodes. The defendants motions
    to dismiss have been submitted to the District Court.


On December 27,
    2002 (and thereafter), seven purchasers of bulk (extruded) graphite products
    filed putative class actions against, among others, SGL, SGL Carbon GmbH,
    SGL Carbon, LLC, SGL Carbon Corp. and Robert Koehler, our chief executive
    officer. These cases, which have been consolidated in the United States District
    Court for the District of New Jersey, seek damages for alleged violations
    of Section 1 of the Sherman Act on behalf of all those who purchased bulk
    (extruded) graphite products in the United States from the defendants during
    the period from January 1, 1993 to December 31, 1998. The SGL defendants filed
    their answers to the consolidated complaint on December 22, 2004. The case
    is currently in the discovery stage.


SGL Carbon, LLC
    recently agreed to settle for $225,000 a federal class action on behalf
    of direct purchasers of electrical carbon products in the United States during
    the period from January 1, 1990 through December 31, 2001. The settlement,
    which will result in the release of all SGL entities, will also include certain
    purchasers that had initially filed a separate complaint but subsequently
    elected to join the class action settlement. The hearing on final approval
    of the settlement is scheduled for May 12, 2006.


Two additional complaints,
    both filed on behalf of indirect purchasers of electrical carbon products
    in California (and covering, in the aggregate, the period from 1989 to the
    present) remain pending in California Superior Court against SGL Carbon, LLC,
    SGL Carbon Corp., SGL Technic Ltd. and (in one case) SGL. These complaints,
    like the federal action, allege a conspiracy to fix the price of electrical
    carbon products and seek damages in an unspecified amount.


Other proceedings

In addition, from
    time to time, SGL and its subsidiaries are parties to or targets of lawsuits,
    claims, investigations and other proceedings in the ordinary course of business.
    We do not expect any liabilities that may arise from these proceedings to
    have a material effect on our business, results of operations or financial
    condition.


Dividend Distributions

Dividends are jointly
    proposed by the Board of Management and the Supervisory Board. They are approved
    for payment with respect to the prior financial year by the shareholders at
    the annual general meeting in the following year. Dividends approved at the
    annual general meeting are payable on or after the business day following
    the annual general meeting. Since all Shares are in bearer form, dividends
    are either remitted to the depositary bank (Depotbank) on behalf of the shareholder,
    or, in the case of shareholders holding physical certificates, are paid through
    the paying agents appointed by SGL against presentation of the relevant dividend
    coupon. Details of the paying agents are published in the German Federal Gazette
    (Bundesanzeiger).


Except as described
    herein, holders of ADRs are entitled to receive dividends on the Shares represented
    by the ADRs evidenced by such ADRs. Any cash dividends payable to such holders
    are paid to JPMorgan Chase Bank of New York as Depositary in Euros and, subject
    to certain exceptions, converted into U.S. dollars. The amount of dividends
    received by holders of ADRs will be affected by fluctuations in exchange rates.
    See Item 3. “Key Information  Selected Financial Data 
    Exchange Rates”.


Dividends paid on
    Shares and dividends paid to holders and beneficial owners of ADRs are subject
    to deduction of German withholding tax. See Item 10, “Additional
    Information  Taxation”.


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The payment of future
    dividends will be dependent on SGLs earnings, the terms of our syndicated
    credit facility agreement and the terms and conditions of the senior notes,
    its financial condition and cash
  requirements, general business conditions in the markets in which it operates,
  legal, tax and regulatory considerations and other factors. There can be no
  assurance as to particular amounts that would be paid from year to year. See
  Item 10, “Additional Information  Material Contracts”.


Significant
  Changes

See Note 37 to
    our consolidated financial statements.


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ITEM
  9.  THE OFFER AND LISTING

Offer
  and Listing Details

Nature of Trading
  Market and Stock Price History

The table below
    shows the high and low sales prices of the SGLs American Depositary
    Receipts on the New York Stock Exchange for the periods indicated.


|                        |                 |  | Average
      Daily  |    
|----------------------- | --------------- |  | -------------------- | ---
|                        | $ per ADR(1)(2) |  | Trading
      Volume | (3)
|                        |                 |  |                      |    
|Year
      Ended        | High            |  | Low                  |    
|                        |                 |  |                      |    
|December
      31, 2001 | 22.00           |  | 4.60                 |    
|December
      31, 2002 | 8.45            |  | 1.60                 |    
|December
      31, 2003 | 6.95            |  | 2.78                 |    
|December
      31, 2004 | 7.57            |  | 2.90                 |    
|December
      31, 2005 | 5.86            |  | 3.61                 |    
|                        |                 |  |                      |    

|                         |                 |  | Average
      Daily  |    
|------------------------ | --------------- |  | -------------------- | ---
|                         | $ per ADR(1)(2) |  | Trading
      Volume | (3)
|                         |                 |  |                      |    
|Quarter
      Ended      | High            |  | Low                  |    
|                         |                 |  |                      |    
|March
      31, 2004     | 8.00            |  | 3.71                 |    
|June
      30, 2004      | 3.88            |  | 2.90                 |    
|September
      30, 2004 | 3.80            |  | 3.05                 |    
|December
      31, 2004  | 4.45            |  | 3.80                 |    
|March
      31, 2005     | 5.24            |  | 4.11                 |    
|June
      30, 2005      | 4.55            |  | 3.61                 |    
|September
      30, 2005 | 5.10            |  | 4.10                 |    
|December
      31, 2005  | 5.86            |  | 4.50                 |    
|March
      31, 2006     | 6.70            |  | 5.05                 |    
|                         |                 |  |                      |    

|(1) | Source: JP Morgan/Bloomberg.                     
|--- | -------------------------------------------------
|(2) | Each ADR represents
      one third of one share.
|(3) | Rounded to the
      nearest 100.                

|                        |                 |  | Average
      Daily  |    
|----------------------- | --------------- |  | -------------------- | ---
|                        | $ per ADR(1)(2) |  | Trading
      Volume | (3)
|                        |                 |  |                      |    
|Month
      Ended       | High            |  | Low                  |    
|                        |                 |  |                      |    
|October
      31, 2005  | 5.08            |  | 4.50                 |    
|November
      30, 2005 | 5.66            |  | 4.88                 |    
|December
      31, 2005 | 5.86            |  | 5.27                 |    
|January
      31, 2006  | 6.64            |  | 5.73                 |    
|February
      28, 2006 | 6.17            |  | 5.41                 |    
|March
      31, 2006    | 6.70            |  | 5.05                 |    
|                        |                 |  |                      |    

|(1) | Source: JP Morgan/Bloomberg.                     
|--- | -------------------------------------------------
|(2) | Each ADR represents
      one third of one share.
|(3) | Rounded to the
      nearest 100.                

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The table below
    shows the high and low sales prices in euro of SGLs shares on the Frankfurt
    Stock Exchange/XETRA for the periods indicated.


|                 |                   |  |                      |     | Average
      Daily | 
|---------------- | ----------------- |  | -------------------- | --- | ------------------- | 
|                 | Euro per Share(1) |  | Trading
      Volume | (2)
|                 |                   |  |                      |    
|Year
      Ended | High              |  | Low                  |     |                     | 
|                 |                   |  |                      |     |                     | 
|December31, 2001 | 72.00             |  | 15.10                |     | 98,700              | 
|December31, 2002 | 28.90             |  | 5.10                 |     | 110,800             | 
|December31, 2003 | 13.76             |  | 5.51                 |     | 242,400             | 
|December31, 2004 | 12.05             |  | 7.20                 |     | 313,400             | 
|December31, 2005 | 14.70             |  | 8.37                 |     | 233,500             | 
|                 |                   |  |                      |     |                     | 

|                         |                   |  |                |     | Average
      Daily | 
|------------------------ | ----------------- |  | -------------- | --- | ------------------- | 
|                         | Euro per Share(1) |  | Trading Volume | (2)
|                         |                   |  |                |    
|Quarter
      Ended      | High              |  | Low            |     |                     | 
|                         |                   |  |                |     |                     | 
|March
      31, 2004     | 12.45             |  | 8.10           |     | 672,700             | 
|June
      30, 2004      | 9.48              |  | 7.20           |     | 279,500             | 
|September
      30, 2004 | 9.40              |  | 7.61           |     | 196,200             | 
|December
      31, 2004  | 10.35             |  | 9.21           |     | 193,900             | 
|March
      31, 2005     | 11.71             |  | 9.43           |     | 256,700             | 
|June
      30, 2005      | 11.43             |  | 8.37           |     | 224,900             | 
|September
      30, 2005 | 12.54             |  | 10.05          |     | 231,100             | 
|December
      31, 2005  | 14.70             |  | 11.33          |     | 222,200             | 
|March
      31, 2006     | 16.39             |  | 13.25          |     | 401,622             | 

|   
|---
|(1)
|(2)
|   

|                        |                   |  |                |     | Average
      Daily | 
|----------------------- | ----------------- |  | -------------- | --- | ------------------- | 
|                        | Euro per Share(1) |  | Trading Volume | (2)
|                        |                   |  |                |    
|Month
      Ended       | High              |  | Low            |     |                     | 
|                        |                   |  |                |     |                     | 
|October
      31, 2005  | 12.60             |  | 11.33          |     | 261,900             | 
|November
      30, 2005 | 14.39             |  | 12.08          |     | 235,500             | 
|December
      31, 2005 | 14.70             |  | 13.75          |     | 168,500             | 
|January
      31, 2006  | 15.98             |  | 13.91          |     | 279,075             | 
|February
      28, 2006 | 15.25             |  | 13.25          |     | 425,027             | 
|March
      31, 2006    | 16.39             |  | 13.52          |     | 498,489             | 

|   
|---
|(1)
|(2)

On January 15, 2004
    our shareholders approved a capital increase in the form of the issue of 33,277,437
    new shares as proposed by our management. In this context, existing shareholders
    could subscribe three new shares for two existing shares of SGL Carbon at
    the price of €8.00 per share. From January 22, the shares were traded without
    their previously related subscription rights. This led to a decrease in the
    share price from this date. The end of trading of subscription rights was
    on February 3, 2004. The new shares were added to the existing listing of
    SGL Carbon shares on February 6, 2004. As of that date, the number of our
    outstanding shares amounted to 55,462,395 (compared to 22,184,958 before the
    capital increase).


On March 16, 2005,
    the capital increase approved on January 27, 2005, by the Board of Management
    and with the consent of the Supervisory Board on February 10, 2005 of 591,434
    shares was implemented. These shares were purchased at €2.56 and used
    to fulfill bonus claims of the Companys employees. Furthermore, in March
    2005 a total of 36,025 new shares were also issued to employees of SGL Carbon
    AG and its affiliates as contribution in kind within the framework of the
    Matching Shares Plan 2003. Employees participating in the Matching Shares
    Plan 2003 contributed bonus claims totaling €358,809 to the Company
    as a contribution in kind. Of this amount, €92,224


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refer to the share
  capital, with the remaining €266,585 referring to the share premium. In
  the 2005 fiscal year, 128,500 options were exercised under the Stock Option
  Plans. The total number of shares increased in 2005 by 755,959 from 55,835,290
  to 56,591,249 at December 31, 2005.

On March 16 and
    17, 2006 SGL Carbon announced and completed an capital increase of 5,583,529
    shares, that was successfully placed in an accelerated bookbuilding. The shares
    have been placed at a price of €15.00 per share resulting in gross proceeds
    totalling €83.7 million. The shares were placed with German and international
    institutional investors and further improve the Capital Resources of the SGL
    Group. Including the capital increase for employee plans the shares outstanding
    increase to 62,724,778.


The entire share
    capital of SGL consists of a single class of shares. All shares are in bearer
    form and freely transferable. All shares are listed under the trading symbol
    “SGL” and have an identical ISIN-Code (DE0007235301). The shares
    are listed in Germany on the Frankfurt, Berlin/ Bremen, Du ̈ sseldorf,
    Hamburg, Hanover, Munich and Stuttgart stock exchanges. Since March 18, 1996,
    the Shares have been included in the MDAX Index. On March 24, 2003, the new
    index model of the Frankfurt Stock Exchange came into effect. SGL remained
    in the MDAX, which now consists of 50 companies.


On February 19,
    2004, we paid net proceeds of $1.57294 per ADR to holders of our ADRs
    under our ADR program on the record date of February 12, 2004 (ratio: 3 ADRs:1
    ordinary bearer share). We did not conduct a public offering of subscription
    rights in the United States. Instead, our depositary bank, JP Morgan Chase,
    sold the rights outside the United States on behalf of ADR holders and paid
    the net proceeds from the sale to the ADR holders as described above.


The ADRs, each representing
    one third of one share, are listed on the NYSE under the trading symbol “SGG”
    and have traded on the NYSE since June 5, 1996. On March 31, 2006 we had 2,455,518
    outstanding ADRs. The ADRs are issued under the terms of a Deposit Agreement,
    dated June 4, 1996, as amended as of February 22, 2000, among SGL, JPMorgan
    Chase Bank (formerly the Morgan Guaranty Trust Company of New York), as depositary,
    and the holders and beneficial owners from time to time of the ADRs issued
    thereunder.


Plan
  of Distribution

Not applicable.


Markets

Not applicable.


Selling
  Shareholders

Not applicable.


Dilution

Not applicable.


Expenses
  of the Issue

Not applicable.


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ITEM
  10.  ADDITIONAL INFORMATION

Share
  Capital

| | Not applicable.
| | ---------------

Memorandum
  and Articles of Association

Registration
  and Corporate Purpose

SGL is registered
    in the commercial register (Handelsregister) of the local court (Amtsgericht)
    in Wiesbaden, Germany under the number HRB 9448. SGLs Articles of Association
    provide that the purpose of SGL is to operate as a holding company for a group
    of firms, particularly those that manufacture and market:


| | • | any kind of
      carbon products, especially industrial products of natural and artificial
      carbon and graphite,                                                 
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | • | materials and
      products on the base of carbon or graphite, such as fibers, composite materials,
      foils and process equipment including industrial facilities,
|
| | • | other ceramic
      materials and products,                                                                                                                            
|
| | • | corrosion resistant
      materials, and                                                                                                                               
|
| | • | other substances
      and products that can be produced or extracted in connection with these
      fields of activities.                                             

SGL may also itself
    engage in activities described above and may make resources and funds available
    to companies in which it holds an interest. In addition, SGL may establish,
    acquire, take holdings in or consolidate other companies, and is authorized
    to take shares in any kind of company, especially for the purpose of investing
    Group funds.


Corporate
  Governance

A foreign private
    issuer, as SGL Carbon Aktiengesellschaft (SGL Carbon AG) is, in principle,
    permitted to follow home country corporate governance practice in lieu of
    the NYSE Corporate Governance Standards as set forth set forth in Section
    303 A of the NYSE Listed Company Manual (the “NYSE Standards”),
    provided, among others, that it discloses the significant differences between
    such home country governance practices and the NYSE Standards applicable to
    domestic companies listed on the NYSE.


German corporate
    governance standards generally derive from the provisions of the German Stock
    Corporation Act (Aktiengesetz the “Stock Corporation Act”), the
    German Codetermination Act (Mitbestimmungsgesetz, the “Codetermination
    Act”) and the German Corporate Governance Code (Deutscher Corporate
    Governance Kodex, the “Code”). These standards differ from the
    corporate governance listing standards applicable to U.S. domestic NYSE issuers.
    A brief, general summary of the significant differences follows.


Dual board system

SGL Carbon AG is
    a German Stock Corporation organized under the Stock Corporation Act. German
    stock corporations have a dual board system with a management board (Vorstand)
    and a supervisory board (Aufsichtsrat). The German Stock Corporation Act requires
    a clear separation of management and oversight functions and therefore strictly
    prohibits simultaneous membership on both boards. Members of the management
    board and the supervisory board must exercise the standard of care of a prudent
    and diligent business person when carrying out their duties. In complying
    with this standard of care, members must not only take into account the interests
    of shareholders, as would typically be the case with a U.S. board of directors,
    but also the interests of other constituents, such as the companys employees
    and creditors, and, to some extent, the public interest.


The management board
    of SGL Carbon AG is responsible for managing the company and representing
    it in its dealings with third parties. The management board is also required
    to ensure an appropriate risk management within the company and to establish
    an internal monitoring system. The members of the management board of a German
    stock corporation, including its chairman or


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speaker, are by law
  regarded as peers and share a collective responsibility for all management decisions.

The supervisory
    board oversees the companys management board and appoints and removes
    its members. Members of the supervisory board cannot be involved in the day-to-day
    management of the company. However, the companys articles of association
    or its supervisory board must specify matters of fundamental importance which
    will require the approval of the supervisory board. Matters requiring such
    approval include decisions or actions, which would substantially change the
    companys assets, financial position or results of operations. The supervisory
    board is also required to review and approve the companys annual financial
    statements, before they are presented to the general meeting of shareholders.
    To ensure that the supervisory board may properly carry out its oversight
    functions, the management board must regularly report to the supervisory board
    with regard to current business operations, planning and business policies
    including any deviation of actual developments from targets previously presented
    to the supervisory board, particularly on the companies return on equity,
    on the risk exposure and the risk management.


The supervisory
    board of German stock corporations is subject to the principle of employee
    codetermination as laid down in the Codetermination Act. Accordingly, the
    supervisory board of SGL Carbon AG consists of a total of 12 members, one
    half elected by the shareholders and the other half elected by the employees.
    Typically, the chairman of the supervisory board is a shareholder representative.
    In case of a tie vote, the supervisory board chairman may cast the decisive
    tie-breaking vote.


Committees

With one exception,
    German corporate law does not mandate the creation of specific supervisory
    board committees. German corporations are only required to establish a mediation
    committee with a charter to resolve any disputes among the members of the
    supervisory board that may arise in connection with the appointment or dismissal
    of members of the management board. In addition, the Corporate Governance
    Code recommends that the supervisory board establish an audit committee, which
    would handle the formal engagement of the companys independent auditors
    once they have been approved by the general meeting of shareholders. The audit
    committee would also address issues of accounting, risk management and auditor
    independence. In practice, most supervisory boards have also constituted other
    committees to facilitate the work of the supervisory board. In addition to
    the mediation committee and audit committee, the Supervisory Board of SGL
    Carbon AG has constituted a personnel and compensation committee, an ad-hoc-committee,
    a strategy committee and a technology committee. Members of the supervisory
    board elected by the employees may serve on any committee established by the
    supervisory board.


Independence
  requirements

The NYSE corporate
    governance standards contain certain independence requirements for the members
    of the board of directors and certain committees of the board. These requirements
    are closely linked with the specific risks of the composition of the board
    of directors as single executive body of U.S. companies. The dual board system
    with its strict separation of management board and supervisory board creates
    a different system of checks and balances and cannot be directly compared
    with the one board system. German law has its own rules applicable to supervisory
    board members addressing certain aspects of independence. In addition to prohibiting
    members of the management board from simultaneously serving on the supervisory
    board, members of the supervisory board shall act in the best interest of
    the company and may not serve other interest while performing its functions
    as a supervisory member. Any service, consulting or similar agreements between
    the company and any of its supervisory board members must be approved by the
    supervisory board.


In February 2002,
    a German government commission promulgated a Corporate Governance Code, last
    update in June 2005, containing additional corporate governance rules applicable
    to German stock corporations. While these rules are not legally binding, companies
    failing to comply with the Codes recommendations must disclose publicly
    how their practices differ from those recommended by the Code. Some of the
    Codes recommendations are also directed at ensuring independence of
    supervisory board members. Specifically, the Corporate Governance Code recommends
    that the supervisory board should take into account potential conflicts of
    interest when


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nominating candidates
  for election to the supervisory board. Similarly, if a material conflict of
  interest arises during the term of a member of the supervisory board, the Corporate
  Governance Code recommends that the term of that member be terminated. The Corporate
  Governance Code further recommends that at any given time not more than two
  former members of the management board should serve on the supervisory board.
  For nominations for the election of members of the Supervisory Board, care shall
  be taken that the Supervisory Board, at all times, is composed of members who
  have the required knowledge, abilities and expert experience to properly complete
  their tasks. However, neither German law nor the Corporate Governance Code require
  an affirmative independence determination, meaning that the supervisory board
  need not make affirmative findings whether the members of the supervisory board
  or the audit committee are independent.

Matters Regarding
  the Powers of Directors

Under German law,
    the members of the Supervisory Board and of the Board of Management of a stock
    corporation, such as SGL, have a duty of loyalty and care toward the company
    itself. They must act in the best interest of the company, its employees and,
    to a certain extent, the general public, and must exercise the standard of
    care expected from a prudent and diligent businessman in their actions. If
    an action of a member of the Supervisory Board or the Board of Management
    is challenged, such member bears the burden of proving compliance with the
    applicable standard of care. Board members who violate their duties may be
    held jointly and severally liable for any damages, unless their actions were
    approved by the shareholders meeting.


A member of either
    the Supervisory Board or the Board of Management may not participate in the
    adoption of any resolution that involves a transaction or settlement of a
    dispute between the company and the member, nor may a board member who is
    also a shareholder vote his or her Shares on any matter that concerns ratification
    of his or her own acts or the release of his or her obligations. The compensation
    of the Board of Management is set by the Personnel Committee of the Supervisory
    Board and the compensation of the Supervisory Board is set in SGLs Articles
    of Association as determined by the shareholders. Therefore, no member of
    any board may participate in the adoption of a resolution affecting his or
    her own compensation. Pursuant to our corporate governance guidelines we have
    not granted and do not intend to grant loans to any member of the Supervisory
    Board or the Board of Management.


Pursuant to Article
    10 of the Articles of Association of SGL, the Board of Management must have
    the approval of the Supervisory Board in order to enter into the following
    transactions if they exceed SGLs ordinary course of business:


| | • | acquisition,
      disposal or encumbrance of real estate, rights equivalent to real property
      and rights to real estate;
| | - | ------------------------------------------------------------------------------------------------------------------------------
|
| | • | commencement
      of new or discontinuance of existing lines of production or business;                                      
|
| | • | issuing of debt
      and long-term borrowing;                                                                                
|
| | • | acceptance of
      guarantees, sureties and similar liabilities;                                                             
|
| | • | granting loans
      and other credits;                                                                                       
|
| | • | opening and
      closing branch offices; or                                                                                  
|
| | • | purchasing or
      disposing of interests in other companies.                                                                

The Articles of
    Association of SGL do not specify age limits at which the members of the Supervisory
    Board or Board of Management of SGL must resign their office. However, it
    is customary for the service contracts between SGL and the members of its
    Board of Management to provide for retirement at age 65. Neither the members
    of the Supervisory Board nor those of the Board of Management are required
    to own Shares in order to hold their offices. For further discussion of the
    Supervisory Board and Board of Management of SGL, see Item 6, “Directors,
    Senior Management and Employees”.


Matters Regarding
  the Rights Attaching to Shares

The capital stock
    of SGL consists of the Shares, which are ordinary bearer shares without par
    value (Stückaktien). The Shares grant each shareholder an equal right
    to receive dividends and participate in any surplus in the event of liquidation
    in proportion to his or her shareholding.


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Pursuant to German
  law, dividends may only be paid out of distributable profits as they are shown
  in the German statutory annual financial statements of SGL, and the decision
  to pay dividends is made by the annual shareholders meeting. If a valid
  resolution to pay out dividends has been made, a shareholders right to
  make a claim to receive such dividends would generally be time barred after
  expiration of the applicable period of limitation. Each Share carries one vote,
  and gives its owner the right to attend, pose questions and speak at the shareholders
  meeting, as well as to file a judicial challenge to any resolution adopted.
  Cumulative voting is not permitted. Although staggered terms are not explicitly
  provided for in German law and are not foreseen by SGLs Articles of Association,
  it would be possible to create such terms.

The Shares grant
    each shareholder a preemptive right to subscribe, in proportion to his or
    her shareholding, to any new issues of Shares. However, pursuant to German
    law, such preemptive rights may be excluded for individual issues of shares
    (including in connection with conditional and authorized capital) by a vote
    of 75% of the share capital in attendance at a shareholders meeting.
    SGL has excluded preemptive rights on certain new issues of Shares in connection
    with its equity-based compensation plans. See “Item 6 Directors,
    Senior Management and Employees Management Incentive Plans”.


German stock corporations
    may, in certain circumstances, repurchase their own shares. The German Stock
    Corporation Act generally limits share repurchases to 10% of our share capital.
    The Articles of Association of SGL do not prohibit such repurchases. The annual
    general meeting decided in April 2005 to allow SGL to repurchase up to 10%
    of the stock available at that time. The shares of a German stock corporation
    are generally non-assessable, and no provision has been made in the Articles
    of Association of SGL for further capital calls. Neither German law nor SGLs
    Articles of Association contain any provision discriminating against any existing
    or prospective holder of Shares as a result of such shareholder owning a substantial
    number of Shares.


Changes to
  the Rights of Shareholders

In principle, all
    changes to the rights of shareholders require an amendment of the Articles
    of Association by a resolution of the majority of the share capital in attendance
    at the relevant shareholders meeting. In addition, changes to most rights
    attaching to shares require the explicit consent of all those shareholders
    who are negatively affected by the change. There are also certain shareholder
    rights, such as the right to attend a shareholders meeting, that may
    not be changed under German law, even with the shareholders consent.
    SGLs Articles of Association do not provide for any conditions that
    extend beyond the requirements of law.


Convening
  and Participating in Shareholders Meetings

Pursuant to German
    law, the Supervisory Board and the Board of Management may call a shareholders
    meeting. In addition, shareholders who together own at least 5% of the outstanding
    Shares may request the Board of Management to call a shareholders meeting.
    The call to meeting must be published in the electronic federal gazette at
    least one month before the meeting, and must contain the items of the agenda
    to be addressed at the meeting. There is no minimum quorum requirement for
    shareholder meetings.


As provided in the
    Act on Corporate Integrity and the Modernization of the Right of Avoidance
    (Gesetz zur Unternehmensintegrita ̈ t und Modernisierung des Anfechtungsrechts
    [UMAG]) which has entered into force as of November 1, 2005, and according
    to the amended Articles of Association of SGL shareholders intending to attend
    the Annual General Meeting or to exercise their right to vote shall register
    prior to the meeting. Shareholders are required to prove their right for attending
    the Annual General Meeting. A document in text form issued by the deposit
    bank or other financial institution and identifying them as the owners of
    a certain number of shares will suffice. This document shall be in German
    or in English, and shall reach the Company no later than on day seven (7)
    before the Meeting. In the event that share certificates are not deposited
    with a bank or other financial institution, for attending the Annual General
    Meeting the shareholders must, in order to attend and vote at a shareholders
    meeting, deposit their Shares at a designated location at least seven days
    before the shareholders meeting and keep them deposited until after
    the close of the meeting.


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Limitations
  on Rights to Own Shares

No limitations, in particular no limitations on ownership by non-residents, exist on the rights to own or to vote the Shares of SGL.


Liquidation
    Rights

In accordance with the German Stock Corporation Act, if we were liquidated, any liquidation proceeds remaining after all our liabilities have been paid off would
be distributed among our shareholders in proportion to the number of Shares they hold.


Change
  of Control

The
      Articles of Association of SGL contain no provision that would have an
      effect of delaying, deferring or preventing a change in control of SGL
      in the context of a merger, acquisition or corporate restructuring. See
      also ITEM 6 “Change in Control” for an agreement
with certain senior managers.


Disclosure
  of Shareholdings

The
      Articles of Association of SGL do not contain any provision requiring the
      disclosure of share ownership in SGL. However, under the German Securities
      Trading Act, holders of voting securities of a German corporation listed
      on a stock exchange within the European Union must notify SGL of the level
      of their holding whenever such holding reaches, exceeds or falls below
      certain thresholds, which are
currently set at 5%, 10%, 25%, 50% and 75% of a companys outstanding voting rights. See Item 7, “Major Shareholders and Related Party Transaction  Major Shareholders” If
a shareholder fails to notify the company or the Federal Supervisory Authority
for Securities Trading as required, he or she cannot exercise any rights associated
with the Shares for as long as the default continues.


The German Securities Trading Act also contains rules designed to ensure the attribution of shares to the person who has effective control over the exercise of
the voting rights attached to those shares.


In addition, on November 30, 2001, the German legislature enacted into law certain amendments to the German Securities Trading Act, effective January 1, 2002,
that extend these reporting requirements to holders of the voting securities of German corporations admitted to trading in an organized market (Organisierter Markt) of a stock exchange within the European Union or the European Economic Area. The
amendments also require the holders of 30% or more of the outstanding voting rights of a covered security to report such holdings immediately upon, or at the latest within seven days of, acquiring such rights.


Material
  Contracts

The following is a summary of the material terms of certain financing arrangements to which we are or will be a party. The following summaries are not complete
and are subject to the full text of the documents as attached in Exhibit 2, 3 and 4 to the Annual Report of 2003.


The Senior
  Facilities

On
      September 1, 2005 we replaced our U.S. Senior Facility and amended the
      Term Facility and revolving credit agreement dated February 3, 2004 by
      adding an
additional USD Tranche (collectively referred to as the “Senior Facilities”)
..


German
  Senior Facility

The German Senior Facility was signed on February 3, 2004 and amended on September 1, 2005 , with the Company and certain of its subsidiaries party thereto
(initially including SGL CARBON S.p.A. (Italy), SGL CARBON S.A. (Spain) and SGL CARBON LLC (USA)), as the original borrowers, certain subsidiaries of SGL (including all of the Subsidiary Guarantors), as guarantors, Bayerische Landesbank, Credit
Suisse First Boston International, Deutsche Bank AG, and Dresdner Kleinwort Wasserstein, as mandated lead arrangers, and certain other financial institutions party thereto, as the original lenders, Deutsche Bank Luxembourg S.A., as facility agent
and security agent, and Credit Suisse First Boston International, as documentation agent.


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The
      German Senior Facility provides for senior term loans consisting of a maximum
      aggregate amount of €195.2 million, consisting of one €9.6 million facility,
known as Term Loan A, one €128.3 million letter of credit facility, known as Term Loan B, one €15.3 million facility, known as Term Loan C, a multicurrency revolving credit facility of €42.0
million known as the Revolving Facility and an additional USD 80.0 million facility,
know as Term Loan D. The German Senior Facility is governed by German law.


Interest rates
  and fees

Advances under Term
    Loan A, the Term Loan B and the Revolving Facility bear interest for each
    interest period at a rate per annum equal to EURIBOR or, in relation  to
    any loan made in U.S. Dollars, LIBOR, plus mandatory costs to compensate
    lenders for the costs of compliance with regulatory requirements, if applicable,
    and a variable margin. The initial interest margin for Term Loan A, Term
    Loan B and the
Revolving Facility is 2.75% and for Term Loan D is 3.0%.


The margin on Term Loan A, Term Loan B, Term Loan D and the Revolving Facility are subject to a margin ratchet. The margin will be adjusted downwards at specified
increments to reflect any changes in the ratio of net debt to consolidated EBITDA as determined on the basis of quarterly reports for the previous four quarters, to a minimum margin of 1.25% per annum, except for Term Loan D where the minimum is
1.5% per annum.


In addition, during any period of default under the German Senior Facility, the margin on Term Loans A, B, D and the Revolving Facility will be 1.25% above the
otherwise applicable margin until either the default is cured or the lenders waive the enforcement of their rights arising from this default. Advances under Term
Loan C bear interest at a rate per annum equal to 7.36%.


We paid customary fees to the lenders under the German Senior Facility for making the term loans available under the German Senior Facility.


Security

In order to secure claims under the German Senior Facility, the Company and various subsidiaries have granted a number of security interests for the benefit of
the lenders and the other secured parties, including:


| | • | pledges of shares held by the Company in SGL CARBON Beteiligung GmbH, SGL
    CARBON GmbH, SGL TECHNOLOGIES GmbH, SGL Carbon LLC; and by SGL TECHNOLOGIES
    GmbH in SGL BRAKES GmbH;                    
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | • | pledges of bank accounts held by SGL CARBON Aktiengesellschaft, SGL CARBON
    GmbH, SGL Carbon LLC, SGL CARBON Beteiligung GmbH, SGL TECHNOLOGIES GmbH,
    and SGL BRAKES GmbH;                         
|
| | • | security assignments of accounts receivable by SGL CARBON Aktiengesellschaft,
    SGL CARBON GmbH, SGL Carbon LLC, SGL CARBON Beteiligung GmbH, SGL TECHNOLOGIES
    GmbH, and SGL BRAKES
GmbH;           
|
| | • | security transfers of movable fixed assets and inventory held by SGL CARBON
    GmbH, SGL Carbon LLC, SGL TECHNOLOGIES GmbH and SGL BRAKES GmbH;                                                          
|
| | • | security assignments of intellectual property rights by SGL CARBON Aktiengesellschaft,
    SGL CARBON GmbH, SGL Carbon LLC, SGL CARBON Beteiligung GmbH, SGL TECHNOLOGIES
    GmbH and SGL BRAKES GmbH
and
|
| | • | mortgages over real property belonging to SGL CARBON Aktiengesellschaft and
    SGL Carbon LLC.                                                                                                           
|

In addition, various security interests were be granted in those jurisdictions in which our material subsidiaries are located, including Austria, Canada, England,
France, Italy, Poland, Scotland, and Spain.


SGL ACOTEC GmbH and KCH Beteiligungs GmbH were released from granting securities effective January 6, 2005 due to the sale of the Surface Technology and Plastics
Process Technology operations as part of the Corrosion Protection Business (CP).


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On December 31, 2005 the funds in the bank accounts to fund potential antitrust fines and to fund the repurchase of the 3.5% convertible bond including accrued
interest thereon were fully used to serve the described obligations.


Furthermore, the German Senior Facility provides that all subsidiaries that contribute at least 5% of the EBITDA or the sales revenues of the SGL Group shall
become party to the agreement, and that they shall give guarantees and grant security over their assets, and that their shares shall be pledged.


Use of proceeds
  and maturity

Term Loan A was used to fund, in part, the Transactions. The amortization schedule for Term Loan A provides for semi-annual payments and a final maturity on
December 30, 2008.


Term
      Loan B is a letter of credit facility that shall serve to refinance earlier
      letters of credit granted in favour of the European Union in connection
      with fines imposed by EU competition authorities. On September 7, 2005
      the Company cancelled €10.6 million of the amended Term Loan B facility of €128.3 million. These letters of credit may be issued in a total amount of €117.7
      million. They are to be returned to the lending banks if the EU waives
      its requirement that we provide the letters of credit. The Term Loan B
      terminates on December 30, 2008. To the extent the letters of credit have
      not been returned at that point, they shall be secured
with a corresponding cash account. If the EU reduces the fines, any existing
      letter of credit will be replaced by another in the reduced amount.


Term Loan C serves
    to refinance a loan granted by KfW (Kreditanstalt für Wiederaufbau).
    The amortization schedule for Term Loan C provides for semi-annual  repayments
    and a final maturity on September 30, 2007.


The Revolving Facility may be drawn at any time up to one month before December 31, 2008, the termination date for the Revolving Facility, for general corporate
purposes except payment of antitrust fines, to make or declare any dividend or repay capital contributions or any other payment in respect of share capital, or to refinance the convertible bond due 2005 or to repay other financial indebtedness
incurred after the signing of the German Senior Facility.


Term Loan D serves to fund the capital requirements in the US and requires a bullet repayment on December 30, 2008.


Voluntary
  and mandatory prepayment

Except
      with respect to Term Loan C, we may cancel all remaining commitments and
      prepay any amounts owed under an available commitment in a minimum amount
      of €500,000, which represents one integral multiple of €250,000. We may provide cash collateral to reduce the issuing banks letter of credit proportion under the letters of credit issued under Term Loan B. We may prepay the whole or any part of
Term Loan C in a minimum amount of €5.0 million. We may also cancel any amount
owing to any single lender that makes a claim for additional payments relating
to increased bank regulatory capital costs or tax gross-ups.


We are required to repay the loans under the German Senior Facility in full or in part in certain circumstances, including:


| | • | the disposal of assets other than in the ordinary course of business or specific
    exceptions as defined in the German Senior Facility;                                                                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | • | the receipt of insurance proceeds in excess of €1.0 million or, when aggregated
    with the insurance proceeds of the SGL Group from claims made in the immediately
    preceding twelve months, €7.5 million, to the extent that they are not applied
    in the towards the replacement, reinstatement, repair, or satisfaction of
    business interruption losses within six months of receipt;
|
| | • | 50% of excess cash flow, to the extent it exceeds €7.5 million as calculated
    under the provisions of the German Senior Facility, for each financial year,
    and                                                                                                                                                                                                                               
|
| | • | 100% of the net proceeds from the issuance of any debt securities issuance
    and 75% of the net proceeds arising from any equity securities issuance.                                                                                                                                                                                                                                             

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Undertakings
and restrictive covenants

The German Senior Facility includes a number of undertakings and restrictive covenants typical for credit facilities of this nature, including:


| | • | restrictions on disposals of assets, unless permitted under the German Senior
    Facility;                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------
|
| | • | restrictions on changes of the financial year;                                                                                      
|
| | • | requirement to maintain and protect intellectual property rights; and                                                               
|
| | • | prohibition of acquisitions, mergers, joint ventures or similar transactions,
    unless permitted under the German Senior Facility.

Above a certain leverage ratio, the German Senior Facility requires the Company, to the extent permissible by German law, to recommend not to make and not to
propose to make any dividend, return on capital, repayment of capital contributions or certain other distributions. In addition, in the event the Company distributes a dividend, it will repay to the lenders a part of the principal of the credit in
the same amount as the dividend payment within 30 days after payment of the dividend.


Financial covenants

The German Senior Facility provides for a number of financial covenants typical for credit facilities of this nature, pursuant to which SGL has to meet certain
conditions regarding net worth, interest cover, leverage ratios and other financial ratios at all times during the term of the German Senior Facility.


Events of default

The German Senior Facility contains provisions typical for credit facilities of this nature, specifying the extent to which certain actions or omissions by us
will or can constitute a default under the agreement including breaches of covenants or failure to pay interest or principal on loans under the credit facilities as they become due.


In the event of a default that is not cured or waived by the banks, the agreement provides the lenders with certain remedies that may be exercised at the election
of lenders representing a majority of 66 2/3% of the then outstanding principal amount under the facilities. In particular, these remedies include acceleration of all outstanding amounts, cancellation of all remaining commitments and enforcement of
security interests that we have granted.


In
      addition, we will be in default if any new antitrust proceedings are instituted
      against any member of the SGL Group or if any antitrust fines in an aggregate
      amount exceeding €2.5 million are assessed against any member of the SGL
      Group by administrative authorities, or if any existing fines are increased
      by that amount. Should this default occur, however, the lenders may not
      immediately accelerate the loans. Rather, the German Senior Facility requires
      them, before accelerating, to negotiate with us in good faith for up to
30 days with a view to continuing the German Senior Facility.


Intercreditor
  AgreementGeneral

To establish the relative rights of certain of the creditors under our financing arrangements, certain members of the SGL Group, including the Issuer, the Company
and the Subsidiary Guarantors, entered into an Intercreditor Agreement with the lenders under the Senior Facilities, the senior agent, the senior security agent, the security agent or agents and trustee for the holders of the notes and a trustee for
the holders of the convertible bonds, among others. Since the convertible bonds were repaid in full on September 18, 2005, the trustee for the holders of the convertible bonds is no longer party to the Intercreditor Agreement.


Order of priority

The Intercreditor Agreement provides that outstanding debt of members of the SGL Group will have the following priority:


| | • | first, Senior
    Indebtedness and
| | - | ----------------------------------

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| | • | second, Indebtedness
    under the Guarantees.
| | - | ----------------------------------------------

Payments under the Guarantees of the notes and the Funding Loan

Payment
      by the Guarantors under their Guarantees will be permitted except as set
forth under “ Suspension of Payments” below.


Suspension of Payments

Payments under the Guarantees will be subject to suspension as follows:


| | (1) | if any payment event of default with respect to any Senior Indebtedness of
    the relevant obligor has occurred and is continuing, or                                                                                                                                                                                                                                                                                                                   
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (2) | if an event of default (other than a payment event of default) with respect
    to any Designated Senior Indebtedness of the relevant obligor has occurred
    and is continuing and the trustee for the notes has received a stop notice
    from the relevant agent under any such Designated Senior Indebtedness specifying
    the relevant event of default and that permitted payments under the Guarantee
    are suspended until the earliest of:
|
| |     | a)                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |     | b)                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |     | c)                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |     | d)                                                                                                                                                                                                                                                                                                                                                                                                                                                       

The
      foregoing will not prohibit the Guarantors from paying and the holders
      of notes from receiving certain “permitted junior securities” (which
      include equity securities of the Company and subordinated debt securities
of any Guarantor) or payments made from the trusts.


Delivery of
stop notices

Any Designated Senior Indebtedness acting as one class may serve a stop notice. However, only one stop notice may be served in any period of 360 days. Such stop
notice may only be withdrawn with the consent of the Majority Senior Lenders.


Delayed maturity of the Subsidiary Guarantees and of the Funding Loan

The Intercreditor Agreement requires that the Subsidiary Guarantees prior to the repayment of all obligations in respect of Designated Senior Indebtedness, the
obligations under the Subsidiary Guarantees are not due (and no demand may be made on the relevant obligor) until:


| | i.  | a default in payment of any amounts due under the indenture, the notes or
    the Guarantees has occurred and is continuing, and                                                                                                                                                                                                                                                                                                                                 
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | ii. | either (i) 179 days has elapsed since the date of any default under the notes
    occurring on or prior to such payment default or (ii) if earlier, (A) certain
    insolvency events in respect of the relevant Subsidiary Guarantor, with respect
    to the Subsidiary Guarantees, (B) a Senior Declared Default has occurred
    and is continuing or (C) the applicable lenders have taken any Enforcement
    Action in respect of any Senior
Indebtedness.

This delayed maturity provision contained in the Intercreditor Agreement may not be amended without the consent of the Majority Senior Lenders.


Because the obligations of the Subsidiary Guarantors under the Subsidiary Guarantees will not be due until the occurrence of the events described above, the
trustee may not make a demand under or bring any Enforcement Action on the Subsidiary Guarantees (including but not limited to the commencement of insolvency proceedings with respect to the relevant obligor) until such time.


“Designated Senior Indebtedness”, “Enforcement Action”, “Senior Declared Indebtedness” and
“Indebtedness” each have the meaning set forth in “Exhibit 2”.


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“Majority Senior Lenders” means:
      (1) with respect to clause (1) of the definition of Designated Senior Indebtedness,
      the lenders under the German Senior Facility holding together more than
      50.0% of the aggregate outstanding Indebtedness under the german facilities
      (ii) with respect to clause (2) of the definition of Designated Senior
      Indebtedness, the lenders under such Designated
Senior Indebtedness, holding together more than 50.0% of such aggregate outstanding
      Indebtedness and (iii) with respect to clause (3) of the definition of
      Designated Senior Indebtedness the relevant majority specified in the credit
      agreement(s)
governing such Designated Senior Indebtedness.


The Company Guarantee is not subject to delayed maturity and, although subordinated in right of payment, is full and unconditional.


Subordination
on insolvency

The Intercreditor Agreement provides that, in the event of certain insolvency events, all obligations in respect of a Guarantor under a Guarantee are subordinated
to the prior payment in full in cash or cash equivalents (as defined in the Intercreditor Agreement) of all obligations of the relevant obligor under all Senior Indebtedness. Any payments of any kind, including by way of set-off or otherwise on the
Guarantee of the relevant obligor must be paid to the holders of the Senior Indebtedness in accordance with their interests.


Turnover

The Intercreditor Agreement requires holders of the notes to turn over to the agent for the holders of Senior Indebtedness any payments received in breach of the
foregoing restrictions in the Intercreditor Agreement. The agent will apply the proceeds first to the relevant Senior Indebtedness and then to the relevant subordinated indebtedness.


Enforcement
of security

The security agent for the notes may enforce its security over the shares of the Pledged Entities from and after the date the Subsidiary Guarantees have become
due, unless, at that time, the lenders under any Designated Senior Indebtedness have taken Enforcement Action with respect to the relevant share security and are pursuing such action in a diligent and reasonable manner. Any instruction to the
security agent by the holders of notes in respect of enforcement in respect of their share security must be given by the holders of more than 50.0% of the notes. In the event the lenders under any Designated Senior Indebtedness have issued
conflicting instructions to the security agent, the security agent will follow the instructions of the senior lenders.


Release of Subsidiary
Guarantees and security

Subject to the following paragraph, if the agent for holders of Designated Senior Indebtedness requires any release of any Subsidiary Guarantee or share security
in connection with any Enforcement Action under the security documents, all parties will enter into such documents as the agent for lenders of Designated Senior Indebtedness may reasonably require. If any asset is to be sold by way of any
Enforcement Action under the security documents, the agent for lenders of Designated Senior Indebtedness will (subject to the requirements of the following paragraph) be authorized to release security over that asset (but not the proceeds thereof)
and, if a member of the SGL Group has been sold, to release it from liabilities as a guarantor or borrower and to release any related security.


The holders of notes will be required to authorize any release described in the previous paragraph only if the following conditions have been satisfied:


| | i.  | the holders of notes have approved the release; or                                                                                                                                                                                                                                                                                                                                                                  
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | ii. | the shares of the relevant Subsidiary Guarantor (or the shares of any direct
    or indirect holding company of such guarantor) are sold or otherwise disposed
    of pursuant to any Enforcement Action taken by the agent for the holders
    of Designated Senior Indebtedness or the relevant assets are sold pursuant
    to any Enforcement Action under the security documents by the Senior Lenders
    and:
|
| |     | a)                                                                                                                                                                                                                                                                                                                                                                                                                  

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| |  | b) | concurrently with the completion of such sale or disposal, the claims and
    security interests of the senior lenders against the relevant Subsidiary
    Guarantor and its Subsidiaries are irrevocably and unconditionally released
    (and not assumed by the relevant purchaser or any affiliate thereof);
| |  | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | c) | the sale is either made pursuant to a public auction or is otherwise made
    for fair market value as certified by an independent internationally recognized
    investment bank selected by a representative of the holders of Designated
    Senior Indebtedness; and                                        

the proceeds of such sale are concurrently with the completion of such sale delivered to the agent for the holders of Senior Indebtedness for application in
    accordance with the Intercreditor Agreement (first to holders of Senior Indebtedness and then to the holders of the notes and the holders of convertible bonds). Due to the sale of the Surface Technology and Plastics Process Technology operations as
    part of the Corrosion Protection Business (CP) effective January 6, 2005 SGL ACOTEC GmbH and KCH Beteiligungs GmbH were released from granting securities.


Amendment of Deposit Accounts

We
      have agreed not to amend the Deposit Accounts without the consent of the
      trustee for the holders of the notes. See“ Deposit
Accounts.”


Other Provisions

The Intercreditor Agreement contains other standard provisions including subrogation, grant of certain authority to the senior lenders to prove for and file
claims in respect of the Guarantees, and restrictions on assignment.


Governing Law

The Intercreditor Agreement
will be governed by New York law.


3.5% Convertible Bonds

On
      September 18, 2000, the Company issued convertible bonds in the amount
      of €133.6 million with a maturity date of September 18, 2005 and an annual
      interest rate of 3.5% payable annually. The convertible bonds were fully
repaid on September 18, 2005.


Polish
  Facility

The Polish Facility was most recently amended on December 18, 2003, and included our subsidiaries in Poland, SGL CARBON S.A. (Poland), SGL CARBON Angraph Sp.
z.o.o (Poland) and SGL CARBON Polska S.A. (Poland) as the borrowers and BNP Paribas Bank Polska S.A. as the lender. As of December 31, 2005, all Polish subsidiaries were merged into the surviving legal entity SGL CARBON Polska S.A


The Polish Facility provides for a revolving credit facility of up to PLN 60.0 million. The Polish Facility is used to provide working capital to our Polish
subsidiary. As of December 31, 2005 and 2004, there was no indebtedness outstanding under the Polish Facility.


Advances under the Polish Facility bear interest at a rate per annum equal to WIBOR plus 2.0% (for borrowings denominated in PLN), LIBOR plus 2.0% (for borrowings
denominated in US Dollars) or EURIBOR plus 2.0% (for borrowings denominated in Euro). Borrowings under the Polish Facility are subject conditions precedent. The Polish Facility is served by a mortgage on certain Polish real estate and a pledge of
the share capital of SGL CARBON Polska S.A. (Poland), The Polish Facility terminates on December 30, 2008. Availability under the Polish Facility will be decreased to PLN 50.0 million at December 31, 2007.


The Polish Facility includes the restrictive covenants, including financial covenants, applicable to the borrowing group.


Deposit Accounts

Upon
      closing in February 2004 we deposited €143.0 million into an escrow account
      to satisfy interest and principle obligations on our existing convertible
      bonds
through to maturity


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(the “Convert Deposit Account”). On February 25, 2004, the Company
  made a voluntary public offer to repurchase the convertible bonds from their
  holders. During an acceptance period ending at midnight (CET) on April 5, 2004,
  the holders of an aggregate 83,687 convertible bearer bonds with a nominal
  value of €1,000.00 each accepted the offer by SGL Carbon Aktiengesellschaft
  to repurchase such bonds. This number represents approximately 62,605% of the
  total 133,650 bearer bonds with a nominal value of €1,000.00 each then outstanding.
  On September 18, 2005 the Company repurchased the remaining outstanding 49,963
bonds including accrued interest thereon.

A
      portion of the proceeds from the Transactions (in the amount of €125.3 million) was deposited into a separate escrow account to be used exclusively for the
purpose of paying fines in connection with antitrust proceedings and related costs (the “Antitrust Deposit Account” and, together with the Convert Deposit Account, the “Deposit Accounts”). We classified
the amounts in Antitrust Deposit Account as “restricted cash” on our balance sheet. On June 28, 2004 we draw €5.6
million from the Covert Deposit Account to repay Senior Indebtedness.


As of December 31, 2005 the funds in the bank accounts to fund potential antitrust fines and to fund the repurchase of the 3.5% convertible bond including accrued
interest thereon were fully used to serve the described obligations.


8.5% Senior Notes

On
      February 9, 2004, as part of our recent refinancing package, we issued
      senior notes with a total nominal value of €270 million through our finance
      subsidiary SGL CARBON Luxembourg S.A. SGL CARBON AG owns 96.77% of SGL
      CARBON Luxembourg S.A., while SGL CARBON Beteiligung GmbH owns the remaining
      3.23% . The notes bear interest at 8.5% per annum, payable semi-annually,
      and mature on February 1, 2012. The
notes are listed on the Luxembourg Stock Exchange.


The gross proceeds from the issue of the senior notes were on-lent by SGL CARBON Luxembourg S.A. to SGL CARBON AG, which used the proceeds, along with existing
cash and the gross proceeds from the rights issue, to refinance our credit facility in place at the time, to fund an escrow account for payments in connection with antitrust proceedings, to fund an escrow account for the repurchase of our
convertible bonds and to pay the expenses and fees related to the transaction.


The notes were issued under an indenture among SGL CARBON Luxembourg S.A., SGL CARBON AG, the guarantor subsidiaries of SGL CARBON AG and The Bank of New York as
trustee for the bondholders, in a private transaction not subject to the registration requirements of the U.S. Securities Act. The indenture is attached as an exhibit to the annual report of 2003.


The notes are senior obligations of SGL CARBON Luxembourg S.A. and are guaranteed on a senior subordinated basis by SGL CARBON AG and certain of our subsidiaries.
Each guarantee of the notes is a general obligation of each guarantor, is subordinated in right of payment to all existing and future senior indebtedness of that guarantor and ranks pari
passu in right of payment with any future senior subordinated
indebtedness of that guarantor.


The
      obligations of SGL CARBON Luxembourg S.A. and of each of the guarantors
      under the indenture, the notes and in certain cases the guarantees are
      secured by a first-ranking security over the loan of the gross proceeds
      of the issue from SGL CARBON Luxembourg S.A. to SGL CARBON AG and by second-ranking
      pledges over the capital stock of the following SGL subsidiaries: SGL CARBON
      GmbH (Germany), SGL CARBON
GmbH & Co. KG (Austria), SGL Technic S.A.S. (France), SGL CARBON S.p.A. (Italy),
SGL CARBON S.A. (Spain), SGL CARBON Polska S.A. (Poland), SGL CARBON LLC (Nevada,
USA) and SGL Technic Inc. (California, USA).


To comply with a negative pledge provision in our convertible bonds, we provided equivalent security and guarantees for the benefit of the holders of our existing
convertible bonds at the same time, and on apari passu and a pro rata basis, as the security and guarantees we are providing for the benefit of the holders of the senior notes.


The indenture under which we issued the senior notes contains a number of conditions that are typical for this kind of debt instrument but that could
substantially limit our financial and operating


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flexibility or, in a case of breach, lead to accelerated maturity or termination
of the notes. Among other things, these conditions limit our ability to:

|* | incur additional indebtedness and issue preferred shares;                                                      
|- | ---------------------------------------------------------------------------------------------------------------
| 
|* | make certain restricted payments and investments;                                                              
| 
|* | transfer or sell assets;                                                                                       
| 
|* | enter into transactions with affiliates;                                                                       
| 
|* | create certain liens;                                                                                          
| 
|* | create restrictions on the ability of our restricted subsidiaries to pay
    dividends or other payments to us;
| 
|* | issue guarantees of indebtedness by our restricted subsidiaries;                                               
| 
|* | enter into sale and leaseback transactions;                                                                    
| 
|* | issue or sell shares of our restricted subsidiaries;                                                           
| 
|* | merge, consolidate, amalgamate or combine with other entities;                                                 
| 
|* | designate restricted subsidiaries as unrestricted subsidiaries; and                                            
| 
|* | engage in any business other than a business permitted under the indenture.                                    
| 

Each of these covenants
      is subject to a number of exceptions and qualifications. See Exhibit [2.1]
    to the annual report of 2003.


Exchange
  Controls

At
      the present time, Germany does not restrict the export or import of capital,
      except for certain direct investments in areas covered by United Nations
      embargoes and certain other countries and individuals subject to embargoes
      in accordance with German law. However, for statistical purposes with certain
      exceptions, every corporation or individual residing in Germany must report
      to the German Central Bank any
payment received from or made to a non-resident, corporation or individual if
      the payment exceeds €12,500 (or the equivalent in a foreign currency). Additionally, corporations and individuals residing in Germany must report to the German Central
Bank any claims of a resident corporation or individual against, or liabilities payable to, a non-resident corporation or individual exceeding an aggregate €5.0
million (or the equivalent in a foreign currency) at the end of any calendar
month. There are no limitations on the right of non-resident or foreign owners
to hold or vote the Shares or the ADRs imposed by German law or the Articles
of Association of SGL.


Taxation

German Taxation

The
      following discussion is a summary of the material German tax consequences
      for beneficial owners of Shares or American Depositary Shares who are (i)
      not German residents for German income tax purposes (i.e., persons whose
      residence, habitual abode, statutory seat or place of effective management
      and control is not located in Germany) and (ii) whose Shares do not form
      part of the business property of a
permanent establishment or fixed base in Germany. Throughout this section we
      refer to these owners as “non-German Holders”.


This summary is based on German tax laws and typical tax treaties to which Germany is a party, as they are in effect on the date hereof, and is subject to changes
in German tax laws or such treaties. The following discussion does not purport to be a comprehensive discussion of all German tax consequences that may be relevant for non-German Holders. You should consult your tax advisor regarding the German
federal, state and local tax consequences of the purchase, ownership and disposition of Shares or ADRs and the procedures to follow for the refund of German taxes withheld from dividends.


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Taxation in
Germany

From
      2004 on, a corporate income tax rate of 25% plus 5.5% solidarity surcharge
      thereon, accounting to a total of 26.375% applies. According to the transition
      rules applicable in connection with the German tax reform, dated October
      23, 2000, and the change from the corporate income tax credit system to
      the new system, a corporate income tax reduction in the amount of 1/6 of
      the distributions of earnings
that were taxed under the old credit system applies. However, distributions after
      April 11, 2003 and before January 1, 2006 do not trigger corporate income
      tax reduction and for distributions after December 31, 2005 certain restrictions
      apply. German corporations are also subject to profit-related trade tax
      on income, the exact amount of which depends on the municipality in which
      the corporation maintains its business establishment(s). Trade tax on income
      is a deductible item in computing
the corporations tax base for corporate income tax purposes.


Withholding Tax

Generally
      the dividends distributed by SGL are subject to German withholding tax.
      The withholding tax rate on dividends is 20%. In addition, the solidarity
      surcharge of 5.5% on the withholding tax will be retained, resulting in
      a total withholding from dividends of 21.1% . The withholding tax rate
      may be reduced for non-German Holders by an applicable double tax treaty.
      Under most double tax treaties
the withholding tax rate is reduced by way of refund, to 15%. To reduce the withholding
      tax to the applicable treaty rate of 15%, a non-German Holder may apply
      for a refund of withholding taxes paid. The refund amounts to 6.1% of the
      declared dividend for dividend distributions withheld at the rate of 21.1%
      . The application for refund must be filed with the German Central Tax
      Office (Bundeszentralamt für Steuern, Hauptdienstsitz Bonn-Beuel,
      An der Kü ppe 1, D-53225 Bonn,
Germany; http://www.bzst.bund.de). The relevant forms can be obtained from the
      German Central Tax Office or from German embassies and consulates.


Special Tax
Rules for U.S. Holders

Under the United States-German Income Tax Treaty, the withholding tax rate is reduced to 15% of the gross amount of the dividends for shareholders holding less
than 10% in SGL. Otherwise, the withholding tax rate is reduced to 5%. Therefore, in most cases eligible U.S. holders will be entitled to receive a repayment from the German tax authorities equal to 6.1% of the declared dividend. Accordingly, for a
declared dividend of 100, an eligible U.S. holder initially will receive 78.9 (100 minus the 21.1% withholding tax). The eligible U.S. holder is then entitled to a refund from the German tax authorities of 6.1 and will, as a result, effectively
receive a total of 85 (i.e., 85% of the declared dividend). Thus, the eligible U.S. holder will be deemed to have received a dividend of 100, subject to German withholding tax of 15.


Dividend Refund Procedure for U.S. Holders

A new simplified
    collective refund procedure has been introduced, the so-called Datenträ gerverfahren.
    Financial institutions which deal with dividend  distributions of SGL (for
    example, custodian banks or clearing offices) or SGL itself may apply to
    participate in this procedure at the German Central Tax Office. Upon acceptance,
    the participant may electronically file collective refund claims with
the German Federal Tax Office.


Individual
      claims for refund may be made on a special German form, which must be filed
      with the German Central Tax Office, Bundeszentralamt für Steuern,
      Hauptdienstsitz Bonn-Beuel, An der Küppe 1, D-53225 Bonn, Germany
      (http://www.bzst.bund.de). Copies of the required form may be obtained
      from the German Central Tax Office at the same address or from the Embassy
      of the Federal Republic of  Germany, 4645 Reservoir Road, N.W., Washington
      D.C. 20007-1998. Alternatively, the form can be downloaded from the following
      website: www.bzst.bund.de.


Claims must be filed within a four-year period from the end of the calendar year in which the dividend was received.


As part of the individual refund claim, an eligible United States holder must submit to the German tax authorities the original bank voucher (or certified copy
thereof) issued by the paying entity documenting the tax withheld, and an official certification on IRS form 6166 of its last United States federal income tax return. IRS Form 6166 may be obtained by sending a properly


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completed IRS Form 8802 and any required statements and documentation to the
  Internal Revenue Service, Philadelphia Service Center, U.S. Residency Certification
  Request, P.O. Box 16347, Philadelphia, PA 19114-0447. Additional guidelines
  concerning application for U.S. residency certification are provided in the
  Instructions for IRS Form 8802 and in IRS Publication 686, Certification for
  Reduced Tax Rates in Tax Treaty
Countries.

Capital Gains

Under German domestic tax law, capital gains derived by a non-German Holder from the sale or other disposition of Shares or ADRs are subject to tax in Germany,
the tax base generally being 50% of the capital gains in respect of an individual non-German Holder and 5% of the capital gains in respect of a corporate non-German Holder provided that such non-German Holder has held, directly or indirectly, Shares
or ADRs representing 1% or more of the registered share capital of SGL at any time during the 5-year period immediately preceding the disposition.


Under most double tax treaties, a non-German Holder will not be liable for German income tax on capital gains realized or accrued on the sale or other disposition
of Shares or ADRs. This applies also under the United States-German Income Tax Treaty.


Individuals owning
    at least 25% of the Shares who gave up residence in Germany and have become
    residents of the United States can be liable for German tax on capital gains
    under the United States  German Treaty if certain prerequisites are
met.


Inheritance
and Gift Tax

Under German law, German gift or inheritance tax will generally be imposed on transfers of Shares or ADRs by a gift or on the death in the following
situations:


| | • | The donor or transferor, or the heir, donee or other beneficiary, was domiciled
    in Germany at the time of the transfer or, with respect to German citizens
    who are not domiciled in Germany, the donor, transferor or beneficiary has
    not been continuously outside of Germany for a period of more than 5 years;
    or
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | • | The shares or ADRs subject to such transfer form part of a portfolio that
    represents 10% or more of the registered share capital of SGL and that has
    been held directly or indirectly by the donor or transferor himself or together
    with a related party.                                                              

The few German estate tax treaties currently in force, including the treaty with the United States, usually provide that German gift or inheritance tax may only
  be imposed in situations falling under the first condition above.


Other Taxes

No German transfer,
     stamp or other similar taxes apply to the purchase, sale or other disposition
     of Shares or ADRs by non-German Holders. As a result of a  judicial decision,
     the German net worth tax (Vermö gensteuer) was abolished.


United States Taxation

This section describes the material United States federal income tax consequences of owning and disposing of Shares or ADRs. It applies to you only if you are a
U.S. holder (as defined below) and hold the Shares or ADRs as capital assets for tax purposes. This section does not address all material tax consequences of owning and disposing of Shares or ADRs. It does not address special classes of holders,
some of whom may be subject to other rules, including:


| | • | tax-exempt entities,                                                                                 
| | - | -----------------------------------------------------------------------------------------------------
|
| | • | certain insurance companies,                                                                         
|
| | • | broker-dealers,                                                                                      
|
| | • | traders in securities that elect the mark to market method of accounting
    for securities holdings,
|
| | • | investors liable for alternative minimum tax,                                                        
|
| | • | investors that actually or constructively own 10% or more of our voting stock,                       

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| | • | investors that hold shares or ADRs as part of a straddle or a hedging or
    conversion transaction, or
| | - | -------------------------------------------------------------------------------------------------------
|
| | • | investors whose functional currency is not the U.S. dollar.                                            

This section is
      based on the tax laws of the United States, including the Internal Revenue
      Code of 1986, as amended (the “Code”), its
  legislative history, existing and proposed regulations, and published rulings
      and court decisions, as currently in effect, as well as on the Treaty.
      These laws are subject to change, possibly on a retroactive basis.


In addition, this section is based in part upon the representations of JPMorgan Chase Bank, the depositary for our American Depositary Receipt program. Assuming
that each obligation in the deposit agreement and any related agreement will be performed in accordance with its terms for United States federal income tax purposes, if you hold ADRs evidencing ADRs, you will generally be treated as the owner of the
Shares represented by those ADRs. Exchanges of Shares for ADRs, and ADRs for Shares, generally will not be subject to United States federal income tax.


You are a “U.S. holder” if you are a beneficial owner of Shares or
ADRs and you are:


| | • | an individual citizen or resident of the United States,                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | • | a corporation organized under the laws of the United States or any state
    thereof or the District of Columbia, or                                                                                             
|
| | • | an estate whose income is subject to United States federal income tax regardless
    of its source, or                                                                                                           
|
| | • | a trust if a United States court can exercise primary supervision over the
    trusts administration and one or more United States persons are authorized
    to control all substantial decisions
of the trust.

If a partnership holds Shares or ADRs, the tax treatment of a partner generally will depend upon the status of the partner and the activities of the partnership.
  If you are a partner in a partnership that holds Shares or ADRs, you are urged to consult your own tax advisor regarding the specific tax consequences of owning and disposing of your Shares or ADRs.


This discussion addresses only United States federal income taxation. U.S. holders should consult their tax advisor regarding the United States federal, state,
local and other tax consequences of owning and disposing of Shares and ADRs in their particular circumstances. In particular, they should confirm that they are eligible for the benefits under the Treaty with respect to income and gain from the
Shares or ADRs.


Taxation of Dividends

Under
      the United States federal income tax laws, if you are a U.S. holder, you
      must include in your gross income the gross amount of any dividend paid
      by us out of our current or accumulated earnings and profits, as these
      amounts are determined for United States federal income tax purposes. You
      must include any German tax withheld from the dividend payment in this
      gross amount even though you do not in fact
receive it. See the paragraph under “German Taxation  Special Tax Rules for U.S. Holders” for
examples of how to compute the amount of dividends received. The dividend must
be included in your gross income when you, in the case of Shares, or JPMorgan
Chase Bank, in the case of ADRs, receive the dividend, actually or constructively.
The dividend will not be eligible for the dividends-received deduction generally
allowed to United States corporations in respect of
dividends received from other United States corporations.


The amount of the dividend distribution that you must include in your income as a U.S. holder will be the U.S. dollar value of the gross distribution (including
German taxes withheld), determined at the spot euro/ U.S. dollar rate on the date the dividend distribution is includable in your income, regardless of whether the payment is in fact converted into U.S. dollars. Generally, any gain or loss resulting
from currency exchange fluctuations during the period from the date you include the dividend payment in income to the date you convert the payment into U.S. dollars will be treated as ordinary income or loss. The gain or loss generally will be
income or loss from sources within the United States for foreign tax credit limitation purposes.


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Distributions in excess of current and accumulated earnings and profits, as determined for United States federal income tax purposes, will be treated as a
nontaxable return of capital to the extent of your basis in the Shares or ADRs and thereafter as a capital gain.


Subject
      to certain limitations, the German tax withheld in accordance with German
      law and the Treaty and paid over to Germany may be claimed as a foreign
      tax credit against your United States federal income tax liability. To
      the extent a refund of the tax withheld is available to you under German
      law or under the Treaty, the amount of tax withheld that is refundable
      will not be eligible for credit
against your United States federal income tax liability. See “ German Taxation  Dividend Refund Procedure for U.S. Holders” above
for the procedures for obtaining a tax refund.


If a U.S. holder is an accrual method taxpayer, for taxable years beginning before 2005, it must translate German taxes into U.S. dollars at a rate equal to the
average exchange rate for the taxable year in which the taxes accrue, but must translate taxable dividends into U.S. dollars at the spot rate on the date received. This difference in exchange rates may reduce the U.S. dollar value of the credits for
German taxes relative to its U.S. federal income tax liability attributable to a dividend. However, for taxable years beginning after 2004, an accrual method U.S. holder may elect to translate German taxes into U.S. dollars using the exchange rate
in effect at the time the taxes were paid. Any such election will apply for the taxable year in which it is made and all subsequent years, unless revoked with the consent of the Internal Revenue Service.


Dividends
      distributed by us will generally constitute income from sources outside
      the United States and will generally be categorized as “passive
income” or “financial services income”, each of which are treated separately from other types of income for purposes of computing the foreign tax credit allowable to you. Under recently enacted legislation, for
taxable years beginning January 1, 2007, dividend income generally will constitute “passive category income” or, in the case of certain U.S. holders, “general category income.”


The
United States Treasury has expressed concerns that parties to whom ADRs are released
may be taking actions that are inconsistent with the claiming of foreign tax
credits. Accordingly, the creditability of German withholding tax on dividends
could be affected by future
actions that may be taken by the United States Treasury.


“Qualified dividend income” received by individuals in taxable years beginning before January 1, 2009 generally will be taxed at a maximum
rate of 15% rather than at rates applicable to other items of ordinary income. For this purpose, “qualified dividend income” generally includes dividends paid on shares of U.S. corporations as well as dividends paid on shares
of certain non-U.S. corporations if, among other things, the non-U.S. corporation is not a passive foreign investment company, and either (i) the shares of the non-U.S. corporation (including ADRs backed by such shares) are readily tradable on an
established securities market in the United States, or (ii) the non-U.S. corporation is eligible with respect to substantially all of its income for the benefits of a comprehensive income tax treaty with the United States which contains an exchange
of information program (the Treaty has been identified by the U.S. Treasury Department as a qualifying treaty). We currently believe that dividends paid by us with respect to the Shares or ADRs should constitute “qualified dividend
income” for U.S. federal income tax purposes. The United States Treasury
and the Internal Revenue Service have announced their intention to promulgate
rules pursuant to which holders of Shares and ADRs, among others, will be permitted
to rely on certifications from issuers to establish that dividends are treated
as qualified dividend income. Each individual U.S. holder of Shares or ADRs is
urged to consult his own tax advisor regarding the availability to him of the
reduced dividend
tax rate in light of his own particular situation and regarding the computations
of his foreign tax credit limitation with respect to any qualified dividend income
paid by us, as applicable.


Taxation of
  Capital Gains

Upon a sale or other disposition of Shares or ADRs, you will recognize capital gain or loss for U.S. federal income tax purposes in an amount equal to the
difference between the amount realized and your adjusted tax basis in the Shares or ADRs. This gain or loss generally will be U.S. source gain or loss, and will be treated as long-term capital gain or loss if your holding period in the Shares or
ADRs exceeds one year. In the case of non-corporate U.S. holders, the maximum marginal


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  United States federal income tax rate applicable to long-term capital gains
    realized before 1 January 2009, will be 15%. The deductibility of capital
    losses is subject to limitations. Any gain or loss generally will be treated
  as arising from U.S. sources.


Passive Foreign
Investment Company

We currently believe that SGL will not be treated as a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for the taxable year
ended December 31, 2005. However, an actual determination of PFIC status is fundamentally factual in nature and must be made annually as of the close of each fiscal year and is therefore subject to change. We urge you to consult your own tax
advisers regarding possible application of the PFIC rules to your ownership and disposition of Shares or ADRs.


U.S. Information
Reporting and Backup Withholding

Dividend payments on the ADRs or Shares and proceeds from the sale or other disposition of ADRs or Shares may be subject to information reporting to the IRS and
possible U.S. backup withholding at a current rate of 28%. Backup withholding will not apply to you, however, if you furnish a correct taxpayer identification number or certificate of foreign status or if you are otherwise exempt from backup
withholding. U.S. holders who are required to establish their exempt status generally must provide such certification on IRS Form W-9 (Request for Taxpayer Identification Number and Certification). Non-U.S. holders generally will not be subject to
U.S. information reporting or backup withholding. However, such holders may be required to provide certification of non-U.S. status in connection with payments received in the United States or through certain U.S. related financial
intermediaries.


Backup withholding is not an additional tax. Any amounts withheld as backup withholding may be credited against your U.S. federal income tax liability, and you
may obtain a refund of any excess amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the IRS and furnishing any required information.


Dividends
  and Paying Agents

Not applicable.


Statements
  by Experts

Not
applicable.


Documents
  on Display

We
        are subject to the informational requirements of the Securities Exchange
        Act of 1934, as amended. In accordance with these requirements, we file
        reports and other information with the Securities and Exchange Commission.
        Members of the general public may read and copy these materials, including
        this annual report and the exhibits thereto, at the SECs Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and may also obtain copies of the materials by mail from the Public Reference Room of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The public may obtain information on the operation of the
SECs Public Reference Room by calling the SEC in the United States at 1-800-SEC-0330.
The SEC also maintains a website at www.sec.gov that contains reports, proxy
statements and other information regarding registrants that file electronically
with the SEC. You may access our annual reports and some of the other information
we submit to the SEC through this website. In addition, you may inspect material
we file at the offices of the New York Stock Exchange at 20 Broad Street, New
York,
New York 10005.


Subsidiary
  Information

Not applicable.


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ITEM
  11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The global nature
    of our business exposes our operations, financial results and cash flows
    to a number of risks, including those listed below.


| | • | Interest rate fluctuations. We are exposed to changes in interest rates.
    Our primary interest rate exposure is to fluctuations in short-term European
    and U.S. interest rates.                                                                                                                                                                                                                                                                                      
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | • | Currency exchange rate fluctuations. We are exposed to fluctuations between
    the Euro and other major world currencies. The majority of our currency fluctuation
    risk is between the Euro and the U.S. dollar. In addition, we are exposed
    to fluctuations between the euro and the U.K. pound sterling, between the
    euro and the Polish zloty, between the U.K. pound sterling and the U.S. dollar
    and between the U. S. dollar and the Canadian
dollar.
|
| | • | Commodity price fluctuations. We are exposed to possible increases in raw
    material prices. We may not be able to pass any such increases on to our
    customers.                                                                                                                                                                                                                                                                                                       
|
| | • | Credit risk. We are exposed to credit risk with respect to the counter parties
    in our transactions.                                                                                                                                                                                                                                                                                                                                                                     
|

Any of these risks could harm our operating results and financial condition. These risks are similar to the risks to which we were exposed in the prior year.


The
      tables below present certain information regarding our use of derivative
      financial instruments. You should read these tables in conjunction with
      Item 3, “Key Information  Selected Financial Data  Exchange Rates” and
      the notes to our consolidated financial statements. All financial instruments
      in the tables below are used to manage market risks to which we are exposed.
      We do not purchase or sell derivative financial instruments for trading
purposes.


Interest Rate
  Risk Management

We are exposed to interest rate risks through our debt instruments. We manage this risk exposure through the use of interest rate swaps and interest rate
caps.


The following tables provide information about our derivative financial instruments and other financial instruments that are sensitive to changes in interest
rates as of December 31, 2005. For our fixed rate and variable rate debt, the table presents principal amounts at the December 31, 2005 (based on year-end exchange rates) and the related weighted average interest rates by expected maturity date.
Weighted average variable rates are based on implied zero coupon rates in the yield curve. For interest rate swaps and caps, the table presents notional amounts and weighted average interest rates or strike rates by expected maturity date. Weighted
average variable rates are based on the implied forward rates as of December 31, 2005. The information is presented in euro equivalents, which is our reporting currency.


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Interest Rate Risk Management
Principal (Notional) Amount by Expected Maturity
Average Interest Rate

|                                    |      |   |      |   |                                |   |      |   |      |   |                |   |       |  | Fair
	      Value
|----------------------------------- | ---- | - | ---- | - | ------------------------------ | - | ---- | - | ---- | - | -------------- | - | ----- |  | -----------------
|                                    |      |   |      |   |                                |   |      |   |      |   |                |   |       |  | December         
|                                    |      |   |      |   |                                |   |      |   |      |   |                |   |       |  | 31,              
|                                    | 2006 |   | 2007 |   | 2008                           |   | 2009 |   | 2010 |   | After
    2010 |   | Total |  | 2005             
|                                    |      |   |      |   |                                |   |      |   |      |   |                |   |       |  |                  
|                                    |      |   |      |   | (€ equivalent in
    millions) |   |      |   |      |   |               
|Debt,
    including current portion |      |   |      |   |                                |   |      |   |      |   |                |   |       |  |                  
|Fixed
    rate (€)                  | 4.8  |   | 8.4  |   | 0.1                            |   | 0.1  |   | 0.1  |   | 270.3          |   | 283.8 |  | 306.8            
|Average interest rate               | 7.29 | % | 7.32 | % | 4.11                           | % | 4.11 | % | 4.11 | % | 8.50           | % |       |  |                  
|Variable
    rate (€)               | 2.5  |   | 2.1  |   |                                |   |      |   |      |   |                |   | 4.6   |  | 4.6              
|Average interest rate               | 4.07 | % | 4.36 | % |                                |   |      |   |      |   |                |   |       |  |                  
|Variable
    rate (U.S. $)          |      |   |      |   | 67.8                           |   |      |   |      |   |                |   | 67.8  |  | 67.8             
|Average interest rate               |      |   |      |   | 6.28                           | % |      |   |      |   |                |   |       |  |                  
|Variable rate (GBP)                 | 0.5  |   |      |   |                                |   |      |   |      |   |                |   | 0.5   |  | 0.5              
|Average interest rate               | 5.00 | % |      |   |                                |   |      |   |      |   |                |   |       |  |                  
|Other currencies                    | 1.4  |   |      |   |                                |   |      |   |      |   |                |   | 1.4   |  | 1.4              

Other currencies in which we have debt is the Japanese Yen.


Interest Rate Risk Management
Principal (Notional)
Amount by Expected Maturity
Average Interest (Swap) Rate/Option Strike Price

|                                             |      |  |      |  |      |                            |      |   |      |  |                  |   |       |  | Fair
      Value |  
|-------------------------------------------- | ---- |  | ---- |  | ---- | -------------------------- | ---- | - | ---- |  | ---------------- | - | ----- |  | ---------------- | -
|                                             |      |  |      |  |      |                            |      |   |      |  |                  |   |       |  | December         |  
|                                             |      |  |      |  |      |                            |      |   |      |  |                  |   |       |  | 31,              |  
|                                             | 2006 |  | 2007 |  | 2008 |                            | 2009 |   | 2010 |  | After
      2010 |   | Total |  | 2005             |  
|                                             |      |  |      |  |      |                            |      |   |      |  |                  |   |       |  |                  |  
|                                             |      |  |      |  |      | (€ equivalent in millions) |      |   |      |  |                  |   |      
|Interest rate
      swaps                    |      |  |      |  |      |                            |      |   |      |  |                  |   |       |  |                  |  
|                                             |      |  |      |  |      |                            |      |   |      |  |                  |   |       |  |                  |  
|EURO                                         |      |  |      |  |      |                            |      |   |      |  |                  |   |       |  |                  |  
|Plain Vanilla Swap                           |      |  |      |  |      |                            |      |   |      |  | 40.0             |   | 40.0  |  | (1.8             | )
|Average receive
      rate (variable)        |      |  |      |  |      |                            |      |   |      |  | 3.54             | % |       |  |                  |  
|Average pay rate (fix)                       |      |  |      |  |      |                            |      |   |      |  | 4.25             | % |       |  |                  |  
|                                             |      |  |      |  |      |                            |      |   |      |  |                  |   |       |  |                  |  
|EURO                                         |      |  |      |  |      |                            |      |   |      |  |                  |   |       |  |                  |  
|CMS Spread
      Ladder Swap                 |      |  |      |  |      |                            |      |   |      |  | 20.0             |   | 20.0  |  | (3.7             | )
|Average receive rate (fix)                   |      |  |      |  |      |                            |      |   |      |  | 8.50             | % |       |  |                  |  
|Average pay
      rate (variable)            |      |  |      |  |      |                            |      |   |      |  | *                |   |       |  |                  |  
|                                             |      |  |      |  |      |                            |      |   |      |  |                  |   |       |  |                  |  
|USD                                          |      |  |      |  |      |                            |      |   |      |  |                  |   |       |  |                  |  
|Capped Swaps                                 |      |  |      |  |      |                            | 67.8 |   |      |  |                  |   | 67.8  |  | (0.5             | )
|Average receive
      rate (variable)        |      |  |      |  |      |                            | 4.86 | % |      |  |                  |   |       |  |                  |  
|Average pay rate (variable, capped at 5.10%) |      |  |      |  |      |                            | 5.10 | % |      |  |                  |   |       |  |                  |  

Foreign Exchange Risk
Management

Currency
    Translation Risk

The
      SGL Group has operations located outside the Euro zone. Since the Euro
      is our financial reporting currency, we translate the financial statements
      of these subsidiaries into the Euro for inclusion in our consolidated financial
      statements. Period to period changes in the exchange rate for a particular
      countrys currency can significantly effect the translation into Euro
      of both revenues and operating income denominated in that currency. Unlike
      the effect of exchange rate fluctuations on transaction exposure, the effect
      of exchange rate translation exposure does not effect our local currency
      cash flows.


Outside the Euro
    zone, we hold significant assets, liabilities and operations denominated in
    local currencies, most importantly the US Dollar, British Pound Sterling and
    Polish Zloty. Although we regularly assess and evaluate the long term currency
    risk inherent in these investments, we generally undertake foreign exchange
    hedge transactions addressing this type of risk only when we are


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considering withdrawal
  from a specific venture and repatriating the funds that our withdrawal generates.
  However, we reflect effects from currency fluctuations on the translation of
  net asset amounts in to Euro in a separate equity position.

Currency Transaction
  Risk

We are exposed to foreign currency exchange rate risks through sales and purchasing transactions, and intercompany loans denominated in currencies other than our
functional currency, the euro. Although the net impact of foreign currency exposures is partially offset in the aggregate, we hedge certain significant unmatched foreign currency exposure through the use of forward currency contracts and currency
options.


By the end of December
      2005, the SGL Group had entered into hedging agreements in the amount of
      USD 102 million to secure the transaction risk in Europe for the  2006
      fiscal year. The average exchange rate for these agreements is approximately
      USD 1.26/EUR 1.00.


The tables below provide information about our significant derivative financial instruments that are sensitive to changes in foreign currency exchange rates as of
December 31, 2005. For forward foreign currency exchange agreements, which relate to intercompany financing, the table presents the notional amounts and the weighted average contractual foreign currency exchange rates. For foreign currency options,
the table presents the contract amounts and the average foreign currency option strike prices. The foreign currency options entered into by the SGL Group have a term of less than four years.


|                                   |                                                                                     |   | Average     |  |            |  
|---------------------------------- | ----------------------------------------------------------------------------------- | - | ----------- |  | ---------- | -
|                                   |                                                                                     |   | Contractual |  | Fair Value |  
|                                   | Contract                                                                            |   | Forward     |  | December   |  
|                                   | Amount                                                                              |   | Exchange    |  | 31,        |  
|                                   | Buy (Sell)                                                                          |   | rate        |  | 2005       |  
|                                   |                                                                                     |   |             |  |            |  
|                                   | (€ equivalent
	      in millions, except for average contractual exchange
    rate) |  
|Forward Foreign Currency
Contracts |                                                                                     |   |             |  |            |  
|Euro                               |                                                                                     |   |             |  |            |  
|U.S. Dollar                        | (66.2                                                                               | ) | 1.2190      |  | (1.7       | )
|British Pound Sterling             | (60.7                                                                               | ) | 0.6794      |  | 0.6        |  
|Polish Zloty                       | 24.0                                                                                |   | 4.0472      |  | 0.9        |  
|Japanese Yen                       | (3.7                                                                                | ) | 133.4000    |  | 0.2        |  
|                                   |                                                                                     |   |             |  |            |  

|                         |                                                                              |   |              |  | Fair Value |  
|------------------------ | ---------------------------------------------------------------------------- | - | ------------ |  | ---------- | -
|                         | Contract                                                                     |   | Average      |  | December   |  
|                         | Amount                                                                       |   | Option       |  | 31,        |  
|                         | Buy (Sell)                                                                   |   | Strike Price |  | 2005       |  
|                         |                                                                              |   |              |  |            |  
|                         | (€ equivalent in
    millions, except for average
contractual exchange
rate) |  
|Foreign Currency Options |                                                                              |   |              |  |            |  
|U.S Dollar put/euro call | 115.3                                                                        |   | 1.2757       |  | 1.3        |  
|U.S Dollar call/euro put | (98.3                                                                        | ) | 1.2655       |  | (2.9       | )
|                         |                                                                              |   |              |  |            |  

During August 2005,
      we made the final installment of the U.S. Department of Justice fine and
      therefore terminated the associated hedging contracts.


Commodity Price Risks

We are exposed to
    commodity price risks through our dependence on various raw materials (including
    petroleum coke, coal tar pitch, petroleum pitch, anthracite  coal and natural
    graphite flake) and energy. We seek to minimize these risks through our sourcing
    policies and efficient operating procedures. Some of these products are derived
    from petroleum therefore their prices are affected by the market price of
    oil. Increases in the market price of oil in 2005 could possibly adversely
    affect the


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gross margins in some of our business segments if we are unable to pass the
  increase through to our
customers.

In order to ensure
      both the supply and pricing of some of our energy requirements, from time
      to time we are a party to short-term forward contracts in the natural
      gas market in the US which are not material to the operations of the Company
      as a whole.


Credit Risk

Credit risk is the possibility that the value of our assets may become impaired if counter parties cannot meet their obligations in transactions involving
financial instruments. The total of the amounts recognized in assets represents our maximum exposure to credit risk.


Risk Management
  System

We identify and manage risks through our Group wide Risk Management System. Certain risks, which are beyond our control, for example, effects from war, are not
covered by the Risk Management System.


Our Risk Management System (RMS) has been built to implement and control the risk policy. It comprises an interlinked series of planning, control and information
systems. These systems cover all areas of the Company and are continuously being adapted to changing underlying conditions. Assignment of responsibility for risk management is detailed in the Corporate Guidelines.


The operating units and central functions identify core risks within the framework of the planning process and determine their financial impact and initial
probability of occurrence. These core risks are monitored and countermeasures are set up within the framework of the objective discussions with the Board of Management.


On a quarterly basis, the Business areas and central functions evaluate on a rolling basis the likelihood of core risks occurring, identify potential new risks,
and monitor the countermeasures taken. The results are summarized by Group Controlling and presented to the Board of Management. This makes it possible to identify risks in an early stage, in particular those which may jeopardize the Company, and
undertake countermeasures. In addition, new potential risks or the occurrence of existing risks are communicated immediately to the Board of Management, regardless of usual reporting intervals.


The Board of Management regularly informs the Supervisory Board about the risk situation and risk management. In addition, all the components of the RMS are
monitored at regular intervals by the external auditors as part of the audit of the financial statements and the Group Internal Audit Department as a unit which is independent from the process. The information thus obtained is used to improve early
identification and control of risk.


As a company listed
      on the New York Stock Exchange, SGL Carbon is subject to additional rules
      designed to make the Companys reporting more transparent and
improve shareholder protection. The audits of Company processes and controls
      performed as part of the Sarbanes Oxley Act, which is particularly important
      in this context, contribute to the continued safeguarding and risk avoidance,
      which are also  subject to an independent audit by the external auditor
      from fiscal 2006.


Risk transfer

SGL Carbon has
      developed with its insurers a global coverage concept for the major company
      risks. These group insurance policies transfer the risk to the relevant
       insurer. To protect our buildings, equipment and machines, the loss prevention
      measures are continuously improved with the professional support of our
      insurers. Capital expenditures in risk minimization are made at all locations.


Market and
environmental risks

Our
      business is largely dependent on the steel industry. Key risks for 2006
      are the assumption of
    an ongoing favorable economic situation of the steel sector and  the continued
    upswing in demand within our major customer industries. A contrary development
    would have a negative effect on our
    prices and sales
    volumes, which we would have to be offset by further optimizing production
    and costs.


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We are counteracting the volatility of the energy markets and the above-plan price increases of our main raw materials by structured procurement systems and by
negotiating medium and long-term purchase agreements. To this end, we have developed strategic arrangements with our main suppliers based on our longstanding business relationships.


Currency risks from operating activities are hedged by the use of derivative financial instruments, through which we ensure extensive planning security.


Technology
risks

We are subject to the risk of technological change in all our Business areas, especially in our growth segments, which is why we are strengthening our focus on
the further development of our products and innovations.


The partnership
    with the Audi Group to further develop our carbon-ceramic brake discs adheres
    to a clear milestone plan and is being pursued at Business area and Board
    of Management level as well as by the Technology Committee of the Supervisory
    Board. Because of the relatively high investment in the technology applications
    of SGL T, this newly created committee meets twice a year.


Personnel risks

Targeted employee development programs at all levels ensure that SGL Carbon is an attractive employer for well-educated personnel, either experienced or
beginners. The remuneration system contains high variable components, which give every employee the option of additional financial rewards. Managers are committed to the Company for the long term through specially targeted incentive and promotional
measures.


Financial risks

The
      successful conclusion of the new refinancing package at the beginning of
      fiscal year 2004 has considerably reduced our financial risks. With regard
      to creditors, we must comply with certain conditions, which might have
      to be renegotiated in the event of non-compliance. The result would be
      higher credit costs or the withdrawal of credits. To avoid this, we operate
      a stringent liquidity policy and
liquidity and financial planning on a rolling basis, which are based on current,
      updated earnings and cash flow estimates of the operating units. Our existing
      credit facilities, comprising the syndicated loan and the corporate bond,
      cover the
Groups financing requirements. We are also exposed to financial risks in
the form of changes in interest and exchange rates, which we hedge with derivative
financial instruments. Risk minimization is the overriding principle that underlies
all our activities involving these derivatives. The trading and control functions
are kept separate, and we also perform regular risk assessments in this area.


Antitrust risks

The antitrust proceedings
      initiated by the authorities in North America in the 1990s are completed.
      The resulting payment obligations were fully paid off in North America
      in
    2005. In Europe, we appealed against the three fines in the European Court.
      In June 2005, the European Court of First Instance reduced the €27.75 million
    fine imposed in 2002 in the special graphite proceedings to €18.45 million.
    Since the judgment of the European Court of First Instance failed to address
    either the criticized procedural errors or the internationally recognized
    prohibition against double jeopardy, we have filed an appeal to the European
    High Court against the judgment of the European Court of First Instance, as
    we have done in the graphite electrode proceedings. The EU fines, which are
    being appealed, are covered by provisions, reflecting the expected payments.
    We have provided a preliminary payment of €23.6 million covering the fine
    that had been imposed by the EU Commission in connection with mechanical and
    electrical contacts at the end of 2003. This payment, among others, had already
    been taken into consideration within the framework of the refinancing package
    and the funds were disbursed from the special cash escrow account. In April
    2006 we further deposited an amount of €88.9 million in an interest bearing
    escrow account of the EU antitrust authorities until the final decisions
    of
    the courts are made.The other EU penalty is covered by a bank guarantee.
     We expect the final judgments of the European High Court to be made at the
    earliest in the next one to three years. The outcome of these proceedings
    is uncertain.


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Provisions
  for pensions and medical care

Because of the fund-based financing of the North American pension obligations, SGL is obliged to make additional payments should the stock markets develop
unsatisfactorily. This has already been taken into account in the last two years. However, we were able to reduce the expenses for medical care in the USA against the general trend by modifying the commitments.


The ability of the SGL Group to meet its medium and long-term obligations is monitored by a special internal body, the SGL Pension Governance Committee, which
analyses the necessary adjustments to the systems and implements them in the different units.


Information
  security

To ensure that business processes are securely managed, the information technologies deployed are constantly being monitored and adjusted. Information security
measures are permanently controlled and improved based on the latest technical standards.


Summary

The overall appraisal
    of the above risk areas is principally one of market risks arising from the
    cyclical price and volume developments, in both sales and procurement. In
    contrast, internal manufacturing processes carry considerably less risk. Financial
    and antitrust risks are manageable. On the whole, the current risks for the
    SGL Carbon Group are limited and the Companys continued existence is
    not in jeopardy. No future risks to the Company as a going concern can be
    identified.


ITEM
  12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.


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PART
  II

ITEM 13. DEFAULTS,
  DIVIDEND ARREARAGES AND DELINQUENCIES

Not applicable.


ITEM
        14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND
  USE OF PROCEEDS

Not applicable.


ITEM
  15. CONTROLS AND PROCEDURES

The Chief Executive Officer and the Chief Financial Officer, with the assistance of other members of management, performed an evaluation of our disclosure
controls and procedures, pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended, within 90 days prior to the date of this annual report. Based on that evaluation, they concluded that our disclosure controls and procedures are
effective to ensure that information required to be disclosed in this annual report is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. There can be no
assurance that our disclosure controls and procedures will detect or uncover all failures of persons within SGL to disclose material information otherwise required to be set forth in our reports, although our management, including our Chief
Executive Officer and Chief Financial Officer, have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures provide reasonable assurance of achieving their objectives.


There were no significant changes in our internal controls or in other factors that could significantly affect internal controls subsequent to the date of the
evaluation. No significant deficiencies and material weaknesses were identified that required corrective actions.


ITEM
  16. [RESERVED]

ITEM
  16A. Audit committee financial expert.

The
      Supervisory Board has determined that Mr. Andrew H. Simon, chairman of
      the Audit Committee, qualifies as Audit Committee Financial Expert in accordance
      with
the terms of Item 16.A of Form 20-F. See “Item 6-Directors, Senior Management and Employees-Board Practices”.


The
      Company has adopted a code of ethics for financial matters that applies
      to the Chief Executive Officer, the Chief Financial Officer and the Head
      of its
Financial Reporting Department, as well as to all of the Companys employees
performing similar functions in and outside Germany and to all other senior financial
personnel. The code of ethics for financial matters is included in this annual
report as Exhibit 2.


ITEM
  16C. Principal Accountant Fees and Services.

Ernst & Young (E&Y) has served as SGL CARBON Groups principal independent auditor for the fiscal year in the period ended December 31, 2005 and
2004. Fees billed or expected to be billed by E&Y for professional services
for each of the last two fiscal years were as follows:


Audit Fees SGL CARBON
  Group


|                         | 2004  |  | 2005  | 
|------------------------ | ----- |  | ----- | 
|                         |       |  |       | 
|                         | K€    |  | K€    | 
|Audit
      fees         | 1,529 |  | 1,625 | 
|Audit
      related fees | 51    |  | 200   | 
|Tax
      fees           | 70    |  | 1     | 
|All
      other fees     | 170   |  | 47    | 
|                         |       |  |       | 
|Total                    | 1,820 |  | 1,873 | 
|                         |       |  |       | 

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In
    the above table, “audit fees” are the aggregate fees billed by E&Y for professional services in connection with the audit of the
Companys consolidated annual financial statements, reviews of interim financial statements, comfort letters, as well as audits of statutory financial statements of SGL CARBON AG and its affiliates. Also included in “audit
fees” are amounts billed for attestation services in relation to regulatory filings and other compliance requirements. “Audit-related fees” are fees billed by E&Y for accounting advice on actual or contemplated
transactions, attestation regarding compliance with certain agreements, employee benefit plan audits and other agreed-upon procedures. “Tax fees” are
fees for tax advice on actual or contemplated transactions, expatriate employee
tax services and transfer pricing studies.


In
      the first quarter of 2004 the principal auditor BDO billed another €1.5
      million for fees related to reviews in accordance with generally accepted
      auditing standards in the US for meeting requirements set by the underwriter
      in connection with the refinancing of the SGL Carbon Group, which was completed
      by February 9, 2004.


We
      have proposed to the annual meeting to engage Ernst & Young as our
      auditors for the fiscal year ending December 31, 2006.


Subsequent
      to the auditors appointment, the Audit Committee awards the contract and proposes to the supervisory board to approve the terms and scope of the
audit and monitors the auditors independence. In order to assure the independence
of the auditors, the Audit Committee established a policy of ongoing supervision
and pre-approval of permissible audit-related and tax services provided by the
independent auditor. According to this policy, permissible audit-related and
tax services are pre-approved under the provision that the accumulated fees for
such services do not exceed 5% of the total fees and the Audit Committee is notified
of such
services before they are completed. All other services require pre-approval on
a case-by-case basis.


ITEM
  16D. Exemptions from the Listing Standards for Audit Committees.

Not applicable.


ITEM
  16E. Purchase of Equity Securities by the Issuer and Affiliate Purchasers.

Not applicable.


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PART III

ITEM 17. FINANCIAL
  STATEMENTS

We have responded to Item 18 in lieu of responding to this Item.


ITEM
  18. FINANCIAL STATEMENTS

The following financial
    statements, together with the Reports of Ernst & Young AG, Wirtschaftsprüfungsgesellschaft,
    for the years ended December 31,  2005 and 2004 and of BDO Deutsche Warentreuhand
    Aktiengesellschaft Wirtschaftsprüfungsgesellschaft
for the year ended December 31, 2003 are filed as part of this annual report.


|                                                                                                                | Page   
|--------------------------------------------------------------------------------------------------------------- | -------
|                                                                                                                |        
|Independent Auditors Reports                                                                                   | F-2/F-3
|Consolidated Statements of Operations for the years ended December 31, 2005, 2004 and 
2003                     | F-4    
|Consolidated Balance Sheets at December 31, 2005 and 2004                                                       | F-5    
|Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003                      | F-6    
|Consolidated Statements
of Changes in Shareholders Equity for the years ended December
31, 2005, 2004 and 2003 | F-7    
|Notes to the Consolidated Financial Statements                                                                  | F-8    

ITEM
  19. EXHIBITS

|Exhibit |  | Number
|------- |  | ------
|1.      |  |       
|       
|2.      |  |       
|       
|3.      |  |       
|       
|4.      |  |       
|       
|5.      |  |       
|       
|6.      |  |       
|       
|7.      |  |       

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SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign
this annual report on its behalf.


|                     | SGL CARBON Aktiengesellschaft
|-------------------- | -----------------------------
|                     |                              
|                     | By:                          
|                     |                              
|                     |                              
|                     |                              
|                     |                              
|                     |                              
|                     | By:                          
|                     |                              
|                     |                              
|                     |                              
|                     |                              
|Date: April 28, 2006 |                              

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CERTIFICATION

|I, Robert
    Koehler, certify that:
|------------------------------------
|                                    
|1.                                  
|                                    
|2.                                  
|                                    
|3.                                  
|                                    
|4.                                  
|                                    
|                                    
|                                    
|                                    
|                                    
|                                    
|                                    
|                                    
|                                    
|5.                                  
|                                    
|                                    
|                                    
|                                    
|                                    

|                     | /s/ Robert Koehler                 
|-------------------- | -----------------------------------
|                     |                                    
|                     | Robert Koehler                     
|                     |                                    
|                     | Chief Executive Officer            
|                     |                                    
|                     | Chairman of the Board of Management
|Date: April 28, 2006 |                                    

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CERTIFICATION

|I, Sten
    Daugaard, certify that:
|-----------------------------------
|                                   
|1.                                 
|                                   
|2.                                 
|                                   
|3.                                 
|                                   
|4.                                 
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   
|5.                                 
|                                   
|                                   
|                                   
|                                   
|                                   

|                     | by: /s/ Sten Daugaard            
|-------------------- | ---------------------------------
|                     |                                  
|                     | Sten Daugaard                    
|                     |                                  
|                     | Chief Financial Officer          
|                     |                                  
|                     | Member of the Board of Management
|Date: April 28, 2006 |                                  

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Certification Pursuant to 18 U.S.C. Section 1350 As Adopted Pursuant to

Section
906 of the Sarbanes-Oxley Act of 2002

In
      connection with the Form 20-F annual report of SGL Carbon AG (the “Company”) for the period ending December 31, 2005 as filed with the
Securities and Exchange Commission on the date hereof (the “annual report”), each of the undersigned officers of the Company certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, to the best of such officers knowledge and belief, that:


| | 1. | the annual report fully complies with the requirements of Section 13(a) or
    15(d) of the Securities Exchange Act of 1934; and                               
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. | the information contained in the annual report fairly presents, in all material
    respects, the financial condition and results of operations of the Company.
|

|                     | /s/ Robert J. Koehler              
|-------------------- | -----------------------------------
|                     |                                    
|                     | Robert J. Koehler                  
|                     |                                    
|                     | Chairman of the Board of Management
|                     |                                    
|                     | /s/ Sten Daugaard                  
|                     |                                    
|                     | Sten Daugaard                      
|                     |                                    
|                     | Member of the Board of Management  
|Date: April 28, 2006 |                                    

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SGL CARBON AKTIENGESELLSCHAFT

INDEX
TO THE CONSOLIDATED FINANCIAL STATEMENTS

|Independent
    Auditors Reports                                                                                       | F-2/F-3
|----------------------------------------------------------------------------------------------------------------------- | -------
|Consolidated Statements of Operations for the years ended December 31, 2005, 2004 and
    2003                          | F-4    
|Consolidated Balance Sheets at December 31, 2005 and 2004                                                               | F-5    
|Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2004 and
    2003                          | F-6    
|Consolidated Statements
    of Changes in Shareholders Equity for the years ended December
    31, 2005, 2004 and 2003 | F-7    
|Notes to the Consolidated Financial Statements                                                                          | F-8    

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Report of Independent Registered Public Accounting Firm

To the Board of Management and Shareholders of
  SGL CARBON Aktiengesellschaft

We
      have audited the accompanying consolidated balance sheet of SGL CARBON
      Aktiengesellschaft and subsidiaries (“SGL Group” or
“Company”) as of December 31, 2005 and 2004, and the related consolidated statements of operations, cash flows and changes in shareholders equity for each of the two years in the period ended December 31, 2005. These
financial statements are the responsibility of the Companys management.
Our responsibility is to express an opinion on these financial statements based
on our audit.


We conducted our
    audit in accordance with the standards of the Public Company Accounting Oversight
    Board (United States). Those standards require that we plan and perform the
    audit to obtain reasonable assurance about whether the financial statements
    are free of material misstatement. We were not engaged to perform an audit
    of the Companys internal control over financial reporting. Our audits
    included consideration of internal control over financial reporting as a basis
    for designing audit procedures that are appropriate in the circumstances,
    but not for the purpose of expressing an opinion on the effectiveness of the
    Companys internal control over financial reporting. Accordingly, we
    express no such opinion. An audit also includes examining, on a test basis,
    evidence supporting the amounts and disclosures in the financial statements,
    assessing the accounting principles used and significant estimates made by
    management, and evaluating the overall financial statement presentation. We
    believe that our audit provides a reasonable basis for our opinion.


In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of SGL Group
as of December 31, 2005 and 2004, and the consolidated results of their operations and their cash flows for each of the two years in the period ended December 31, 2005, in conformity with International Financial Reporting Standards.


As discussed in
    Note 3 SGL Group has restated previously issued financial statements as of
    and for the year ended December 31, 2004 to adjust the Companys accounting
    for certain subsidiaries.


International Financial Reporting Standards vary in certain significant respects from accounting principles generally accepted in the United States of America.
Information relating to the nature of such difference is presented in note 34 and 35 to the consolidated financial statements.


Eschborn/Frankfurt
  am Main, Germany

February 28, 2006 except for notes 34, 35 and 36 as to which the date is April 28, 2006.

Ernst & Young
  AG
  Wirtschaftsprüfungsgesellschaft

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  Report of Independent Registered Public
  Accounting Firm
  To the Board of Directors and Shareholders
SGL CARBON Aktiengesellschaft


We
      have audited the consolidated statements of operations, changes in shareholders equity and cash flows of SGL CARBON Aktiengesellschaft (“SGL
Group”) for the year ended December 31, 2003. These financial statements
are the responsibility of SGL Group management. Our responsibility is to express
an opinion on these financial statements based on our audit.


We
      conducted our audit in accordance with International Standards on Auditing
      and with the standards of the Public Company Accounting Oversight Board
      (United States). Those standards require that we plan and perform the audit
      to obtain reasonable assurance about whether the financial statements are
      free of material misstatement. The Company is not required to have, nor
      were we engaged to perform, an
audit of its internal control over financial reporting. Our audit included consideration
      of internal control over financial reporting as a basis for designing audit
      procedures that are appropriate in the circumstances, but not for the purpose
      of
expressing an opinion on the effectiveness of the Companys internal control
over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.


In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of the
SGL Group for the year ended December 31, 2003 in conformity with International Financial Reporting Standards.


International
      Financial Reporting Standards vary in certain respects from generally accepted
      accounting principles in the United States. Application of generally accepted
      accounting principles in the United States would have affected the results
      of operations for the year ended December 31, 2003 and the statement of
      changes in shareholders equity as of December 31, 2003 to the extent
      summarized in notes 34 and 35 (to the 2003 financial statements) to the
      consolidated financial statements.


As described in
    note 35 (l) to the 2005 financial statements, the 2003 consolidated financial
    statements have been restated to adjust for the exclusion of 25 subsidiaries
    and 2 joint ventures previously excluded as being immaterial to the consolidated
    group.


|Munich,
        Germany
|-----------------------
|March
        1,       

BDO Deutsche Warentreuhand
  Aktiengesellschaft
  Wirtschaftsprüfungsgesellschaft

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SGL
          CARBON Aktiengesellschaft
Consolidated Statements of Operations(in millions, except per share data)

|€m                                                            | Note |  | 2005    |  | 2005    |  | 2004       |  | 2003       | 
|------------------------------------------------------------- | ---- |  | ------- |  | ------- |  | ---------- |  | ---------- | 
|                                                              |      |  |         |  |         |  |            |  |            | 
|                                                              |      |  | US$     |  |         |  | (restated) |  | (restated) | 
|Continuing Operations                                         |      |  |         |  |         |  |            |  |            | 
|Sales revenue                                                 | 27   |  | 1,260.9 |  | 1,068.8 |  | 944.0      |  | 931.5      | 
|Cost of sales                                                 |      |  | -880.9  |  | -746.7  |  | -681.3     |  | -693.6     | 
|                                                              |      |  |         |  |         |  |            |  |            | 
|Gross profit                                                  |      |  | 380.0   |  | 322.1   |  | 262.7      |  | 237.9      | 
|Selling expenses                                              | 4    |  | -149.6  |  | -126.8  |  | -119.1     |  | -125.8     | 
|Research costs                                                |      |  | -21.2   |  | -18.0   |  | -19.2      |  | -19.0      | 
|General and administrative expenses                           | 4    |  | -56.7   |  | -48.1   |  | -43.6      |  | -38.2      | 
|Other operating expenses, net                                 | 5    |  | -19.3   |  | -16.4   |  | -21.8      |  | -32.6      | 
|                                                              |      |  |         |  |         |  |            |  |            | 
|Profit from operations                                        |      |  | 133.2   |  | 112.8   |  | 59.0       |  | 22.3       | 
|Income/loss from associated companies                         | 6    |  | 0.9     |  | 0.8     |  | -0.8       |  | -1.1       | 
|Interest expense, net                                         | 6    |  | -61.6   |  | -52.2   |  | -50.6      |  | -49.3      | 
|Other financing costs                                         | 6    |  | -16.8   |  | -14.2   |  | -10.5      |  | -23.3      | 
|                                                              |      |  |         |  |         |  |            |  |            | 
|Profit/loss before tax                                        |      |  | 55.7    |  | 47.2    |  | -2.9       |  | -51.4      | 
|Income tax expense                                            | 8    |  | -22.5   |  | -19.1   |  | -1.6       |  | 18.6       | 
|                                                              |      |  |         |  |         |  |            |  |            | 
|Net
    profit/loss for the period from continuing operations |      |  | 33.2    |  | 28.1    |  | -4.5       |  | -32.8      | 
|Discontinued operations                                       |      |  |         |  |         |  |            |  |            | 
|Net loss from discontinued operations                         |      |  | 0.0     |  | 0.0     |  | -21.0      |  | -23.4      | 
|Loss from sale                                                |      |  | 0.0     |  | 0.0     |  | -60.8      |  | 0.0        | 
|                                                              |      |  |         |  |         |  |            |  |            | 
|Total discontinued operations                                 | 9    |  | 0.0     |  | 0.0     |  | -81.8      |  | -23.4      | 
|                                                              |      |  |         |  |         |  |            |  |            | 
|Net profit/loss for the period                                |      |  | 33.2    |  | 28.1    |  | -86.3      |  | -56.2      | 
|                                                              |      |  |         |  |         |  |            |  |            | 
|thereof:                                                      |      |  |         |  |         |  |            |  |            | 
|Minority interests                                            |      |  | -0.1    |  | -0.1    |  | 0.1        |  | 0.3        | 
|                                                              |      |  |         |  |         |  |            |  |            | 
|Equity
    holders of parent the company                      |      |  | 33.3    |  | 28.2    |  | -86.4      |  | -56.5      | 
|                                                              |      |  |         |  |         |  |            |  |            | 
|Earnings per share (in €)                                     |      |  |         |  |         |  |            |  |            | 
|Basic earnings per share (EPS) from continuing operations     | 10   |  |         |  | 0.50    |  | -0.09      |  | -1.48      | 
|Diluted earnings per share (EPS) from continuing operations   | 10   |  |         |  | 0.50    |  | -0.09      |  | -1.48      | 
|Basic earnings per share (EPS) profit/loss for the period     | 10   |  |         |  | 0.50    |  | -1.66      |  | -2.55      | 
|Diluted earnings per share (EPS) profit/loss for the period   | 10   |  |         |  | 0.50    |  | -1.66      |  | -2.55      | 

|   |                                                                                                                                                         
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|1) | The 2005 figures
	    have been translated for the convenience of the reader at an exchange
    rate of $1.1797 to €1.00, the rate on December 31, 2005.

The accompanying notes are an integral part of these Consolidated Financial Statements.

F-4

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SGL
      CARBON Aktiengesellschaft
Consolidated
Balance Sheets

|€m                                                  | Note |  | Dec. 31, 2005 |  | Dec. 31, 2005 |  | Dec. 31, 2004 | 
|--------------------------------------------------- | ---- |  | ------------- |  | ------------- |  | ------------- | 
|                                                    |      |  |               |  |               |  |               | 
|                                                    |      |  | US$           |  |               |  | (restated)    | 
|Assets                                              |      |  |               |  |               |  |               | 
|Non-current assets                                  |      |  |               |  |               |  |               | 
|Goodwill                                            | 11   |  | 78.8          |  | 66.8          |  | 61.6          | 
|Other intangible assets                             | 11   |  | 23.4          |  | 19.8          |  | 23.2          | 
|Property, plant and equipment                       | 12   |  | 408.2         |  | 346.0         |  | 353.1         | 
|Investments in associates                           | 13   |  | 9.1           |  | 7.7           |  | 4.4           | 
|Other non-current financial assets                  | 13   |  | 8.5           |  | 7.2           |  | 7.1           | 
|Deferred tax assets                                 | 18   |  | 151.9         |  | 128.8         |  | 130.2         | 
|                                                    |      |  |               |  |               |  |               | 
|                                                    |      |  | 679.9         |  | 576.3         |  | 579.6         | 
|Current assets                                      |      |  |               |  |               |  |               | 
|Inventories                                         | 14   |  | 331.0         |  | 280.6         |  | 256.4         | 
|Trade receivables                                   | 15   |  | 230.3         |  | 195.3         |  | 181.4         | 
|Other receivables and other current assets          | 16   |  | 39.8          |  | 33.7          |  | 37.6          | 
|                                                    |      |  |               |  |               |  |               | 
|Receivables and other current assets                |      |  | 270.1         |  | 229.0         |  | 219.0         | 
|Restricted cash and cash equivalents                | 17   |  | 0.0           |  | 0.0           |  | 128.0         | 
|Cash and cash equivalents                           | 17   |  | 110.2         |  | 93.4          |  | 67.5          | 
|                                                    |      |  |               |  |               |  |               | 
|                                                    |      |  | 711.3         |  | 603.0         |  | 670.9         | 
|Assets held for sale                                | 9    |  | 4.7           |  | 4.0           |  | 65.2          | 
|                                                    |      |  |               |  |               |  |               | 
|Total assets                                        |      |  | 1,395.9       |  | 1,183.3       |  | 1,315.7       | 
|                                                    |      |  |               |  |               |  |               | 
|Equity and liabilities                              |      |  |               |  |               |  |               | 
|Equity                                              |      |  |               |  |               |  |               | 
|Issued capital                                      |      |  | 170.9         |  | 144.9         |  | 142.9         | 
|Share premium                                       |      |  | 331.0         |  | 280.6         |  | 274.0         | 
|Cumulative loss                                     |      |  | -155.2        |  | -131.6        |  | -63.2         | 
|Net income/loss                                     |      |  | 33.3          |  | 28.2          |  | -86.4         | 
|                                                    |      |  |               |  |               |  |               | 
|Shareholders equity                                | 19   |  | 380.0         |  | 322.1         |  | 267.3         | 
|Minority interests                                  |      |  | 1.5           |  | 1.3           |  | 1.8           | 
|                                                    |      |  |               |  |               |  |               | 
|Total equity                                        |      |  | 381.5         |  | 323.4         |  | 269.1         | 
|Non-current liabilities                             |      |  |               |  |               |  |               | 
|Provisions for pensions and other employee benefits | 20   |  | 187.3         |  | 158.8         |  | 156.7         | 
|Other non-current provisions                        | 21   |  | 15.6          |  | 13.2          |  | 19.4          | 
|Non-current financial liabilities                   | 22   |  | 396.8         |  | 336.3         |  | 353.3         | 
|Non-current liabilities                             | 22   |  | 0.7           |  | 0.6           |  | 37.7          | 
|Deferred tax liabilities                            | 18   |  | 40.9          |  | 34.7          |  | 45.3          | 
|                                                    |      |  |               |  |               |  |               | 
|                                                    |      |  | 641.3         |  | 543.6         |  | 612.4         | 
|Current liabilities                                 |      |  |               |  |               |  |               | 
|Other provisions                                    | 21   |  | 178.1         |  | 151.0         |  | 131.0         | 
|Current financial liabilities                       | 22   |  | 6.8           |  | 5.8           |  | 66.3          | 
|Trade payables                                      | 22   |  | 105.2         |  | 89.2          |  | 90.3          | 
|Tax liabilities                                     | 22   |  | 19.0          |  | 16.1          |  | 10.3          | 
|Other liabilities                                   | 22   |  | 64.0          |  | 54.2          |  | 71.1          | 
|                                                    |      |  |               |  |               |  |               | 
|                                                    |      |  | 373.1         |  | 316.3         |  | 369.0         | 
|Liabilities held for sale                           | 9    |  | 0.0           |  | 0.0           |  | 65.2          | 
|                                                    |      |  |               |  |               |  |               | 
|Total equity and liabilities                        |      |  | 1,395.9       |  | 1,183.3       |  | 1,315.7       | 
|                                                    |      |  |               |  |               |  |               | 

|   |                                                                                                                                                    
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------
|  
|1) | The 2005 figures have been translated for the convenience of the reader at
    an exchange rate of $1.1797 to €1.00, the rate on December 31, 2005.
|  

The accompanying notes are an integral part of these Consolidated Financial Statements

F-5

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SGL CARBON Aktiengesellschaft
Consolidated Statements of Cash Flows(in millions)

|€m                                                                                     | 2005   |   | 2005   |   | 2004       |   | 2003       |  
|-------------------------------------------------------------------------------------- | ------ | - | ------ | - | ---------- | - | ---------- | -
|                                                                                       |        |   |        |   |            |   |            |  
|                                                                                       | US$    |   |        |   | (restated) |   | (restated) |  
|Cash flows from operating activities *):                                               |        |   |        |   |            |   |            |  
|Profit/loss before tax                                                                 | 55.7   |   | 47.2   |   | -2.9       |   | -51.5      |  
|Adjustments to reconcile
profit/loss to net cash provided by operating activities:     |        |   |        |   |            |   |            |  
|Gain/loss on sale of property, plant and equipment                                     | -11.4  |   | -9.7   |   | -0.6       |   | -3.4       |  
|Depreciation and amortization expense                                                  | 76.8   |   | 65.1   |   | 67.6       |   | 71.8       |  
|Amortization of refinancing costs                                                      | 6.3    |   | 5.3    |   | 3.8        |   | 15.9       |  
|Income taxes paid                                                                      | -26.7  |   | -22.6  |   | -14.2      |   | -4.4       |  
|Changes in provisions, net                                                             | 15.3   |   | 13.0   |   | 16.3       |   | 25.1       |  
|Changes in working capital                                                             |        |   |        |   |            |   |            |  
|Inventories                                                                            | -11.9  |   | -10.1  |   | -4.0       |   | 0.3        |  
|Trade receivables                                                                      | -9.7   |   | -8.2   |   | 0.9        |   | -31.2      |  
|Trade payables                                                                         | -5.7   |   | -4.8   |   | 3.5        |   | -4.1       |  
|Other operating assets/liabilities                                                     | 14.7   |   | 12.5   |   | 27.0       |   | 13.3       |  
|                                                                                       |        |   |        |   |            |   |            |  
|Cash
 provided by operating activities before payments for antitrust proceedings       | 103.4  |   | 87.7   |   | 97.4       |   | 31.8       |  
|Payments relating to antitrust proceedings                                             | -82.8  |   | -70.2  |   | -52.0      |   | -14.9      |  
|(thereof from cash escrow account)                                                     | (-81,6 | ) | (-69.2 | ) | (-49.6     | ) | (0,0       | )
|                                                                                       |        |   |        |   |            |   |            |  
|Cash provided by/used in operating activities                                          | 20.6   |   | 17.5   |   | 45.4       |   | 16.9       |  
|                                                                                       |        |   |        |   |            |   |            |  
|Cash flows from investing activities *):                                               |        |   |        |   |            |   |            |  
|Capital
 expenditures in property, plant and equipment and intangible assets           | -52.7  |   | -44.7  |   | -46.3      |   | -43.9      |  
|Proceeds from sale of property, plant and equipmentand
 intangible assets              | 19.0   |   | 16.1   |   | 4.5        |   | 1.5        |  
|Payments for non-current financial assets                                              | -2.7   |   | -2.3   |   | -0.8       |   | -1.7       |  
|Proceeds from sale of non-current financial assets                                     | 0.4    |   | 0.3    |   | 2.0        |   | 5.7        |  
|                                                                                       |        |   |        |   |            |   |            |  
|Cash provided by/used in investing activities                                          | -36.0  |   | -30.6  |   | -40.6      |   | -38.4      |  
|                                                                                       |        |   |        |   |            |   |            |  
|Cash flows from financing activities *):                                               |        |   |        |   |            |   |            |  
|Redemption of financial liabilities from the cash escrowaccount
 **)                   | -69.5  |   | -58.9  |   | -89.3      |   | 0.0        |  
|Net change in financial liabilities **)                                                | -39.9  |   | -33.8  |   | 38.6       |   | 60.5       |  
|Payments in connection with refinancing                                                | -0.9   |   | -0.8   |   | -23.9      |   | -15.9      |  
|Net proceeds from capital increase                                                     | 2.9    |   | 2.5    |   | 244.1      |   | 1.0        |  
|                                                                                       |        |   |        |   |            |   |            |  
|Cash used in/provided by financing activities                                          | -107.4 |   | -91.0  |   | 169.5      |   | 45.6       |  
|                                                                                       |        |   |        |   |            |   |            |  
|Cash disposals/additions from initial consolidations/Business Areas to be discontinued | 0.0    |   | 0.0    |   | -24.6      |   | 0.7        |  
|                                                                                       |        |   |        |   |            |   |            |  
|Effect of foreign exchange rate changes                                                | 2.4    |   | 2.0    |   | -0.3       |   | -0.3       |  
|                                                                                       |        |   |        |   |            |   |            |  
|Net increase in cash and cash equivalents                                              | -120.4 |   | -102.1 |   | 149.4      |   | 24.5       |  
|Cash and cash equivalents at beginning of year                                         | 230.6  |   | 195.5  |   | 46.1       |   | 21.6       |  
|(thereof cash escrow account)                                                          | (151.0 | ) | (128.0 | ) | (0.0       | ) | (0.0       | )
|                                                                                       |        |   |        |   |            |   |            |  
|Cash and cash equivalents at end of year                                               | 110.2  |   | 93.4   |   | 195.5      |   | 46.1       |  
|                                                                                       |        |   |        |   |            |   |            |  
|(thereof cash escrow account)                                                          | (0.0   | ) | (0.0   | ) | (128.0     | ) | (0,0       | )

|                                                                                                         |                                                                                                                                                          
|-------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                        
|*)                                                                                                       | continuing operations                                                                                                                                    
|**)                                                                                                      | see note 23                                                                                                                                              
|1)                                                                                                       | The 2005 figures
      have been translated for the convenience of the reader at an exchange rate
    of $1.1797 to €1.00, the rate on December 31, 2005.
|                                                                                                         |                                                                                                                                                          
|Cash
      flow was adjusted for currency impacts, see Note 23 for additional cash
    flow information.

The accompanying notes are an integral part of these Consolidated Financial Statements

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SGL CARBON AktiengesellschaftConsolidated
Statements of
Changes in Shareholders Equity

|                                                       | Equity
    attributable to the shareholders of the parent company |  |         |  |            | 
|------------------------------------------------------ | ----------------------------------------------------------------- |  | ------- |  | ---------- | 
|                                                       |                                                                   |  |         |  |            | 
|                                                       |                                                                   |  |         |  |            | 
|                                                       |                                                                   |  |         |  |            | 
|                                                       | Issued                                                            |  | Share   |  | Cumulative | 
|€m                                                     | capital                                                           |  | premium |  | loss       | 
|                                                       |                                                                   |  |         |  |            | 
|Balance Jan. 1, 2003 as reported                       | 56.0                                                              |  | 111.3   |  | 52.6       | 
|                                                       |                                                                   |  |         |  |            | 
|Change in basis of consolidation                       |                                                                   |  |         |  | 0.1        | 
|Adjustment IFRS 2                                      |                                                                   |  |         |  |            | 
|                                                       |                                                                   |  |         |  |            | 
|Balance at Jan. 1, 2003 (restated)                     | 56.0                                                              |  | 111.3   |  | 52.7       | 
|                                                       |                                                                   |  |         |  |            | 
|Appropriation of net
loss for 2002 / net
loss for 2003 |                                                                   |  |         |  | -28.2      | 
|IFRS 2 allocation                                      |                                                                   |  | 0.5     |  |            | 
|Other recognized gains/losses
from cash flow
hedges    |                                                                   |  |         |  | 2.7        | 
|Capital increases                                      | 0.8                                                               |  | 0.2     |  |            | 
|Exchange rate differences                              |                                                                   |  |         |  | -35.1      | 
|                                                       |                                                                   |  |         |  |            | 
|Balance at Dec. 31, 2003 (restated)                    | 56.8                                                              |  | 112.0   |  | -7.9       | 
|                                                       |                                                                   |  |         |  |            | 
|Balance at Jan. 1, 2004 (restated)                     | 56.8                                                              |  | 112.0   |  | -7.9       | 
|Appropriation of net
loss for 2003/ net
loss for 2004  |                                                                   |  |         |  | -56.5      | 
|IFRS 2 allocation                                      |                                                                   |  | 3.0     |  |            | 
|Other recognized gains/losses
from cash flow
hedges    |                                                                   |  |         |  | -1.1       | 
|Capital increases                                      | 86.1                                                              |  | 159.0   |  |            | 
|Exchange rate differences                              |                                                                   |  |         |  | 2.3        | 
|                                                       |                                                                   |  |         |  |            | 
|Balance at Dec. 31, 2004 (restated)                    | 142.9                                                             |  | 274.0   |  | -63.2      | 
|                                                       |                                                                   |  |         |  |            | 
|Balance at Jan. 1, 2005                                | 142.9                                                             |  | 274.0   |  | -63.2      | 
|Appropriation of net
loss for 2004/ net
profit of 2005 |                                                                   |  |         |  | -86.4      | 
|Other recognized gains/losses
from cash flow
hedges    |                                                                   |  |         |  | -2.5       | 
|IFRS 2 allocation                                      |                                                                   |  | 6.1     |  |            | 
|Capital increases                                      | 2.0                                                               |  | 0.5     |  |            | 
|Exchange rate differences                              |                                                                   |  |         |  | 20.5       | 
|                                                       |                                                                   |  |         |  |            | 
|Balance at Dec. 31, 2005                               | 144.9                                                             |  | 280.6   |  | -131.6     | 
|                                                       |                                                                   |  |         |  |            | 

The accompanying notes are an integral part of these Consolidated Financial
Statements

F-7

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SGL CARBON Aktiengesellschaft
Notes to the Consolidated Financial Statements(in millions)

|1. | Summary
          of Accounting
Policies
|-- | ----------------------------------------

Description
of business

SGL
      CARBON Aktiengesellschaft (hereafter “SGL Carbon” or “Company”), located at Rheingaustr. 182, Wiesbaden (Germany),
together with its subsidiaries (the “SGL Carbon Group” or “group”)
is a global manufacturer of carbon and graphite products. See Note 27 for additional
information on business activities.


Basis of presentation

The
      consolidated financial statements of SGL Carbon have been prepared in accordance
      with the International Financial Reporting Standards (IFRSs) as applied
      in the European Union (EU) and the provisions to be applied as extended
      under Article 315a of the German Commercial Code (HGB). All required standards
      to be for fiscal year 2005 have been complied with. The Group has yet to
      implement the changes of IAS
39 and IFRIC 4, which have already been published and are effective January 1,
      2006. The Company does not expect that the application of the revised standards
      will have a significant effect on the Groups financial position or
      financial
performance.


As
      in the previous year, the 2005 consolidated financial statements were prepared
      in euros (€) and are shown in millions of euros (€m) rounded to the nearest €0.1
      million unless otherwise indicated.


Consolidation methods

The financial statements of the companies included in consolidation were prepared in accordance with uniform accounting policies. For one subsidiary with a
different balance sheet date, interim financial statements were used.


Business combinations are accounted for by applying the purchase method. On acquisition date, assets acquired and liabilities assumed are measured at their fair
values at the date of acquisition. Any excess of the cost of the purchased business over the acquired interest in the net fair value of the identifiable net assets acquired is recognized as goodwill. Until December 31, 2003, goodwill has been
amortized on a straight-line basis over its estimated useful life in accordance with IAS 22. As of January 1, 2004, the company adopted IFRS 3. Therefore, goodwill is no longer amortized but reviewed for impairment annually or more frequently if
events or changes on circumstances indicate that the carrying value may be impaired. Investments or joint ventures representing an interest between 20% and 50% over which SGL has a significant influence are accounted for using the equity
method.


Intercompany
       receivables and liabilities, intercompany gains and losses, as well as
       intercompany sales, expenses and income are eliminated. In accordance
       with IAS 12, deferred taxes are recognized with regard to timing differences
arising from consolidation.


Foreign currency
translation

Foreign currency receivables and liabilities are converted using middle rates
  at the balance sheet date.


The annual financial statements of companies domiciled outside the European Monetary Union are converted into euros in accordance with IAS 21. For all members of
the SGL Carbon Group, this is carried out on the basis of the local currency, as they are classified as foreign entities. Balance sheet items in annual financial statements that are not prepared in euros are converted at the period-end exchange rate
at balance sheet date; income statement items are converted at average rates for the year.


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Translation differences are recorded as a separate component of equity. If a foreign group company is sold, the cumulative amount recognised in equity for this
company is expensed in the income statement.


The exchange rates of currencies that are material to the consolidated financial statements changed as follows:


|                 |          |  | Middle
    rates at balance |  |                           |  |        | 
|---------------- | -------- |  | --------------------------- |  | ------------------------- |  | ------ | 
|                 | ISO-Code |  | sheet
    date              |  | Annual
    average rate € | 
|Foreign currency |          |  |                             |  |                           | 
|                 |          |  | Dec. 31,                    |  | Dec. 31,                  |  |        | 
|1€ =             |          |  | 2005                        |  | 2004                      |  | 2005   | 
|                 |          |  |                             |  |                           |  |        | 
|US-Dollar        | USD      |  | 1.1797                      |  | 1.3640                    |  | 1.2450 | 
|British Pound    | GBP      |  | 0.6853                      |  | 0.7071                    |  | 0.6839 | 
|Canadian-Dollar  | CAD      |  | 1.3725                      |  | 1.6430                    |  | 1.5099 | 
|Polish Zloty     | PLN      |  | 3.8598                      |  | 4.0790                    |  | 4.0320 | 

Financial instruments

The SGL Carbon Group uses common derivative financial instruments, such as interest rate swaps, interest rate options, currency forward contracts and options as
well as similar instruments only for hedging purposes and for the purpose of reducing currency, interest rate, and fair value risks arising from operating activities and the resulting financing requirements.


Financial derivatives are measured at acquisition cost at the time a transaction is executed. They are subsequently remeasured at their fair values at the balance
sheet date in accordance with IAS 39. Hedged balance sheet items are also measured individually at their fair values at the balance sheet date. Presentation in the income statement is based on the underlying business transaction. Cash flow hedges
were entered into in order to cover future U.S. dollar transactions for the purpose of hedging future cash flow risks from balance sheet items, unrecognized firm commitments, and highly probable anticipated forecasted transactions. Gains or losses
on the effective portions of the hedges are recorded directly in equity after deducting deferred taxes, and shown separately under other comprehensive income without impact on the income statement. A reclassification into income is made at the same
time the hedged underlying transaction is affecting net income. The ineffective part of the change in fair value of the derivatives is booked directly into income. The change in fair value of derivatives that were concluded for hedging purposes but
for which no hedge accounting is used is recognized in the income statement. In accordance with IAS 39, these derivatives are classified as being held for trading. For more information on financial instruments, refer to Note 26.


Intangible assets

Purchased intangible assets are capitalized at their acquisition cost, when the asset is available for use. Intangible assets with a finite useful life are
amortized over their economic useful life and tested for impairment, if an indication exists that the intangible asset may be impaired. The amortization periods and methods for intangible assets with a finite useful life are reviewed at least
annually. The current amortization period for intangible assets with finite useful lives is up to seven years. Expenses for the amortization of intangible assets are allocated in the income statement according to the function to which they belong.
Intangible assets with indefinite useful lives are not amortized on a systematic basis but are tested for impairment at least annually.


With the exception of capitalized development expenses, an internally generated intangible asset is not capitalized, but recognized as an expense in the period it
is incurred.


Research costs are booked as expenses in the period in which they incur. Intangible assets from development are capitalized only if the technical feasibility of
completing the intangible asset, the intention to complete the intangible asset and the ability to use or sell it is proven. Furthermore, the generation of future economic benefits of the intangible asset, the availability of resources to complete
the intangible asset and the ability to reliably measure attributable expenditures must be demonstrated.


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Property, plant and equipment

Tangible assets utilized in business for more than one year are measured at their acquisition or manufacturing cost less scheduled straight-line depreciation.
Manufacturing costs also include an appropriate share of materials and production overheads. Borrowing costs are not included in manufacturing costs. Repair costs are expensed directly when incurred. Costs of measures prolong the useful life or
increase the opportunities for future utilization of the assets are generally capitalized. If an asset is sold or scrapped, it is removed from non-current assets, any resulting gain or loss is booked directly to the income statement. Economic useful
lives are defined as follows: buildings 10 to 41 years; technical equipment and machinery 4 to 25 years; other equipment, operating and office equipment 3 to 15 years. The residual values of assets, useful lives and depreciation methods are reviewed
at the end of each fiscal year and adjusted accordingly. If significant, the acquisition or manufacturing costs are divided into single components.


Contracts under which the lessee bears all significant benefits and risks from utilization of the leased asset are classified as finance leases and are carried at
their fair values or, if lower, at the net present value of the minimum lease payments. Other leases are treated as operating leases, as a result of which the lease payments are expensed when incurred.


Non-current
financial assets

Non-current financial assets are carried at cost of acquisition, net of any write-downs. Investments in associated companies are measured using the equity method.
Interest-free and low-interest-bearing non-current receivables are discounted at a standard market rate. Non-current securities available for sale are measured at fair value, with changes recognized in equity without impacting the income
statement.


Inventories

Inventories include spare parts, raw materials, and supplies as well as goods purchased for resale and advance payments made. Inventories are carried at cost
using the weighted-average cost method and written down to the lower net realizable value where required. Net realizable value is the estimated selling price less the estimated costs of completion and the estimated costs necessary to make the sale.
Individual valuation allowances are also charged in connection with inventory risks. In addition to directly attributable costs, conversion costs also include appropriate shares of materials and production overheads, as well as depreciation and
write-downs. Directly attributable costs include labor costs, including pensions, amortization and directly attributable material costs. Borrowing costs are not capitalized.


Receivables and other current assets

Receivables and other current assets - trade and other receivables - are carried at their principal amount, net of any bonuses and rebates, and are net of any bad
debt allowances. Bills of exchange and other longterm receivables are discounted.


Impairment of
assets

The carrying amounts of assets are reviewed where there are indications that the carrying amount of an asset exceeds its recoverable amount defined as value in
use or net selling price. The recoverable amount is the higher of net realizable value and value in use (= net present value of future cashflows). If carrying amount is higher than the recoverable amount, an impairment is recognised.


The impairment test for goodwill was performed based on discounted estimated future cash flows. According to IAS 36, value in use is determined from the five-year
planning of the cash generating unit. These cash generating units correspond to the segments, as the latter are the lowest level within the Group at which goodwill is monitored for internal management purposes. Such planning is based on internal
assumptions that are compared with external information, and contains projections of operating profits and of cash flows for each planning year and Business Area. In doing so, the development of sales revenue and profits are budgeted in terms of
product or product group based on the expected market, economic, and competitive developments for the subsequent five years


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and aggregated to Business Areas. Following the fifth planning year, an annual increase of the free cash flow of 1% is assumed for the established Business Areas (CG and S) and of 2.2% for T.
  The growth rates for CG and S reflect the long-term average growth trend of these businesses. For T, where many products are at the start of the product life cycle, higher average growth is anticipated in the future. Future cash flows were
discounted at an interest rate of 12.2% .

Cash and cash equivalents

Cash
      and cash equivalents consist of cash on hand, checks, balances with the
      German central bank, and unrestricted bank balances whose original term
      is three months or less. Restricted cash and cash equivalents received
      by SGL within the existing financing arrangements and which may only be
      used for certain purposes (e.g., escrows for the payment of antitrust fines
      or the repayment of the convertible
bond) are listed separately on the consolidated balance sheet under the item “Restricted cash and cash equivalents”.


Discontinued
operations

Due
      to the sale as of January 6, 2005, to a financial investor regarding the
      companies of the Acotec Group, which are attributable to the Surface Protection
      and Plastics Process Technology businesses, these companies are shown separately
      as “discontinued operations” in the consolidated financial statements at the balance sheet date on December 31, 2004. This presentation in the
consolidated financial statements is in accordance with IFRS 5 (“Non-Current Assets Held for Sale and Discontinued Operations”).
Under IFRS 5, a business is deemed to be discontinued at the moment when it has
fulfilled the criteria for classification as held for sale or the company has
sold it. The classification as held for sale implies that the carrying amount
of a business is realized mainly by a sale and not by continued use. The net
loss for the year of this
segment and the loss from the sale are shown separately in the income statement
as discontinued operations.


Provisions for
pensions and other employee benefits

Provisions for pensions and other employee benefits from defined benefit plans are valued using the projected unit credit method and reflect future salary and
pension increases in accordance with IAS 19. The interest component of the addition to pension provisions is shown separately under net financing costs. Payments under defined contribution plans are recognized as expenses at the time of
payment.


Other provisions

Other provisions are recognized in accordance with IAS 37 for obligations to third parties that will probably be required to be settled, and where the amount of
the obligation can be reliably estimated. Long-term provisions are discounted. Restructuring provisions are recognized where a formal restructuring plan has been adopted and publicly announced in sufficient detail. The accounting for our stock
option plans and recognition of provisions for obligations from stock option plans are described in note 30.


The SGL Carbon Group recognizes provisions for environmental protection obligations if it is probable that such an obligation exists and if the amount of the
obligation can be reasonably estimated. Potential insurance compensation payments are not deducted in recognizing such liabilities, but carried as a separate asset up to the amount of the recognized provision, provided the reimbursement is
probable.


Liabilities

Liabilities are carried at the higher of notional or repayment amount at year-end. Financial liabilities are stated at amortized cost. Non-interest-bearing or
low-interest-bearing liabilities whose original term to maturity exceeds one year are discounted as of the balance sheet date. Differences between the historic cost and the repayment amount (premiums and discounts as well as transaction fees) are
recognized over the debt term using the effective interest rate method.


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Income and expenses

Income and expenses of the fiscal year are recognized when they are realized and incurred. Sales revenue is recognized at the time of transfer of risk, following
delivery of a product or rendering of the services, net of any discounts and rebates granted. The Company provides our customers with a discount for early payment of amounts outstanding. We also provide volume discounts to our customers based on
their total purchases during a specified term. Such discounts are recorded as a reduction of revenue based on the number of customers that it is estimated will ultimately earn these discounts. Operating expenses are recognized when a product or
service is utilized or at the time when they are incurred. Interest income and expenses are recognized on an accrual basis. Dividend income is recognized at the time of distribution.


Advertising and sales promotion expenses as well as other customer-related expenses are expensed when incurred. Provisions are recognized for the estimated cost
of product warranties after the date of sale of the product concerned.


Deferred taxes

Income taxes are recorded based on the balance sheet liability method. Deferred tax assets and liabilities are presented separately on the balance sheet to
reflect the future tax effect of timing differences between the carrying amounts of assets and liabilities in the financial statements and in the tax return. Deferred tax assets and liabilities are calculated on the basis of the tax rates expected
to be enacted when the timing differences reverse. The effects of changes in tax rates are recognized at the time new tax laws are enacted. Tax loss carry-forwards are only capitalized if a future utilization is probable.


Key discretionary decisions, estimates and assumptions

Preparation
      of financial statements requires management in certain cases to make discretionary
      decisions, estimates and assumptions regarding the amounts of receivables,
      liabilities and provisions, the disclosure of contingent liabilities and
      reported amounts of income and expenses. Actual amounts may differ. The
      most important assumptions and estimates affected in connection with the
      impairment test of
goodwill are explained under “Impairment of assets”. Assumptions
and estimates in connection with antitrust fines are explained in Note 24.


|2. | Acquisitions & disinvestments
    and scope of consolidation
|-- | ------------------------------------------------------------

SGL CARBON Luxembourg S.A., Luxembourg, was founded in January 2004; this company
issued the senior subordinated notes in the refinancing of the SGL Group. In
connection with the sale of the Surface Protection and Plastics Process Technology
businesses, SGL CARBON Technic LLC (U.S.A.) was established in the U.S. for the
purpose of acquiring graphite
process technology operations in that country.


In Poland, at fiscal year-end 2004, SGL ANGRAPH Sp.z o.o was merged with SGL CARBON POLSKA S.A; in Italy, SGL CARBON Specialties S.p.A. was merged with SGL CARBON
S.p.A.; and in the U.S., SGL Information- Services LLC was merged with SGL CARBON LLC. Radion Finanziaria S.p.A., Milan, Italy, and SGL CARBON Finance Ltd., Dublin, Ireland, were dissolved in 2004.


The Surface Technology and Plastics Process Technology operations, which were divested in January 2005, are carried in the consolidated financial statements as
assets held for sale (respectively, liabilities held for sale and discontinued operations - see above explanations).


SGL
      Information Services GmbH, Augsburg changed its fiscal year to March 31
      and is being liquidated. In November and December 2005, two holding companies
      were created in Spain and Germany. The Spanish holding SGL CARBON Holding
      S.L., La Corun a (Spain) acquired the legal entities of SGL in Spain,
      Italy and South America. We also intensified our activities in India in
      2005 with the creation of the subsidiary SGL CARBON INDIA Pvt. Ltd., in
Pune.


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Scope of the consolidation

The consolidated financial statements include all subsidiaries. Subsidiaries are defined as entities that are controlled by SGL Carbon AG. Control is presumed to
exist when SGL Carbon AG owns, either directly or indirectly, more than half of the voting power of an entity, unless it can be clearly demonstrated that such ownership does not constitute control.


With regard to the scope of the consolidation, we also refer to Note 3.


As of December 31, 2005, in addition to SGL Carbon AG and excluding the discontinued operations, a total of six German (2004: five) and 41 (2004: 39) foreign
subsidiaries were included in consolidation, as in the previous year. Discontinued operations in 2004 comprise of two German and ten foreign companies. Compared to 2004, two foreign subsidiaries and one German subsidiary were consolidated for the
first time. The three subsidiaries consolidated for the first time are newly established companies. Three joint ventures were carried at equity.


|3.                                                | Retrospective
      restatements
|------------------------------------------------- | --------------------------------
|                                                 
|Structure
      of the consolidated balance sheet

The
      revised IAS 1 “Presentation of financial statements” defines a presentation of current and non-current assets and liabilities as
separate groups in the balance sheet. The standard must be used for reporting periods of a fiscal year beginning on January 1, 2005 or later. The companys consolidated balance sheet was structured accordingly and the previous years figures
restated.


Scope of consolidation

Until December 31,
    2004, 18 subsidiaries and two joint ventures were excluded from consolidation
    and accounted for at cost. In the consolidated financial statements as of
    December 31, 2005, these subsidiaries have been included in consolidation
    and the joint ventures have been accounted for using the equity method. In
    this context, the opening balances of assets, liabilities and equity as of
    January 1, 2004, as well as the consolidated balance sheet as of December
    31, 2004 and the consolidated income statement and cash flow statement for
    the year then ended, have been restated retrospectively.


The retrospective restatement had the following effects on the consolidated balance sheet as of December 31, 2004, as well as on the consolidated income statement
and earnings per share for the year then ended:


|Change                                                   |  | €m    |  | Change                                                   |  | €m   | 
|-------------------------------------------------------- |  | ----- |  | -------------------------------------------------------- |  | ---- | 
|                                                         |  |       |  |                                                          |  |      | 
|Property,
	    plant and
equipment and intangible assets |  | 7.6   |  | Equity including minority interests                      |  | -8.6 | 
|Other non-current assets                                 |  | -18.4 |  | Pension provisions                                       |  | 1.0  | 
|Inventories                                              |  | 8.4   |  | Other provisions                                         |  | 0.8  | 
|Trade receivables                                        |  | -2.5  |  | Current financial liabilities                            |  | 3.2  | 
|Other current assets                                     |  | 4.4   |  | Trade payables                                           |  | -0.1 | 
|Assets held for sale                                     |  | 1.4   |  | Other liabilities                                        |  | 3.2  | 
|                                                         |  |       |  | Liabilities
	    in connection
with assets held for sale |  | 1.4  | 
|                                                         |  |       |  |                                                          |  |      | 
|Total assets                                             |  | 0.9   |  | Total equity and liabilities                             |  | 0.9  | 
|                                                         |  |       |  |                                                          |  |      | 

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|€m                                                        | 2004  |  | 2003  | 
|--------------------------------------------------------- | ----- |  | ----- | 
|                                                          |       |  |       | 
|Sales revenues                                            | 17.8  |  | 15.7  | 
|Cost of sales                                             | -14.1 |  | -11.2 | 
|Gross profit                                              | 3.7   |  | 4.5   | 
|R&D, Selling, administrative and other operating expenses | -4.7  |  | -7.4  | 
|Operating Profit                                          | -1.0  |  | -2.9  | 
|Net Financing cost                                        | -1.4  |  | 1.3   | 
|Loss before taxes                                         | -2.4  |  | -1.6  | 
|Income tax expense                                        | -0.4  |  | -0.2  | 
|Loss from continuing operations                           | -2.8  |  | -1.8  | 
|Profit from discontinued operations                       | 3.7   |  | -1.9  | 
|                                                          |       |  |       | 
|Net profit for the year                                   | 0.9   |  | -3.7  | 
|                                                          |       |  |       | 
|Thereof relating to minority interests                    | 0.1   |  | 0.2   | 
|Earnings per share in EUR (basic)                         | 0.02  |  | 0.18  | 
|Earnings per share in EUR (diluted)                       | 0.02  |  | 0.18  | 

See also not 35(l)

The retrospective
    restatement to equity including the minority interests at January 1, 2004
    amounted to €-8.8 million. The first time consolidation of these companies
    has increased net income for fiscal year 2005 by €0.6 million.


Share-based payment

IFRS 2 “Share-based payment” is
    effective for annual periods beginning on or after January 1, 2005. The IFRS
    is to be applied retrospectively on all share-based payments granted since
    November 7, 2002, that still existed when the standard became effective and
    requires comparable information to be restated. This also includes a restatement
    to the opening balances of the
retained earnings in the earliest period presented.


The restatement as at December 31, 2004 and December 31, 2005 had the following
effect:


|                               | Dec. 31, |  | Dec. 31, | 
|------------------------------ | -------- |  | -------- | 
|€m                             | 2004     |  | 2005     | 
|                               |          |  |          | 
|Share premium                  | 3.5      |  | 9.6      | 
|Retained earnings              | -2.2     |  | -7.7     | 
|Net profit/loss for the period | -5.5     |  | -9.0     | 
|Short-term provisions          | 4.2      |  | 7.1      | 

The retrospective restatement as at January 1, 2004 had the following effect:


|€m                    | Change | 
|--------------------- | ------ | 
|                      |        | 
|Share premium         | 0.5    | 
|Retained earnings     | -2.3   | 
|Short-term provisions | 1.8    | 

Through
      the application of IFRS 2 in 2004, earnings per share (diluted and undiluted)
were reduced by €0.11.


Notes to the Consolidated Income Statement and the Consolidated Balance Sheet

All comparable figures for 2004 in the consolidated income statement and in the consolidated balance sheet were restated for the changes outlined in Note 3 and
for discontinued operations. Note 27 presents a breakdown of sales revenue by Business Area.


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|4. | General and administrative expenses
|-- | -----------------------------------

Selling expenses increased
by €7.7 million over the prior year, primarily due to the increased sales operations.
General and administrative expenses increased by €4.5 million over the prior
year primarily as a result of higher expenses related to the variable management
incentive plans and the expenses incurred for the implementation of the requirements
of the Sarbanes-Oxley Act.


|5. | Other operating income and expenses
|-- | -----------------------------------

Other operating income
totaled €15.8 million and consisted mainly of income from the disposal of non-current
assets totaling €10.0 million (2004: €0.9 million), income from the release of
provisions of €1.7 million (2004: €2.1 million) and income from changes in bad
debt allowances
totaling €1.3 million (2004: €1.0 million).


Other
      operating expenses totaled €32.2 million and consisted mainly of restructuring expenses of €20.8 million (2004: €19.7 million), net currency losses of €2.0
million (2004: €1.2 million), additions to provisions amounting to €2.9 million (2004: €1.3 million) and losses on the disposal of non-current assets of €0.3 million (2004: €0.3
million).


From
      this fiscal year, restructuring expenses for and expenses in connection
      with antitrust proceedings are included in other operating expenses. This
      also
affects the previous years presentation. Expenses related to the continuing restructuring programs (initiated in prior years) and other measures to improve efficiency and optimize costs resulted in a total expense of €20.8
million during 2005. Included in this amount was the gradual relocation of our
carbon electrode production from Italy to Poland, the related personnel measures
(112 employees) and the write down of the remaining fixed asset book value at
the Ascoli, Italy facility. By
the end of 2005, the announcement of this measure along with the written agreements
were completed. An additional focus of these measures during 2005 was the conclusion
of further partial retirement agreements and direct graduity payments in
Germany.


Restructuring
      expenses in 2004 amounted to €19.7 million, consisting mainly of personnel
      redundancies and the write-down of residual book values in Poland, Italy
      and Germany. In addition, a small plant in the UK was closed and non-cash
write-downs were made in the USA.


|6. | Net financing costs
|-- | -------------------
|  

|€m                                                                                                                | 2005  |  | 2004  |  | 2003  | 
|----------------------------------------------------------------------------------------------------------------- | ----- |  | ----- |  | ----- | 
|                                                                                                                  |       |  |       |  |       | 
|Income/loss from associated companies                                                                             | 0.8   |  | -0.8  |  | -1.1  | 
|                                                                                                                  |       |  |       |  |       | 
|Interest on other securities, other interest and similar income                                                   | 5.5   |  | 4.9   |  | 3.3   | 
|Interest on borrowings and other interest expense                                                                 | -38.5 |  | -35.1 |  | -26.8 | 
|Interest expense relating to European Commission                                                                  | -2.9  |  | -3.2  |  | -5.6  | 
|Imputed
	    interest on
liabilities from North American antitrust proceedings                                    | -2.8  |  | -3.9  |  | -6.2  | 
|Interest component of additions to pension provisions                                                             | -13.5 |  | -13.3 |  | -14.0 | 
|                                                                                                                  |       |  |       |  |       | 
|Interest expense, net                                                                                             | -52.2 |  | -50.6 |  | -49.3 | 
|                                                                                                                  |       |  |       |  |       | 
|Amortization of financing costs                                                                                   | -5.3  |  | -3.8  |  | -16.1 | 
|Deferred costs of convertible bond                                                                                | 0.0   |  | -0.4  |  | -1.5  | 
|Foreign
	    currency translation and foreign currency hedging costs for North American
    antitrust liabilities | -0.9  |  | -2.7  |  | 0.2   | 
|Expenses for guarantees to the European Commission                                                                | -2.6  |  | -3.2  |  | -2.4  | 
|Other financial expenses                                                                                          | -5.4  |  | -0.4  |  | -3.5  | 
|                                                                                                                  |       |  |       |  |       | 
|Other net financing costs                                                                                         | -14.2 |  | -10.5 |  | -23.3 | 
|                                                                                                                  |       |  |       |  |       | 
|                                                                                                                  | -65.6 |  | -61.9 |  | -73.7 | 
|                                                                                                                  |       |  |       |  |       | 

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Net financing costs include non-cash expenses of €19.4 million (2004: €23.3
million).


At
      year-end 2005 and 2004 the interest potentially payable in connection with
      the European antitrust fines was accrued. Other financing costs are attributable
      to foreign exchange gains and losses on financial transactions and particularly
      the mark-to-market valuation of our derivative instruments for interest
      rate and currency hedging. The costs incurred for the refinancing of the
      syndicated loan and the
subordinated notes in 2004 were accrued and will be amortized over the expected
      term of the loans. The refinancing of the USD tranche led to a one-time
      non-cash expense of €1.2 million in 2005, related to the refinancing costs
      accrued in the
previous year.


|7. | Other disclosures
|-- | -----------------

|                                                                                        |       |  |       |  |       | 
|--------------------------------------------------------------------------------------- | ----- |  | ----- |  | ----- | 
|€m                                                                                      | 2005  |  | 2004  |  | 2003  | 
|                                                                                        |       |  |       |  |       | 
|Cost of raw materials and consumables used and of goods purchased and held
    for sale | 242.0 |  | 192.8 |  | 198.3 | 
|Cost of purchased services                                                              | 89.6  |  | 79.1  |  | 53.5  | 
|                                                                                        |       |  |       |  |       | 
|                                                                                        | 331.6 |  | 271.9 |  | 251.8 | 
|                                                                                        |       |  |       |  |       | 

The cost of materials is included in the cost of sales line item of the income statement.


Staff costs

|€m                                                                                 | 2005  |  | 2004  |  | 2003  | 
|---------------------------------------------------------------------------------- | ----- |  | ----- |  | ----- | 
|                                                                                   |       |  |       |  |       | 
|Wages and salaries (incl. Bonus)                                                   | 236.0 |  | 209.9 |  | 214.3 | 
|Social security contributions, retirement and other benefits costs                 | 73.5  |  | 79.6  |  | 73.5  | 
|(thereof for pensions:
2005 €19.7 million; 2004 €20.2
million; 2003:€20.5 million) |       |  |       |  |       | 
|                                                                                   |       |  |       |  |       | 
|                                                                                   | 309.5 |  | 289.5 |  | 287.8 | 
|                                                                                   |       |  |       |  |       | 

Depreciation

Depreciation
      on property, plant and equipment and intangible assets in the 2005 and
      2004 fiscal years total €65.1 million and €67.6 million
respectively.


Staff costs and depreciation are included in all functional costs, such as the cost of sales, selling expenses, research costs and administration costs.


Other operational expenses

During
      2005, expenses related to shipping and handling totaled €25.4 and for advertising totaled €2.1 million, respectively. Audit fees for the 2005 were €1.6
million, other audit related fees and tax consulting services amounted to €0.2 million and €0.1
million respectively.


Other
      non-income taxes, which are part of the functional cost areas, amounted
to €7.1 million in 2005 and €7.6 million in 2005.


Number of employees

The number of employees within the Group was 5,263 (2004: 5,265) at the balance
sheet date.


The breakdown by functions for the average over the year was as follows:


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Number of employees

The number of employees within the Group was 5,263 (2004: 5,265) at the balance
sheet date.


The breakdown by functions for the average over the year was as follows:


|                                | 2005  |  | 2004  |  | 2003  | 
|------------------------------- | ----- |  | ----- |  | ----- | 
|                                |       |  |       |  |       | 
|Production and auxiliary plants | 3,849 |  | 3,910 |  | 4,090 | 
|Sales and marketing             | 420   |  | 432   |  | 453   | 
|Research                        | 169   |  | 164   |  | 220   | 
|Administration, other functions | 819   |  | 893   |  | 1,031 | 
|                                |       |  |       |  |       | 
|                                | 5,257 |  | 5,399 |  | 5,794 | 
|                                |       |  |       |  |       | 

The net reduction of employees resulted from additional restructuring measures implemented during the fiscal year, particularly in the CG and S Business Areas, as
well as from a slight increase in the number of employees in the T Business Area.


|8. | Income tax expense
|-- | ------------------

The tax expense is
composed as follows:


|€m                         | 2005  |  | 2004  |  | 2003  | 
|-------------------------- | ----- |  | ----- |  | ----- | 
|                           |       |  |       |  |       | 
|Current income tax expense |       |  |       |  |       | 
|Germany                    | 0.7   |  | -0.2  |  | -0.3  | 
|Rest of world              | -27.0 |  | -16.9 |  | -14.2 | 
|Deferred taxes             |       |  |       |  |       | 
|Germany                    | 0.1   |  | -0.7  |  | 27.2  | 
|Rest of world              | 7.1   |  | 16.2  |  | 5.9   | 
|                           |       |  |       |  |       | 
|                           | -19.1 |  | -1.6  |  | 18.6  | 
|                           |       |  |       |  |       | 

The
      tax expense increased to €19.1 million in the reporting year (previous year: €1.6
      million) and thus corresponds to a tax rate of around 40%. There were no
      major changes to the tax expense as a result of changes to national tax
      laws.


Income
      tax refund in Germany is due to tax refunds affecting previous years. The
      foreign income tax expense, which increased by €10.1 million, is the result
      of the higher profits made by the foreign subsidiaries. For the German
      tax group there was a tax loss, mainly due to the waiving of debt repayments
      of a foreign subsidiary, the write-down of tax-deductable goodwill and
      the income from foreign
investments, which is only added to 5% of income.


German
      corporations are subject to a uniform 25% corporate income tax on both
      distributed and retained earnings. Furthermore, a solidarity surcharge
      of 5.5% is added to the corporation tax rate, resulting in an overall corporation
      income tax rate of 26.4% for 2005 and 2004. German corporations are also
      subject to the trade tax. The amount of the trade tax depends on the municipality
      in which a company
maintains its operations. The trade tax generally amounts to between approximately
      15% and 20% of taxable earnings, depending on the municipalitys tax assessment rate. Trade tax is deductible as an operating expense in the calculation of the
companys income that is subject to corporation tax. With an average trade tax burden of 12%, the overall German income tax rate amounts to 38.4% . Due to changes in German legislation, generally only 60% of tax loss carry-forwards may be
offset from current annual income. Losses up to an amount of €1 million can be
completely deducted from corporation income tax as well as from trade tax. The
changed law is applicable beginning with tax assessment year 2004.


The 2005 tax payments amounted to €22.6 million (last year: €14.2
million).


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The non-deductible expenses and tax-exempt income primarily affect the addition of 5% to the foreign dividend income received in Germany. Since the taxation of
income varies from country to country, differences in taxation are shown separately in the reconciliation above.


|9. | Discontinued operations
|-- | -----------------------

As part of its portfolio restructuring, at the beginning of fiscal year 2005
the SGL Group completed the sale of its Surface Protection and Plastics Process
Technology businesses. In accordance with IFRS 5, these are to be classified
as assets held for sale and discontinued operations in the consolidated financial
statements. As a consequence, the current loss from these operations as well
as the loss from the sale are to be shown in a separate line in the consolidated
income statement. Since the sale was not yet concluded at the end of fiscal year
2004, assets and liabilities are shown separately in the consolidated balance
sheet for the reporting period under “assets
held for sale” and “liabilities held for
sale”.


SGL
      did not receive any cash from the sale of these operations on January 6,
      2005. As of December 31, 2004, in addition to the current after-tax earnings
      of
discontinued operations totaling €-21.0 million, a write-down of assets amounting to €54.7 million was required, comprising a pre-tax write-down of €38.4 million and a write-down of deferred taxes of €16.3 million. In addition, expenses in
connection with the sale amounted to €6.1 million.


The following table shows the assets and liabilities of the discontinued operations as of December 31, 2004:


|Assets                        |  | Mio. € |  | Change                    |  | Mio. € | 
|----------------------------- |  | ------ |  | ------------------------- |  | ------ | 
|                              |  |        |  |                           |  |        | 
|In tangible assets            |  | 15.5   |  | Equity                    |  | 0.0    | 
|Property, plant and equipment |  | 31.3   |  | Pension provisions        |  | 29.8   | 
|Non-current financial assets  |  | 0.0    |  | Other provisions          |  | 10.9   | 
|Inventories                   |  | 14.7   |  | Trade payables            |  | 12.5   | 
|Trade receivables             |  | 27.6   |  | Other liabilities         |  | 8.0    | 
|Other assets                  |  | 10.4   |  |                           |  |        | 
|Deferred tax assets           |  | 20.3   |  | Deferred tax liabilities  |  | 4.0    | 
|Loss from disposal            |  | -54.6  |  |                           |  |        | 
|                              |  |        |  |                           |  |        | 
|Assets held for sale          |  | 65.2   |  | Liabilities held for sale |  | 65.2   | 
|                              |  |        |  |                           |  |        | 

The income statement for the discontinued operations is as follows:


|Mio. €                                               |  | 2004  | 
|---------------------------------------------------- |  | ----- | 
|                                                     |  |       | 
|Sales revenue                                        |  | 122.7 | 
|Cost of sales                                        |  | -97.7 | 
|Gross profit                                         |  | 25.0  | 
|Research, selling and administrative expenses        |  | -42.6 | 
|Loss from operations                                 |  | -17.6 | 
|Net financing costs                                  |  | -4.6  | 
|Loss before tax                                      |  | -22.2 | 
|Income tax income/expense                            |  | 1.2   | 
|Net loss for the period from discontinued operations |  | -21.0 | 
|                                                     |  |       | 

The
      undiluted and diluted earnings per share of discontinued operations in
      fiscal 2004 amounted to €-1.57.


At
      December 31, 2005, two non-operating pieces of land in the U.S. and Germany,
      which are intented to be sold in 2006, were included in the assets held
      for sale. No write-downs were taken in the current fiscal year and the
      carrying amount totaled €4.0 million. The land is assigned to the segment Other (€2.8 million) and the T segment (€1.2
million).


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|10. | Earnings per share (EPS)
|--- | ------------------------

The
      diluted earnings per share are calculated by dividing the net profit for
      the year attributable to SGL Carbon shareholders (2005: €28.2 million; 2004: €-86.4
      million) by the weighted-average number of shares outstanding for the fiscal
      year (2005: 56,390,621/2004: 52,152,691). The weighted-average number of
      shares outstanding is calculated based on the number of shares outstanding
      as of January 1 as well as the shares issued in 2005 due to capital increases
      (see Note 19).


Stock options and
    the convertible bond were outstanding for a potential dilution impact in
    both fiscal years (see Note 30). After adjustment for interest costs of the
    convertible bond, the Groups after-tax earnings increase by €1.4 million to €29.6
    million. The weighted-average number of shares changes by 560,750 shares
    regarding the convertible bond (weighted 373,321 shares). Accordingly, there
    is no
dilution effect on earnings per share from the convertible bond.


Following an exercise of shares under the Stock Option Plan, 106,500 shares are to be included for dilution from the Stock Option Plan (weighted 86,075 shares).
There is no change to consolidated earnings. In total, 56,476,696 shares are to be used to determine the diluted earnings per share for 2005. Because of the low number of diluted shares, earnings per share (diluted) in 2005 are unchanged to the
undiluted earnings per share.


For the approved capital increase for the issue of new shares to employees in January 2006, see Note 19.


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|11. | Intangible
    assets
|--- | ---------------------
|    |                      

|                                 | Industrial     |  |          |  |       | 
|-------------------------------- | -------------- |  | -------- |  | ----- | 
|                                 | rights,        |  |          |  |       | 
|                                 | software and   |  |          |  |       | 
|                                 | similar rights |  | Goodwill |  | Total | 
|                                 |                |  |          |  |       | 
|                                 | €m             |  | €m       |  | €m    | 
|Historical cost:                 |                |  |          |  |       | 
|Balance at Jan. 1, 2005          | 41.0           |  | 61.6     |  | 102.6 | 
|Change in basis of consolidation | 0.0            |  | 0.0      |  | 0.0   | 
|Currency translation             | 0.9            |  | 5.2      |  | 6.1   | 
|Additions                        | 5.3            |  | 0.0      |  | 5.3   | 
|Disposals                        | -4.7           |  | 0.0      |  | -4.7  | 
|                                 |                |  |          |  |       | 
|Balance at Dec. 31, 2005         | 42.5           |  | 66.8     |  | 109.3 | 
|                                 |                |  |          |  |       | 
|                                 |                |  |          |  |       | 
|Cumulative amortization:         |                |  |          |  |       | 
|Balance at Jan. 1, 2005          | 17.8           |  | 0.0      |  | 17.8  | 
|Change in basis of consolidation | 0.0            |  | 0.0      |  | 0.0   | 
|Currency translation             | 0.9            |  | 0.0      |  | 0.9   | 
|Additions                        | 4.4            |  | 0.0      |  | 4.4   | 
|Disposals                        | -0.4           |  | 0.0      |  | -0.4  | 
|                                 |                |  |          |  |       | 
|Balance at Dec. 31, 2005         | 22.7           |  | 0.0      |  | 22.7  | 
|                                 |                |  |          |  |       | 
|Carrying amount at Dec. 31, 2005 | 19.8           |  | 66.8     |  | 86.6  | 
|                                 |                |  |          |  |       | 
|                                 |                |  |          |  |       | 
|Historical cost:                 |                |  |          |  |       | 
|Balance at Jan. 1, 2004          | 44.4           |  | 79.0     |  | 123.4 | 
|Change in basis of consolidation | -8.6           |  | -15.4    |  | -24.0 | 
|Currency translation             | -0.3           |  | -2.0     |  | -2.3  | 
|Additions                        | 8.8            |  | 0.0      |  | 8.8   | 
|Disposals                        | -3.3           |  | 0.0      |  | -3.3  | 
|                                 |                |  |          |  |       | 
|Balance at Dec. 31, 2004         | 41.0           |  | 61.6     |  | 102.6 | 
|                                 |                |  |          |  |       | 
|                                 |                |  |          |  |       | 
|Cumulative amortization:         |                |  |          |  |       | 
|Balance at Jan. 1, 2004          | 23.5           |  | 0.0      |  | 23.5  | 
|Change in basis of consolidation | -6.7           |  | 0.0      |  | -6.7  | 
|Currency translation             | -0.3           |  | 0.0      |  | -0.3  | 
|Additions                        | 4.6            |  | 0.0      |  | 4.6   | 
|Disposals                        | -3.3           |  | 0.0      |  | -3.3  | 
|                                 |                |  |          |  |       | 
|Balance at Dec. 31, 2004         | 17.8           |  | 0.0      |  | 17.8  | 
|                                 |                |  |          |  |       | 
|Carrying amount at Dec. 31, 2004 | 23.2           |  | 61.6     |  | 84.8  | 
|                                 |                |  |          |  |       | 

The change in the
    basis of the consolidation in 2004 is attributable exclusively to the reclassification
    of discontinued operations to assets held for sale. Industrial rights, software
    and similar rights comprise mainly of purchased and internally developed
    IT software. Additions during the past fiscal year were largely attributable
    to the integration of further companies into the group-wide unified SAP
  system (SGL ONE). The aim of the SGL ONE project was to replace a large number
    of legacy systems with a fully integrated global SAP system. The capitalization
    of development costs of €1.4 million for the carbon ceramic brake disks in the first half
  of 2005 were disposed as part of the agreement with AUDI in the second half of 2005 together with the amounts capitalized from 2004. Beginning in fiscal year 2004, in accordance with IFRS 3, goodwill is no longer amortized on a systematic basis but
  subject to an impairment test. Writedowns due to the impairment test were not required. Goodwill amounting to €11.3 million is attributable to the CG Business Area, €21.7 to the S Business Area and €33.8
  million to the T Business Area.


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|12. | Property,
    plant and equipment
|--- | ---------------------------------
|    |                                  

|                                 |            |  |           |  | Other      |  | Advance      |    |         | 
|-------------------------------- | ---------- |  | --------- |  | ---------- |  | ------------ | -- | ------- | 
|                                 |            |  | Technical |  | equipment, |  | payments     |    |         | 
|                                 | Land, land |  | equipment |  | operating  |  | and assets   |    |         | 
|                                 | rights and |  | and       |  | and office |  | under        |    |         | 
|                                 | buildings  |  | machinery |  | equipment  |  | construction |    | Total   | 
|                                 |            |  |           |  |            |  |              |    |         | 
|                                 | €m         |  | €m        |  | €m         |  | €m           |    | €m      | 
|Historical cost:                 |            |  |           |  |            |  |              |    |         | 
|Balance at Jan. 1, 2005          | 312.9      |  | 964.2     |  | 99.1       |  | 19.0         |    | 1,395.2 | 
|Change in basis of consolidation | 0.0        |  | 0.0       |  | 0.0        |  | 0.0          |    | 0.0     | 
|Currency translation             | 11.6       |  | 38.7      |  | 1.2        |  | 1.2          |    | 52.7    | 
|Reclassifications                | 0.0        |  | 0.0       |  | 0.0        |  | 0.0          |    | 0.0     | 
|Additions                        | 6.2        |  | 30.7      |  | 3.2        |  | -0.7         | *) | 39.4    | 
|Disposals                        | -9.0       |  | -20.9     |  | -4.9       |  | 0.0          |    | -34.8   | 
|                                 |            |  |           |  |            |  |              |    |         | 
|Balance at Dec. 31, 2005         | 321.7      |  | 1,012.7   |  | 98.6       |  | 19.5         |    | 1,452.5 | 
|                                 |            |  |           |  |            |  |              |    |         | 
|                                 |            |  |           |  |            |  |              |    |         | 
|Cumulative amortization:         |            |  |           |  |            |  |              |    |         | 
|Balance at Jan. 1, 2005          | 188.1      |  | 765.0     |  | 88.8       |  | 0.2          |    | 1,042.1 | 
|Change in basis of consolidation | 0.0        |  | 0.0       |  | 0.0        |  | 0.0          |    | 0.0     | 
|Currency translation             | 5.5        |  | 27.2      |  | 1.0        |  | 0.0          |    | 33.7    | 
|Reclassifications                | 0.8        |  | -0.8      |  | 0.0        |  | 0.0          |    | 0.0     | 
|Additions                        | 8.9        |  | 47.5      |  | 4.3        |  | 0.0          |    | 60.7    | 
|Disposals                        | -4.3       |  | -20.9     |  | -4.8       |  | 0.0          |    | -30.0   | 
|                                 |            |  |           |  |            |  |              |    |         | 
|Balance at Dec. 31, 2005         | 199.0      |  | 818.0     |  | 89.3       |  | 0.2          |    | 1,106.5 | 
|                                 |            |  |           |  |            |  |              |    |         | 
|Carrying amount at Dec. 31, 2005 | 122.7      |  | 194.7     |  | 9.3        |  | 19.3         |    | 346.0   | 
|                                 |            |  |           |  |            |  |              |    |         | 
|                                 |            |  |           |  |            |  |              |    |         | 
|Historical cost:                 |            |  |           |  |            |  |              |    |         | 
|Balance at Jan. 1, 2004          | 369.7      |  | 973.7     |  | 136.7      |  | 17.5         |    | 1,497.6 | 
|Change in basis of consolidation | -53.2      |  | -27.0     |  | -30.5      |  | -0.1         |    | -110.8  | 
|Currency translation             | -1.0       |  | -5.8      |  | -0.4       |  | -0.3         |    | -7.5    | 
|Reclassifications                | 0.0        |  | 0.0       |  | -0.2       |  | 0.2          |    | 0.0     | 
|Additions                        | 3.7        |  | 32.3      |  | 0.0        |  | 1.7          |    | 37.7    | 
|Disposals                        | -6.3       |  | -9.0      |  | -6.5       |  | 0.0          |    | -21.8   | 
|                                 |            |  |           |  |            |  |              |    |         | 
|Balance at Dec. 31, 2004         | 312.9      |  | 964.2     |  | 99.1       |  | 19.0         |    | 1,395.2 | 
|                                 |            |  |           |  |            |  |              |    |         | 
|                                 |            |  |           |  |            |  |              |    |         | 
|Cumulative amortization:         |            |  |           |  |            |  |              |    |         | 
|Balance at Jan. 1, 2004          | 210.9      |  | 748.3     |  | 120.8      |  | 0.2          |    | 1,080.2 | 
|Change in basis of consolidation | -29.5      |  | -20.6     |  | -27.0      |  | 0.0          |    | -77.1   | 
|Currency translation             | -0.5       |  | -5.1      |  | -0.5       |  | 0.0          |    | -6.1    | 
|Reclassifications                | 0.1        |  | 2.4       |  | -2.5       |  | 0.0          |    | 0.0     | 
|Additions                        | 10.3       |  | 48.4      |  | 4.3        |  | 0.0          |    | 63.0    | 
|Disposals                        | -3.2       |  | -8.4      |  | -6.3       |  | 0.0          |    | -17.9   | 
|                                 |            |  |           |  |            |  |              |    |         | 
|Balance at Dec. 31, 2004         | 188.1      |  | 765.0     |  | 88.8       |  | 0.2          |    | 1,042.1 | 
|                                 |            |  |           |  |            |  |              |    |         | 
|Carrying amount at Dec. 31, 2004 | 124.8      |  | 199.2     |  | 10.3       |  | 18.8         |    | 353.1   | 
|                                 |            |  |           |  |            |  |              |    |         | 

The change in the
    basis of the consolidation in 2004 is attributable exclusively to the reclassification
    of discontinued operations to assets held for sale. During the fiscal year,
    capital expenditures in property, plant and equipment increased from the
    previous year from €37.7 million by €1.7 million to €39.4 million. Significant additions related to capital expenditures for replacement of property,
  plant and equipment in our plants in Germany, the U.S., Poland and Spain. Capitalized leasing expense, which is attributable to land and buildings as well as technical equipment and machinery, totaled €1.1 million at December 31, 2005 (previous
  year: €1.0 million). For two pieces of land in the U.S., that were later sold, we recorded write-downs on the carrying amounts in 2004 of €4.9
  million in total.


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|13. | Non-current
      financial assets
|--- | ----------------------------------
|    |                                   

|                                       |              |  |             |  | Other
      non- |  |       | 
|-------------------------------------- | ------------ |  | ----------- |  | ---------------- |  | ----- | 
|                                       | Investments  |  | Non-current |  | current          |  |       | 
|                                       | inassociated |  | financial   |  | financial        |  |       | 
|                                       | companies    |  | investments |  | assets           |  | Total | 
|                                       |              |  |             |  |                  |  |       | 
|                                       | €m           |  | €m          |  | €m               |  | €m    | 
|Historical
      cost:                 |              |  |             |  |                  |  |       | 
|Balance
      at Jan. 1, 2005          | 4.4          |  | 2.4         |  | 5.1              |  | 11.9  | 
|Change
      in basis of consolidation | 0.0          |  | 0.0         |  | 0.0              |  | 0.0   | 
|Currency
      translation             | 0.6          |  | 0.0         |  | -0.1             |  | 0.5   | 
|Reclassifications                      | 0.0          |  | 0.0         |  | 0.0              |  | 0.0   | 
|Additions                              | 3.0          |  | 0.0         |  | 0.0              |  | 3.0   | 
|Disposals                              | -0.3         |  | 0.0         |  | -0.1             |  | -0.4  | 
|                                       |              |  |             |  |                  |  |       | 
|Balance
      at Dec. 31, 2005         | 7.7          |  | 2.4         |  | 4.9              |  | 15.0  | 
|                                       |              |  |             |  |                  |  |       | 
|Cumulative
      amortization:         |              |  |             |  |                  |  |       | 
|Balance
      at Jan. 1, 2005          | 0.0          |  | 0.0         |  | 0.4              |  | 0.4   | 
|Change
      in basis of consolidation | 0.0          |  | 0.0         |  | 0.0              |  | 0.0   | 
|Currency
      translation             | 0.0          |  | 0.0         |  | -0.1             |  | -0.1  | 
|Additions                              | 0.0          |  | 0.0         |  | 0.0              |  | 0.0   | 
|Disposals                              | 0.0          |  | 0.0         |  | -0.2             |  | -0.2  | 
|                                       |              |  |             |  |                  |  |       | 
|Balance
      at Dec. 31, 2005         | 0.0          |  | 0.0         |  | 0.1              |  | 0.1   | 
|                                       |              |  |             |  |                  |  |       | 
|Carrying
      amount at Dec. 31, 2005 | 7.7          |  | 2.4         |  | 4.8              |  | 14.9  | 
|                                       |              |  |             |  |                  |  |       | 
|Historical
      cost:                 |              |  |             |  |                  |  |       | 
|Balance
      at Jan. 1, 2004          | 5.7          |  | 2.3         |  | 5.8              |  | 13.8  | 
|Change
      in basis of consolidation | 0.0          |  | 0.0         |  | -0.5             |  | -0.5  | 
|Currency
      translation             | -0.3         |  | 0.0         |  | 0.0              |  | -0.3  | 
|Reclassifications                      | 0.0          |  | 0.0         |  | 0.0              |  | 0.0   | 
|Additions                              | 0.2          |  | 0.1         |  | 0.5              |  | 0.8   | 
|Disposals                              | -1.2         |  | 0.0         |  | -0.7             |  | -1.9  | 
|                                       |              |  |             |  |                  |  |       | 
|Balance
      at Dec. 31, 2004         | 4.4          |  | 2.4         |  | 5.1              |  | 11.9  | 
|                                       |              |  |             |  |                  |  |       | 
|Cumulative
      amortization:         |              |  |             |  |                  |  |       | 
|Balance
      at Jan. 1, 2004          | 0.0          |  | 0.0         |  | 0.4              |  | 0.4   | 
|Change
      in basis of consolidation | 0.0          |  | 0.0         |  | -0.1             |  | -0.1  | 
|Currency
      translation             | 0.0          |  | 0.0         |  | 0.1              |  | 0.1   | 
|Additions                              | 0.0          |  | 0.0         |  | 0.0              |  | 0.0   | 
|Disposals                              | 0.0          |  | 0.0         |  | 0.0              |  | 0.0   | 
|                                       |              |  |             |  |                  |  |       | 
|Balance
      at Dec. 31, 2004         | 0.0          |  | 0.0         |  | 0.4              |  | 0.4   | 
|                                       |              |  |             |  |                  |  |       | 
|Carrying
      amount at Dec. 31, 2004 | 4.4          |  | 2.4         |  | 4.7              |  | 11.5  | 
|                                       |              |  |             |  |                  |  |       | 

The increase in
    the investments in associated companies is attributable to the capital increases
    at a foreign subsidiary in China. The presentation of non-current financial
    investments include securities that are classified as available-for-sale.
    Other non-current financial assets comprise primarily the capitalized value
    of reinsurance policies, which do not qualify as plan assets. This concerns
    reinsurance policies from supplementary benefits for employees from compensation
    amounting to €4.1 million.


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|14. | Inventories
|--- | -----------
|    |            

|                                                           | Dec.
      31, |  | Dec.
      31, | 
|---------------------------------------------------------- | -------------- |  | -------------- | 
|€m                                                         | 2005           |  | 2004           | 
|                                                           |                |  |                | 
|Raw
      materials and supplies                           | 85.2           |  | 64.4           | 
|Work
      in progress                                     | 138.5          |  | 134.9          | 
|Finished
      goods and goods purchased and held for sale | 56.9           |  | 57.1           | 
|                                                           |                |  |                | 
|                                                           | 280.6          |  | 256.4          | 
|                                                           |                |  |                | 

Total inventories
    carried at net realizable value amount to €3.8 million. Write-downs on the
    net realizable value in 2005 totaled €1.1 million. In addition, there were
    write-downs for stock risks of €6.4 million and other write-downs amounting
    to €3.5 million. Write-ups or reversal of write-downs were only recognized
    to a minor extent.


|15. | Trade receivables
|--- | -----------------

|                                                                             | Dec.
      31, |  | Dec.
      31, | 
|---------------------------------------------------------------------------- | -------------- |  | -------------- | 
|€m                                                                           | 2005           |  | 2004           | 
|                                                                             |                |  |                | 
|Customers                                                                    | 192.3          |  | 178.2          | 
|thereof
      with more than one year of maturity (2005: €0.1 million; 2004: |                |  |                | 
|€0.3 million) associated companies                                           | 3.0            |  | 3.2            | 
|                                                                             |                |  |                | 
|                                                                             | 195.3          |  | 181.4          | 
|                                                                             |                |  |                | 

Trade receivables
    are shown after deduction of write-downs for doubtful receivables amounting
    to €3.7 million as of December 31, 2005 and €5.6 million as of December 31,
    2004. No general reserve was recorded. No trade receivables were outstanding
    from affiliated companies.


|16. | Receivables
      and other current assets
|--- | ------------------------------------------
|    |                                           

|                                                                             | Dec.
      31, |  | Dec.
      31, | 
|---------------------------------------------------------------------------- | -------------- |  | -------------- | 
|€m                                                                           | 2005           |  | 2004           | 
|                                                                             |                |  |                | 
|Other
      receivables from associated companies                            | 0.7            |  | 3.7            | 
|Other
      current assets                                                   | 33.0           |  | 33.9           | 
|thereof
      with more than one year of maturity (2005: €0.0 million; 2004: |                |  |                | 
|€0.0 million)                                                                |                |  |                | 
|                                                                             |                |  |                | 
|                                                                             | 33.7           |  | 37.6           | 
|                                                                             |                |  |                | 

Other current assets
    are primarily attributable to tax refunds of €9.9 million (2004: €9.8 million),
    positive fair values of financial derivatives totaling €4.3 million (2004:
    €9.9 million), prepaid expenses for rent or insurance premiums of €4.1 million
    (2004: €3.5 million), reimbursement claims under insurance policies, short-term
    loans receivable, purchase price receivables for sold non-current assets and
    miscellaneous receivables.


|17. | Cash and
      cash equivalents
|--- | -------------------------------
|    |                                

|                                                                             | Dec.31, |  | Dec.
      31, | 
|---------------------------------------------------------------------------- | ------- |  | -------------- | 
|€m                                                                           | 2005    |  | 2004           | 
|                                                                             |         |  |                | 
|Restricted
      cash and cash equivalents for antitrust payments            | 0.0     |  | 77.2           | 
|Restricted
      cash and cash equivalents for repayment of convertible bond | 0.0     |  | 50.1           | 
|Restricted
      cash and cash equivalents for debt service                  | 0.0     |  | 0.7            | 
|Cash
      and bank balances                                                 | 93.4    |  | 67.5           | 
|                                                                             |         |  |                | 
|                                                                             | 93.4    |  | 195.5          | 
|                                                                             |         |  |                | 

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The increase in
    bank balances over the previous year results primarily from the increase in
    cash and cash equivalents of SGL Carbon AG from the positive free cash flow
    in the Group. Beside cash and cash equivalents, in the new financing SGL also
    received liquid funds that were restricted for specific purposes.


Part of the proceeds
    of the refinancing totaling €125.3 million were deposited in an escrow account
    in February 2004; these funds were designated exclusively for the payment
    of obligations from the North American antitrust penalties and from civil
    law settlements as well as the fine imposed in 2003 by the European antitrust
    commission. In 2004, the European fine (€23.9 million) was deposited on an
    interestbearing escrow account of the antitrust authorities until the closure
    of the legal proceedings. A total of €24.2 million was paid to the North American
    antitrust authorities in 2004. Beside the planned payments in March and June
    2005, the outstanding liability, including currency hedging costs, was paid
    in full in August 2005. The residual credit balance on the antitrust escrow
    account of €8.7 million was used for debt repayment. The restricted cash for
    debt service in 2004 represents the remaining amount of the proceeds from
    the Hillsboro sale in the U.S., which were used in 2005 for early debt repayment.
    The restricted cash was presented separately in the consolidated balance sheet
    in 2004.


In 2004, the Company
    made a public tender offer to all bondholders to purchase back the convertible
    bonds. For this purpose, SGL obtained liquid funds from the refinancing that
    were deposited to a restricted cash escrow account amounting to €143 million.
    SGL used €85.7 million from the restricted cash escrow account during the
    second quarter of 2004 for the partial buy-back of the convertible bond. Beside
    an interest income of €0.1 million in 2004, a total of €1.7 million were used
    for interest payments on outstanding bonds and an additional €5.6 million
    utilized for an early loan repayment. In September 2005 SGL repaid the outstanding
    liabilities of the convertible bonds of €50.0 million including interest components
    of €1.2 million, on schedule using the the escrow accounts cash balance.


|18. | Deferred
      tax assets
|--- | -------------------------

Deferred tax assets
    from tax loss carry-forwards are uniformly recognized in the IFRS consolidated
    financial statements on the basis of a rolling projection of the estimated
    earnings to be taxed at the level of individual subsidiaries or on the level
    of tax groups. Uncertainties about certain planning assumptions and other
    underlying conditions are taken into account. Based on the restructuring measures
    taken, the disposal of the lossgenerating Surface Protection business, the
    significant reduction of the net debt and the improved economic market environment
    for our business segments, we assume that the capitalized deferred tax assets
    on loss carry-forwards can be utilized in the future.


Tax loss carry-forwards
    of approximately USD 168 million in the U.S. (previous year: USD 188 million)
    and of around €235 million in Germany (previous year: €209 million) are available.
    According to current German legislation, tax loss carry-forwards can be utilized
    for an unlimited period. Tax loss carry-forwards in the U.S. expire between
    2020 and 2023. Out of the loss carry-forwards in the U.S. and Germany, we
    have capitalized deferred tax assets, according to the estimation of their
    expected future utilization. Deferred tax assets were also recognized for
    timing differences in profits and losses resulting from consolidation as well
    as for timing differences in consolidated subsidiaries resulting from provision
    for contingent losses that are not tax-deductible and for other valuation
    differences under IFRS. If the deduction of expenses for tax purposes is in
    doubt, a valuation allowance is charged against the calculated deferred tax
    assets in the same amount.


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Deferred tax assets
    and liabilities as of December 31, 2005, are derived from tax loss carry-forwards
    or differences between the tax balance sheet and the IFRS financial statements
    as follows:


|                                  |                  |  | Deferred    | 
|--------------------------------- | ---------------- |  | ----------- | 
|                                  | Deferred         |  | tax         | 
|€m                                | tax
      assets |  | liabilities | 
|                                  |                  |  |             | 
|Non-current
      assets          | 16.5             |  | 14.4        | 
|Inventories                       | 1.3              |  | 4.9         | 
|Receivables/other
      assets    | 0.1              |  | 9.5         | 
|Pension
      provisions          | 8.2              |  | 0.0         | 
|Other
      provisions            | 10.2             |  | 5.8         | 
|Liabilities                       | 4.1              |  | 0.1         | 
|Other
      comprehensive income  | 0.8              |  | 0.0         | 
|From
      tax loss carryforwards | 87.6             |  | 0.0         | 
|                                  |                  |  |             | 
|                                  | 128.8            |  | 34.7        | 
|                                  |                  |  |             | 

Deferred tax liabilities
    result from different depreciation and amortization methods in the tax balance
    sheet and the IFRS financial statements, from capitalized finance leases,
    and from valuation differences in inventories between the tax balance sheet
    and IFRS financial statements. Deferred taxes mainly have a maturity of more
    than one year. Deferred taxes from cash flow hedges included in equity without
    effecting the income statement amounted to €0.8 million in fiscal year 2005
    (previous year: €-0.9 million).


|19. | Equity                                                                                                                             
|--- | -----------------------------------------------------------------------------------------------------------------------------------
|   
|    | The classification
      of items of equity is presented in the Consolidated Statement of Changes
      in Equity
      on page 59.

The Companys
    share capital amounted to €144,873,597.44 as of December 31, 2005, and is
    composed of 56,591,249 no-par value ordinary bearer shares, each with a notional
    value of €2.56. The shares are made out to bearer. The share is traded on
    various markets in Germany (including Frankfurt) and in the U.S. in New York
    (NYSE).


An increase in the
    share capital of the Company requires a resolution by the Annual General Meeting
    adopted by a simple majority. Moreover, the Annual General Meeting may authorize
    the Board of Management to increase the share capital of the Company with
    the consent of the Supervisory Board within a period of five years by issuing
    shares in a certain aggregate amount (authorized capital). Finally, shareholders
    may approve the creation of conditional capital, but only to issue conversion
    or subscription rights to holders of convertible bonds, to prepare a merger
    with another company or to issue stock options to employees and members of
    the management of the Company or of an affiliated company by way of a consent
    and authorization resolution. Each of these shareholders resolutions
    pertaining to the creation of authorized or conditional capital require a
    majority of three quarters of the share capital represented at the Annual
    General Meeting when the resolution is passed. The nominal amount of the authorized
    capital created by the shareholders may not exceed one half of the share capital
    existing at the time of registration of the authorized capital in the commercial
    register. The total nominal amount of the conditional capital created by the
    shareholders, the issuance of which was authorized by the shareholders, may
    not exceed one half of the share capital existing at the time of the adoption
    of the resolution relating to the conditional capital increase. The total
    nominal amount of the conditional capital for the issuance of stock options
    to employees and members of the management of the Company or of an affiliated
    company may not exceed 10 % of the share capital existing at the time of the
    adoption of the resolution relating to the conditional capital increase.


Annual General
  Meeting

Following the capital
    increase of January/February 2004, which took place within the framework of
    SGLs refinancing, the Companys overall capital structure was adjusted
    to reflect its new


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Back to Contents authorized capital
    at the Annual General Meeting on April 30, 2004. The existing Authorized Capital
    I and Ia as well as the Conditional Capital in accordance with article 3 (10)
    of the Articles of Association were cancelled and replaced by the new Authorized
    Capital I and by new Conditional Capital for use issuing convertible bonds
    and bonds with warrants. Additional conditional capital was also created for
    use under the SAR Plan. With the exception of the buy-back of own shares,
    the Annual General Meeting on April 27, 2005 made no decision regarding capitalization
    measures.


Authorized capital

Following the partial
    utilization of the authority to increase the share capital to issue new shares
    to employees of the company or Group companies, the Board of Management is
    authorized, with the consent of the Supervisory Board, to increase the Companys
    share capital by a total of up to €69,862,876.16 (authorized capital I) by
    issuing up to 27,290,006 new shares against cash and/or non-cash contributions
    on one or several occasions until April 29, 2009. The shareholders are to
    be granted pre-emptive rights. The Board of Management is authorized, with
    the consent of the Supervisory Board, to exclude fractional amounts from the
    shareholders pre-emptive rights. Furthermore, the Board of Management
    can exclude pre-emptive rights with the consent of the Supervisory Board


| | (i)   | to the extent
      necessary to enable the holders of warrants or convertible bonds that have
      been issued by SGL CARBON Aktiengesellschaft or by a wholly-owned direct
      or indirect subsidiary to be granted subscription rights for new shares
      as if they had exercised the warrants or conversion rights or fulfilled
      their conversion obligations;                                                                                                                                          
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (ii)  | to issue new
      shares to holders of convertible bonds which were granted by SGL CARBON
      Aktiengesellschaft or its wholly-owned direct or indirect subsidiaries in
      Germany and abroad against non-cash contributions in accordance with the
      authorization by the Annual General Meeting on April 30, 2004, if the holders
      have exercised their conversion right or fulfilled their conversion obligation;                                                                                    
|
| | (iii) | if the new shares
      are issued to employees of SGL CARBON Aktiengesellschaft or companies affiliated
      with SGL CARBON Aktiengesellschaft within the meaning of sections 15 ff.
      of the AktG. However, for this purpose the share capital can only be increased
      by a total of no more than €2,325,928.96 by issuing a total of up to 908,566
      new no-par value shares on one or several occasions;                                                                                             
|
| | (iv)  | if the new shares
      are issued to employees of SGL Carbon Aktiengesellschaft or companies affiliated
      with SGL Carbon Aktiengesellschaft within the meaning of sections 15 seq.
      of the AktG participating in the share plan (Matching Shares Plan) of SGL
      Carbon Aktiengesellschaft. However, for this purpose the share capital can
      only be increased by a total of no more than €803,776.00 by issuing a total
      of up to 313,975 new no-par value shares on one or several occasions;
|
| | (v)   | if the new shares
      are issued as part of a capital increase against non-cash contributions
      for the acquisition of companies, parts of companies or equity interests
      in companies; and                                                                                                                                                                                                                                                                                                                 
|
| | (vi)  | for a total
      of no more than €14,293,834.24 if the new shares are issued as part of a
      capital increase against cash contributions at an issuing price that does
      not fall significantly below the market price.                                                                                                                                                                                                                                                                                        

Conditional capital

Based on a resolution
    of the Annual General Meeting on April 30, 2004, the share capital of the
    Company was conditionally increased by a further amount of up to €4,096,000.00
    against non-cash contributions. The sole purpose of the conditional capital
    increase is to issue up to 1,600,000 no-par value bearer shares carrying dividend
    rights from the beginning of the fiscal year in which they are issued to cover
    options for shares of SGL CARBON Aktiengesellschaft granted as stock appreciation
    rights (SARs) in the period through December 31, 2009 to members of the Board
    of Management and senior managers of SGL CARBON Aktiengesellschaft and members
    of the management and senior managers of affiliated companies (Konzernunternehmen)
    within the meaning of sections 15 seq. of the German Stock Corporation Act
    (= AKtG) on the basis of the authorization


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Back to Contents granted by the
    Annual General Meeting on April 30, 2004. The contributions to the shares
    to be subscribed take the form of the contribution of the remuneration entitlements
    granted to beneficiaries under the SARs issued pursuant to the authorization
    granted by SGL CARBON Aktiengesellschafts Annual General Meeting on
    April 30, 2004. The conditional capital increase will be implemented only
    to the extent that the SARs were issued pursuant to the authorization resolved
    by the Annual General Meeting on April 30, 2004, the beneficiaries exercised
    their options and contributed their remuneration entitlements to the Company,
    and the Company does not satisfy the beneficiaries options by issuing
    treasury shares or by a cash payment. The new shares are issued at a price
    of not less than €2.56 per share.


Based on a resolution
    of the Annual General Meeting on April 27, 2000, the share capital of the
    Company was conditionally increased by a further amount up to €3,840,000.00
    composed of 1,500,000 bearer shares with a notional value of €2.56 per share.
    The conditional capital increase will only be implemented to the extent that
    holders of warrants relating to bonds with warrants or holders of conversion
    rights from convertible bonds, which are issued by the Company or a wholly-owned
    direct or indirect subsidiary of the Company on the basis of the authorizing
    resolution of the Annual General Meeting on April 27, 2000, exercise their
    option or conversion rights, or to the extent that holders of convertible
    bonds with a conversion obligation fulfill their conversion obligation, where
    those convertible bonds are issued by the Company or a wholly-owned direct
    or indirect subsidiary of the Company on the basis of the authorizing resolution
    of the Annual General Meeting on April 27, 2000. The new shares carry dividend
    rights as of the beginning of the fiscal year in which they are created through
    the exercise of conversion rights or options or through the fulfillment of
    conversion obligations.


Based on a resolution
    of the Annual General Meeting on April 27, 2000, the share capital of the
    Company was conditionally increased by an additional nominal amount of up
    to €4,096,000.00. The conditional capital increase will be implemented only
    by issuing up to 1,600,000 new shares carrying dividend rights from the beginning
    of the fiscal year in which they were issued and will only be implemented
    insofar as the holders of options issued within the scope of the Stock Option
    Plan of the Company based on the authorization of April 27, 2000, exercise
    their rights to purchase shares. Based on a resolution of the Annual General
    Meeting on April 30, 2004, the share capital was conditionally increased by
    up to €38,400,000.00 through the issue of up to 15,000,000 new no-par value
    shares. The conditional capital increase will be used to grant rights to the
    holders of bonds with warrants and/or convertible bonds issued by SGL CARBON
    Aktiengesellschaft or its wholly-owned direct or indirect subsidiary through
    April 29, 2009, pursuant to the resolution of the Annual General Meeting on
    April 30, 2004. New shares will be issued at the conversion price or warrant
    exercise price to be established in each case. The conditional capital increase
    will be implemented only to the extent that holders of bonds with warrants
    exercise their warrants or that holders of convertible bonds exercise their
    conversion rights, or holders who are subject to a conversion obligation fulfill
    their conversion obligation, and to the extent that the Company does not issue
    treasury shares instead of new shares or does not satisfy the subscription
    rights through a cash payment. The new shares carry dividend rights from the
    beginning of the fiscal year in which they are issued as a result of the exercise
    of conversion rights or warrants or through the fulfillment of conversion
    obligations. The Board of Management is authorized, with the consent of the
    Supervisory Board, to determine the further details of the implementation
    of a conditional capital increase.


Authorization
  to acquire the Companys own shares

By resolution of
    the Annual General Meeting on April 27, 2005, the Board of Management was
    authorized to acquire no-par value bearer shares of the Company until October
    26, 2006, totaling up to 10% of the share capital as of April 27, 2005. The
    purchase price of one no-par value share (excluding transaction costs) may
    not be more than 10% above or below the average closing price of the Companys
    share in the XETRA securities trading system (or a comparable successor system)
    on the last five trading days prior to the acquisition or undertaking to acquire
    the shares. If the shares are acquired via a public offering, the purchase
    price per share (excluding transaction costs) may not, as a matter of principle,
    be more than 15% above or below the average closing price of the Companys
    shares in the XETRA securities trading system (or a comparable successor system)
    on the fifth to the ninth trading day prior to the publication of the offering.
    The volume of the public


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offering can be limited.
  Where the shares tendered to the Company as the result of a public offering
  exceed the stipulated volume, the number of shares accepted must be proportional
  to the number of shares offered. Preferred acceptance of lesser numbers of shares
  (up to 100 shares per shareholder) can be stipulated. Public offerings must
  comply with the regulations of the Wertpapiererwerbs- undÜbernahmegesetz
  (German Securities Acquisition and Takeover Act), insofar as and to the extent
  that these are applicable.

In addition, the
    Board of Management was authorized to sell any treasury shares by means other
    than the stock market or an offering to all shareholders if the shares are
    sold at a cash price that is not significantly less than the market price
    of shares of the Company carrying the same rights at the time of the sale;
    this authorization is limited to a total of no more than 10% of the Companys
    share capital. Also to be included are instances of the alleviated exclusion
    of subscription rights in accordance with section 186 (3) sentence 4 of the
    AktG based on other authorizations existing at the time of this authorization.
    Furthermore, the Company was authorized to make available, on the expiry of
    the two-year lock-up period, any treasury shares to members of the Board of
    Management while disapplying pre-emptive rights as part of the Matching Shares
    Plan resolved by the Annual General Meeting on April 27, 2000, under agenda
    item 8. In this case, the shares must be offered and transferred by the Supervisory
    Board. However, no more than 20,000 shares may be transferred for this purpose.
    The Board of Management was authorized to offer the own shares for sale while
    disapplying pre-emptive rights to employees of the Company or a Group company.
    Moreover, the Board of Management was authorized to retire the own shares
    without an additional resolution by the Annual General Meeting. Each of these
    authorizations can be exercised either in full or in part. The Company may
    acquire its own shares for one or several of the reasons listed. The Supervisory
    Board can determine that measures taken by the Board of Management in reliance
    on this resolution by the Annual General Meeting may only be taken with its
    consent. The Board of Management may use the authorization to allocate acquired
    shares in the context of the Matching Shares Plan only if and to the extent
    that the Supervisory Board has made such a resolution and has given its consent.
    In 2005, the company acquired a total of 12,648 of its own shares for members
    of the Board of Management with a view to servicing the Matching Shares Plan.


Convertible bond

The 133,650 convertible
    bonds issued at €1,000 each on September 18, 2000 (at a rate of 100% of the
    nominal amount) were fully retired in 2005, after the owners of the bonds
    had already been repaid T€83,687 in 2004 based on the buy-back offer in 2004
    made in the same year. Interest was paid on the amount of their nominal amount
    at 3.5 % p. a.


Capital
  increase for the issue of new shares to employees

On March 16, 2005,
    the capital increase approved on January 27, 2005, by the Board of Management
    and with the consent of the Supervisory Board on February 10, 2005 of 591,434
    shares was implemented. These shares were purchased at €2.56 and used to fulfill
    bonus claims of the Companys employees. Furthermore, in March 2005 a
    total of 36,025 new shares were also issued to employees of SGL Carbon AG
    and its affiliates as contribution in kind within the framework of the Matching
    Shares Plan 2003. Employees participating in the Matching Shares Plan 2003
    contributed bonus claims totaling €358,809 to the Company as a contribution
    in kind. Of this amount, €92,224 refer to the share capital, with the remaining
    €266,585 referring to the share premium. In the 2005 fiscal year, 128,500
    options were exercised under the Stock Option Plans. The total number of shares
    increased in 2005 by 755,959 from 55,835,290 to 56,591,249 at December 31,
    2005.


On January 30, 2006,
    the Board of Management approved a €1,408,000.00 increase in the share capital
    through the issue of 550,000 new shares by making partial use of authorized
    capital (Authorized Capital I). The new shares are designated for employees
    of the company and carry dividend rights for fiscal year 2005.


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|20. | Provisions
      for pensions and other employee benefits
|--- | ---------------------------------------------------------
|    |                                                          

|                                                               | Dec. 31, |  | Dec. 31, | 
|-------------------------------------------------------------- | -------- |  | -------- | 
|€m                                                             | 2005     |  | 2004     | 
|                                                               |          |  |          | 
|Pension
      provision for corporate commitments              | 134.2    |  | 133.5    | 
|Pension
      provision for severance and termination benefits | 13.8     |  | 13.2     | 
|Other                                                          | 10.8     |  | 10.0     | 
|                                                               |          |  |          | 
|                                                               | 158.8    |  | 156.7    | 
|                                                               |          |  |          | 

The employees of
    the SGL Carbon Group are covered by various pension plans which provide for
    the retirement benefit to the employee and their spouse. Some of the arrangements
    are tied to the employees level of remuneration, whereas others are
    oriented on fixed contributions linked to the employees ranking in terms
    of both salary classification and position within the corporation. Some arrangements
    also provide for future increases based on an inflation index.


The various pension
    arrangements for the employees of SGL Carbon Group were standardized as of
    April 1, 2000. Retirement benefits for employees that arose prior to April
    1, 2000, are not affected, and the financial obligations arising under these
    pension plans remain within the SGL Carbon Group, where they are covered by
    provisions. The basis of the amended pension plan is the legally independent
    pension fund for employees of the Hoechst Group, which is funded by employee
    and employer contributions (Pensionskasse der Mitarbeiter der Hoechst Gruppe).
    The contributions of the SGL Carbon Group to this pension fund are based on
    a particular ratio to the contributions paid into the fund by employees. Payments
    by companies to such defined contribution plans are treated as current expenses
    in the respective period.


In the case of defined
    contribution pension plans, the Company pays contributions to pension insurance
    funds on the basis of statutory or contractual provisions. The Company has
    no further obligations other than to pay the contributions. Current contribution
    payments are recognized as operating expenses in the period concerned.


The provisions for
    defined benefit plans are calculated using the projected unit credit method.
    Measurement is based on the legal, economic and tax circumstances in the country
    concerned. Most of the obligations from current pensions benefits and entitlements
    under pension plans in the European companies are covered by the provisions
    carried on the balance sheet. The North American subsidiaries have country-specific
    pension plans which are largely covered by pension funds.


In the U.S., pensions
    rights are traditionally processed via a pension fund, in which the plan asset
    are invested solely for the purpose of providing benefits to the Plans
    participants and their beneficiaries, and defraying reasonable expenses of
    administering the Plans. The Plans objective is to provide a secure
    Trust from which retirement benefits can be paid to participants and beneficiaries,
    as provided in the Plans, with a view to maximizing returns on assets and
    minimizing the cost to the Company consistent with prudent investment management.
    To meet these requirements, the Companys contributions to the Trust
    will be invested with the objective of achieving a minimum annualized return
    to meet a defined annual target yield. The objectives shall be accomplished
    utilizing a strategy of investment in domestic and international equities
    along with domestic fixed income, in a mix that is conducive to participation
    in rising markets while allowing for protection in falling markets. The guidelines
    for the overall asset allocation will be 50 - 75% equities and 24 - 49% bonds.


At certain subsidiaries
    in the SGL Carbon Group, the provisions also cover amounts for post-employment
    medical care as well as severance payments. The future benefit obligations
    are calculated using actuarial methods based on estimates of the relevant
    parameters.


Recognition of actuarial
    gains and losses uses the 10% corridor rule. Personnel turnover is determined
    on a company-by-company basis. The actuarial measurements are based on country-specific
    mortality tables. Pension provisions amounting to around €12 million have
    a term of less than one year.


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The following parameters
    are applied in Germany and the U.S., the countries with the most significant
    pension obligations:


Calculation basis
    and parameters for pension provisions


|                                             | German Plans |  | US-Plans | 
|-------------------------------------------- | ------------ |  | -------- | 
|                                             |              |  |          | 
|                                             | 2005         |  | 2004     | 
|                                             |              |  |          | 
|Discount
      Rate                          | 4.4%         |  | 5.5%     | 
|Salary
      growth                          | 2.25%        |  | 2.25%    | 
|Expected
      rate of return on plan assets |             |  |         | 

Changes in the present
    value of defined benefit obligations and in plan assets for pension provisions
    for direct commitments are presented below:


Changes
  in present value of obligations

|€m                                            | 2005  |  | 2004  | 
|--------------------------------------------- | ----- |  | ----- | 
|                                              |       |  |       | 
|Present
      value at Jan. 1                 | 216.8 |  | 234.9 | 
|Current
      service cost                    | 5.1   |  | 5.2   | 
|Interest
      cost                           | 12.8  |  | 11.8  | 
|Actuarial
      gains/losses                  | 29.6  |  | 2.0   | 
|Benefits
      paid                           | -11.5 |  | -11.1 | 
|Other
      changes                           | 0.0   |  | -25.9 | 
|Exchange
      differences                    | 16.1  |  | -0.1  | 
|                                              |       |  |       | 
|Present
      value of obligations at Dec. 31 | 268.9 |  | 216.8 | 
|                                              |       |  |       | 
|Changes
      in plan assets                  |       |  |       | 
|Plan
      assets at Jan. 1                   | 47.4  |  | 40.9  | 
|Return
      on plan assets                   | 4.9   |  | 3.4   | 
|Contributions
      paid                      | 5.7   |  | 8.2   | 
|Benefits
      paid                           | -4.0  |  | -3.4  | 
|Exchange
      differences                    | 9.9   |  | -1.7  | 
|                                              |       |  |       | 
|Plan
      assets at Dec. 31                  | 63.9  |  | 47.4  | 
|                                              |       |  |       | 
|Funding
      status                          | 205.0 |  | 169.4 | 
|Unrecognized
      actuarial loss             | -70.8 |  | -35.9 | 
|                                              |       |  |       | 
|Pension
      provision at Dec. 31            | 134.2 |  | 133.5 | 
|                                              |       |  |       | 

The increase in
    unrecognized actuarial losses from €-35.9 million in 2004 to €-70.8 million
    in 2005 is the result of the reduction in the discount interest rate, particularly
    in Germany. At the end of 2005, the unrecognized actuarial losses in Germany
    amounted to €42.7 million (2004: €10.6 million) and €24.5 million (2004: €23.1
    million) in the U.S. The losses above the 10% corridor are amortized over
    the average remaining service period up to the beginning of retirement, in
    our case approx. 14 years in Germany. In 2005, this amortization amounted
    to €2.4 million (2004: €2.5 million) and is part of the overall pension expenses.


To cover the pension
    obligations to members of the Board of Management the Company entered into
    reinsurance policies with two large insurance companies. As of December 31,
    2005, the asset value included in the pension provisions amounted to €5.7
    million. Claims under these reinsurance policies were pledged to the respective
    Board of Management members. The other changes in 2004 mainly relate to discontinued
    operations.


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Pension expenses
    are broken down as follows:


|€m                                                     | 2005 |   | 2004 |   | 2003 |  
|------------------------------------------------------ | ---- | - | ---- | - | ---- | -
|                                                       |      |   |      |   |      |  
|Current
      service costs                            | 5.1  |   | 5.2  |   | 4.7  |  
|Interest
      cost                                    | 12.8 |   | 11.8 |   | 13.6 |  
|Expected
      return on plan assets                   | (4.9 | ) | (3.4 | ) | (3.2 | )
|Amortization
      of actuarial gains/losses           | 2.4  |   | 2.5  |   | 2.1  |  
|                                                       |      |   |      |   |      |  
|Pension
      expenses from defined benefit plans      | 15.4 |   | 16.1 |   | 17.2 |  
|                                                       |      |   |      |   |      |  
|Pension
      expenses from defined contribution plans | 4.3  |   | 4.1  |   | 3.3  |  
|                                                       |      |   |      |   |      |  
|Pension
      expenses                                 | 19.7 |   | 20.2 |   | 20.5 |  
|                                                       |      |   |      |   |      |  

The anticipated
    future pension payments by the SGL Group to former employees or their beneficiaries
    at December 31, 2005 are as follows:


Pension payments
    to employees


|Year                  | €m   | 
|--------------------- | ---- | 
|                      |      | 
|Payable
      in 2006 | 12.0 | 
|Payable
      in 2007 | 12.7 | 
|Payable
      in 2008 | 13.6 | 
|Payable
      in 2009 | 14.4 | 
|Payable
      in 2010 | 15.5 | 

|    |                 
|--- | ----------------
|21. | Other Provisions
|    |                 

|                                                  |       |   |                   |   | Restructuring        |   |               |   |        |  
|------------------------------------------------- | ----- | - | ----------------- | - | -------------------- | - | ------------- | - | ------ | -
|                                                  |       |   |                   |   | and
      antitrusts |   |               |   |        |  
|€m                                                | Taxes |   | Staff
      costs |   | risks                |   | Miscellaneous |   | Total  |  
|                                                  |       |   |                   |   |                      |   |               |   |        |  
|Balance
      at Jan.1, 2005                      | 2.4   |   | 51.7              |   | 65.9                 |   | 30.4          |   | 150.4  |  
|Changes
      in basis of consolidation           | 0.0   |   | 0.0               |   | 0.0                  |   | 0.0           |   | 0.0    |  
|Utilized                                          | -2.4  |   | -33.1             |   | -4.9                 |   | -10.7         |   | -51.1  |  
|Releases                                          | 0.0   |   | -3.9              |   | 0.0                  |   | -7.9          |   | -11.8  |  
|Additions                                         | 1.8   |   | 43.3              |   | 9.2                  |   | 19.6          |   | 73.9   |  
|Other
      changes/exchange differences          | 0.1   |   | 1.9               |   | 0.2                  |   | 0.6           |   | 2.8    |  
|                                                  |       |   |                   |   |                      |   |               |   |        |  
|Balance
      at Dec. 31, 2005                    | 1.9   |   | 59.9              |   | 70.4                 |   | 32.0          |   | 164.2  |  
|                                                  |       |   |                   |   |                      |   |               |   |        |  
|(thereof
      with a term of less than one year) | (1.0  | ) | (53.2             | ) | (70.4                | ) | (26.4         | ) | (151.0 | )
|(thereof
      with a term of more than one year) | (0.9  | ) | (6.7              | ) |                     |   | (5.6          | ) | (13.2  | )

The provisions for
    taxes include amounts for tax risks attributable to fiscal years that have
    not yet been finally assessed by the tax authorities. Provisions for staff
    costs include primarily provisions for annual bonuses, jubilee benefits, partial
    retirement, and outstanding vacation days.


The provisions for
    restructuring and antitrust risks have increased by €4.5 million to €70.4
    million by the end of the reporting period. The additions are the result solely
    of restructuring projects. Provisions for antitrust risks are shown as current.


At year-end 2004
    and 2005, we accrued the estimated interest to be paid in connection with
    the European antitrust fines and included these amounts under other provisions.


Miscellaneous other
    provisions comprise various risks, including provisions for bonuses, discounts,
    and anticipated losses amounting to €5.0 million (2004: €4.2 million), provisions
    for interest relating to European antitrust proceedings of €11.5 million (2004:
    €8.6 million), provisions for warranties totaling €3.7 million (2004: €5.8
    million), provisions for environmental protection costs of €0.2 million (2004:
    €1.0 million).


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|22. | Liabilities
|--- | -----------
|    |            

|                                                                      | Dec.
      31, |  | Dec.
      31, | 
|--------------------------------------------------------------------- | -------------- |  | -------------- | 
|€m                                                                    | 2005           |  | 2004           | 
|                                                                      |                |  |                | 
|Interest-bearing
      loans/financial liabilities                    |                |  |                | 
|Bank
      loans and overdrafts                                       | 88.1           |  | 119.9          | 
|Bond/convertible
      bond                                           | 270.0          |  | 320.0          | 
|Accrued
      refinancing costs                                       | -16.0          |  | -20.3          | 
|                                                                      |                |  |                | 
|                                                                      | 342.1          |  | 419.6          | 
|Trade
      payables                                                  | 89.6           |  | 91.3           | 
|thereof
      due within one year €89.2 million (2004: €90.3 million) |                |  |                | 
|                                                                      |                |  |                | 
|Other
      liabilities                                               |                |  |                | 
|Tax
      liabilities                                                 | 16.1           |  | 10.3           | 
|thereof
      due within one year €16.1 million (2004: €10.3 million) |                |  |                | 
|Miscellaneous
      other liabilities                                 | 54.4           |  | 107.8          | 
|thereof
      due within one year €54.2 million (2004: €71.1 million) |                |  |                | 
|                                                                      |                |  |                | 
|Total
      other liabilities                                         | 70.5           |  | 118.1          | 
|                                                                      |                |  |                | 
|                                                                      | 502.2          |  | 629.0          | 
|                                                                      |                |  |                | 

133,650 bonds with
    warrants of €1,000 each were issued as part of a convertible bond on September
    18, 2000, at 100% of the principal amount. They beared interest at 3.5 % p.
    a. on their principal amount. The bonds were fully repaid as planned in September
    2005.


Transaction costs
    totaling €24.2 million were included in the new refinancing package of fiscal
    year 2004, which are expensed using the effective interest rate method over
    the respective term of the loans. From the refinancing of the USD tranche
    in 2005, €1.2 million were written off. At the end of fiscal year 2005, financial
    liabilities include accrued refinancing costs amounting to €16.0 million.


The weighted-average
    interest rate on financial liabilities was 7.5 % for fiscal year 2005 (previous
    year: 6.3 %). Bank liabilities amounting to €88.1 million as of December 31,
    2005, were subject to interest rates of up to 7.4 %. Thereof €13.8 million
    carried fixed interest rates of up to 7.4% and €74.3 million carried variable
    interest rates of up to 6.3 %. Besides the senior subordinated notes issued
    in 2004 amounting to €270 million with a fixed interest rate of 8.5 % there
    are no further financial instruments outstanding.


The syndicated loan
    from the 2004 refinancing is subject to compliance with standard bank covenants
    - for example, the level of net worth, the fixed charge coverage, the ratio
    of net financial liabilities to EBITDA (Earnings Before Interest, Taxes, Depreciation
    and Amortization), and the ratio of EBITDA to interest expense. Non-compliance
    with the covenants or with other provisions of the loan agreement could result
    in additional costs and, if repeated, a demand by lenders for accelerated
    repayment. Various assets, in particular property, plant and equipment as
    well as inventories and receivables, were pledged as collateral for the loan
    (see Note No. 25).


Based on the credit
    lines in place as of December 31, 2005 and the amounts used as of balance
    sheet date, the SGL Carbon Group had available credit lines totaling €65.8
    million.


Other remaining
    liabilities in 2004 included the discounted liabilities in connection with
    North American antitrust proceedings of €43.4 million, which were paid in
    full in 2005. The other remaining liabilities also include wages and salaries
    totaling €7.9 million (2004: €6.5 million) and negative fair values of market
    derivatives at €12.2 million (2004: €26.2 million). Social security liabilities
    totaled €5.9 million (2004: €4.8 million).


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The maturity structure
    of the total financial liabilities due in each of the next five years and
    the remainder thereafter is presented below:


|                            |      |  |      |  |      |  |      |  |      |  | With
      more than | 
|--------------------------- | ---- |  | ---- |  | ---- |  | ---- |  | ---- |  | -------------------- | 
|                            |      |  |      |  |      |  |      |  |      |  | five years           | 
|€m                          | 2006 |  | 2007 |  | 2008 |  | 2009 |  | 2010 |  | to
      maturity    | 
|                            |      |  |      |  |      |  |      |  |      |  |                      | 
|Financial
      liabilities | 9.2  |  | 10.5 |  | 67.9 |  | 0.1  |  | 0.1  |  | 270.3                | 
|Refinancing
      costs     | -3.4 |  | -3.4 |  | -3.3 |  | -1.9 |  | -1.9 |  | -2.1                 | 

The refinancing
    costs included in financial liabilities are amortized over the remaining terms
    and result in the negative amounts presented. There are no other liabilities
    with a remaining term of over two years. The fair value of the bond at year-end
    was €292.3 million. The fair values of the other long-term liabilities approximate
    the carrying amounts.


Notes to the
  Consolidated cash flow statement

|23. | Information
      on the cash flow statement
|--- | --------------------------------------------

The cash flow statement
    present changes in the cash and cash equivalents of the SGL Carbon Group due
    to inflows and outflows of cash during a reporting period. Cash inflows and
    outflows are broken down separately by operating, investing, and financing
    activities. The effects of first-time consolidation as well as deconsolidation
    measures and non-cash exchange rate effects were eliminated. The presentation
    is supplemented by a reconciliation to cash and cash equivalents as shown
    on the face of the balance sheet.


Amounts in the cash
    flow statement attributable to foreign subsidiaries are converted at average
    exchange rates for the year, whereas liquid funds are converted at the exchange
    rate at balance sheet date.


Cash provided by
    operating activities includes interest received of €5.3 million, interest
    paid of €40.6 million and a dividend received from an associated company of
    €0.3 million. Net taxes paid after refunds amounted to €22.6 million. Pension
    payments totaled €11.5 million. Payments in connection with antitrust proceedings
    amounted to €70.2 million and of which €69.1 million was provided from the
    restricted cash escrow account.


Net cash used includes
    payments of €2.3 million for acquisitions of investments. Payments received
    from the sale of property, plant and equipment and intangible assets totaled
    €16.0 million. Payments for capital expenditures in property, plant and equipment
    and intangible assets amounted to €44.7 million.


Net cash used also
    includes payments of €91.0 million in 2005 for financing activities. Payments
    received from increase in financial liabilities of €67.8 million are attributable
    to the refinancing of the US$ credit line. In return, the original US$
    credit line of €82.4 million was fully repaid. The pay-back of the convertible
    bond in September 2005 resulted in payments of €50.0 million, which were provided
    from the restricted cash escrow account. The remaining funds of €8.9 million
    from the special escrow account were used for debt repayment. Other repayments
    of financial liabilities amounted to €19.2 million in 2005. The payments received
    from the capital increase for employee shares were €2.5 million.


Discontinued operations
    in 2004 are shown in the cash flow statement in the net amount of €24.6 million.
    For the discontinued operations in 2004, cash used in operating activities
    amount to €23.9 million, cash used in investing activities to €0.4 million,
    and cash used in financing activities to €0.3 million. The balance of cash
    and cash equivalents decreased compared to 2004 by €102.1 million to €93.4
    million in 2005. This related to payments from the restricted cash escrow
    account for antitrust proceedings and repayment of the convertible bond totaling
    €119.1 million.


Other disclosures

|24. | Contingent
      liabilities and other financial commitments
|--- | ------------------------------------------------------------

No bills of exchange
    were outstanding either as of December 31, 2005, or in the previous year.
    Outstanding guarantee obligations totaled €34.5 million as of December 31,
    2005, and €55.1 million


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as of December 31,
  2004. Furthermore, other financial liabilities arising from orders in connection
  with approved capital expenditures in property, plant and equipment amounted
  to €2.2 million as of December 31, 2005, and €5.2 million as of December 31,
  2004. Some of these capital expenditure projects extend beyond one year.

SGL has set up credit
    lines for guarantees in connection with the financing of project-related business
    in the Surface Technology and Plastics Process Technology businesses. Due
    to the sale of these operations as of January 6, 2005, SGL will continue to
    carry the credit lines existing at that date in the amount of approximately
    €15.6 million until each individual guarantee will expire. Up to December
    31, 2005, the provided guarantee line was reduced to an amount of €9.5 million.
    The average utilization of such guarantees in the past has been less than
    1%. After careful assessment of possible future utilization, we established
    an appropriate provision at year-end, as we had done in the previous year.


Using procurement
    agreements with key suppliers, SGL secures the necessary raw materials for
    production, especially for needle coke. These agreements normally last for
    one year and contain minimum quantities to be purchased by SGL. The prices
    for the deliveries are settled on a base price, which is adjusted by variable
    components (e.g. defined parameters of the needle coke producers raw
    material price).


A number of agreements
    to provide collateral were signed with lenders in conjunction with the refinancing
    project at the beginning of 2004. These agreements entailed the pledging of
    equity interests of most Group companies. The rights of use of intangible
    assets have been assigned for all German members of the Group, for two U.S.
    subsidiaries, and for SGL CARBON SpA in Italy. Real estate liens were taken
    out against SGL CARBON AG and two U.S. companies in the amount of €320 million
    and USD 168.4 million. Inventories and movable plant and equipment of €252.5
    million were assigned as collateral. Trade receivables and receivables due
    from subsidiaries in the total amount of €147.5 million were assigned as collateral.
    In addition, intercompany receivables of €1,096.7 million and bank balances
    totaling €88.1 million were pledged as collateral by individual companies.


As of December 31,
    2005, and December 31, 2004, there were also rental and lease obligations
    for land and buildings, IT equipment, motor vehicles and other items of property,
    plant and equipment amounting to €9.2 million and €8.6 million, respectively.
    As of December 31, 2005, the future minimum annual lease payments were as
    follows:


|                                        |      |   |      |  |      |  |      |  |      |  | 2011
      and | 
|--------------------------------------- | ---- | - | ---- |  | ---- |  | ---- |  | ---- |  | -------------- | 
|€m                                      | 2006 |   | 2007 |  | 2008 |  | 2009 |  | 2010 |  | thereafter     | 
|                                        |      |   |      |  |      |  |      |  |      |  |                | 
|Operating
      leases                  | 8.0  |   | 1.5  |  | 1.1  |  | 1.0  |  | 0.9  |  | 1.8            | 
|Finance
      leases                    | 0.3  |   | 0.3  |  | 0.3  |  | 0.2  |  | 0.1  |  | 0.0            | 
|
      discounts included              | (0.1 | ) |      |  |      |  |      |  |      |  |                | 
|= Present value
      of finance leases | 1.1  |   |      |  |      |  |      |  |      |  |                | 

No payments were
    received from subleases during the past two fiscal years. For a contract regarding
    a right to construct buildings on land owned by a third party in Germany,
    payment obligations of €32.2 million are outstanding for the next 61 years.
    The finance leases relate solely to leases for property, plant and equipment
    concluded under normal leasing contracts, without special purchase options.


Various litigation,
    legal proceedings, and lawsuits are pending or could be set up in the future,
    including those arising from alleged defects in products of the SGL Carbon
    Group under product warranties and due to environmental protection issues.


Litigation is subject
    to considerable uncertainty; the outcome of individual cases cannot be predicted
    with certainty. There is a reasonable probability that individual cases could
    be decided against the SGL Carbon Group in such amounts that would be material
    to the Company. Management has provided for all probable expected losses.


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Pending antitrust
  proceedings

The antitrust legal
    proceedings in the U.S. and in Canada have been concluded. In 2005, we paid
    in full the outstanding liabilities to the antitrust authorities in the U.S.
    and Canada.


In April 2004, the
    European Court of First Instance reduced the fine imposed in 2001 in the graphite
    electrode proceedings from €80.2 million to €69.1 million. Since the judgment
    of the European Court of First Instance failed to address either the censured
    gross procedural errors or the internationally recognized prohibition against
    double jeopardy, we have filed an appeal to the European Court of Second Instance.


In December 2002,
    the European Commission imposed a €27.75 million fine on SGL CARBON AG for
    anticompetitive practices in the graphite specialties markets. SGL appealed
    against the fine in the European Court. The court ruled in 2005 and reduced
    the fine to €18.45 million. We appealed against the decision at the European
    Court especially in view of an unacceptable double jeopardy.


In December 2003,
    the European Commission imposed a €23.64 million fine on SGL Carbon AG for
    anticompetitive practices in the market for electrical and mechanical carbon
    and graphite products. We have filed an appeal against this decision at the
    European Court.


Of the EU fines,
    which are being appealed, the anticipated settlement is covered by provisions.
    The individual components of the lodged appeal were measured and included
    with their probable outcome from the European Court of Justice in the recognition
    of provisions. We have provided a security deposit of €23.9 million covering
    the fine that had been imposed by the EU Commission in December 2003. This
    payment, among other things, had already been taken into consideration in
    the refinancing package and the funds were paid from the special escrow account.
    The two other EU fines are secured by bank guarantees. We expect the final
    decisions regarding the EU penalties at the earliest in the next one to three
    years. The outcome of these proceedings is uncertain.


|25. | Transactions
      with related companies and individuals
|--- | ---------------------------------------------------------

In the course
    of its business activities, the SGL Carbon Group provides services to related
    companies and individuals. In turn, these individuals and companies act as
    suppliers and service providers for the SGL Carbon Group within the framework
    of their business activities. All these transactions are settled on an arms
    length basis. Receivables from associated companies amount to €3.7 million.
    Details are presented in the notes to the relevant balance sheet and income
    statement items. Sales with associated companies in 2005 totaled €7.0 million,
    and the interest income and expense of associated companies in the same year
    amounted to €0.1 million.


An outstanding capital
    contribution to an associated company amounting to USD 3.8 million was fulfilled.


|26. | Information
      concerning financial instruments
|--- | --------------------------------------------------

IAS 32 and IAS
    39 define financial instruments as contracts that result in a financial asset
    at one company and a financial liability or an equity instrument with another.
    Loans, receivables, and financial liabilities originated by the Company are
    measured at amortized acquisition cost unless they are linked with a hedging
    relationship shown on the balance sheet (hedge accounting). These are loans,
    interest-bearing receivables, trade receivables and payables, other short-term
    operating receivables and liabilities, as well as short- and long-term financial
    liabilities, for which a market price is not available. With short-term receivables
    and short-term financial liabilities, the amortized cost principally corresponds
    to the nominal value or the repayment amount. Financial assets held available
    for sale are measured at fair value. These assets are long-term investments
    as well as cash and cash equivalents. Until they are realized, unrealized
    gains and losses are shown separately in equity after deduction of deferred
    taxes. If there is no value available for settlement, the securities are carried
    at cost. If the fair value is expected to fall below the acquisition cost
    permanently, the securities are written down with effect on the income statement.
    The recognition of securities occurs on the settlement date. There are no
    financial investments to be held up to the final maturity.


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Primary financial
  instruments

Primary financial
    instruments are shown on the balance sheet. Financial instruments carried
    as assets are reported at amortized cost, net of any necessary valuation allowances.
    Financial instruments carried as liabilities are reported at the higher of
    face value or redemption amount. Important primary financial instruments are:


|                                             |          |  | Nominal     |  |          |  |           |  |          |   |           |  
|-------------------------------------------- | -------- |  | ----------- |  | -------- |  | --------- |  | -------- | - | --------- | -
|                                             |          |  | value local |  | Nominal  |  |           |  | Interest |   | Interest  |  
|Balance sheet items                          | Currency |  | currency    |  | value €m |  | Term      |  | nominal  |   | effective |  
|                                             |          |  |             |  |          |  |           |  |          |   |           |  
|Financial
      liabilities                  |          |  |             |  |          |  |           |  |          |   |           |  
|
      Senior notes                         | EUR      |  | 270.0       |  | 270.0    |  | 2012      |  | 8.5      | % | 9.2       | %
|
      Syndicated loan                      | EUR      |  | 4.6         |  | 4.6      |  | 2008      |  | 3.9      | % | 4.4       | %
|
      “Kreditanstalt fürWiederaufbau”-loan | EUR      |  | 13.0        |  | 13.0     |  | 2007      |  | 7.4      | % | 7.4       | %
|
      Syndicated loan                      | USD      |  | 80.0        |  | 67.8     |  | 2009      |  | 6.3      | % | 6.8       | %
|                                             |          |  |             |  |          |  |           |  |          |   |           |  
|Other
      primary financial instruments    |          |  |             |  |          |  |           |  |          |   |           |  
|
      Trade receivables                    | EUR      |  |             |  | 195.3    |  | 2006/2007 |  |          |   |           |  
|
      Trade payables                       | EUR      |  |             |  | 89.6     |  | 2006/2007 |  |          |   |           |  

The credit or default
    risk  i.e., the risk of non-payment  results from the risk that
    counterparties may be unable to meet their obligations. Since we do not generally
    enter into offset agreements with our customers, the amounts reported on the
    balance sheet represent the maximum risk of non-payment. With fixed-interest
    financial liabilities, SGL is subject to a fair value risk, while for floating-rate
    financial instruments, SGL is subject to a cash flow risk.


Foreign currency
    risks arise whenever receivables or liabilities are denominated in a currency
    other than a companys local currency. Hedging occurs initially as a
    result of naturally closed positions, when a foreign currency receivable in
    the SGL Carbon Group is offset by one or more liabilities in the same currency
    with equivalent maturities and amounts. Derivatives are used only to hedge
    exceeding foreign currency risks.


At a foreign subsidiary,
    in accordance with local statutory provisions, securities were acquired to
    cover pension obligations; these securities are included within non-current
    financial assets and are classified as available-for-sale securities. The
    change in valuation of these securities is shown in other comprehensive income
    without effect on the income statement; the posted change in valuation amounted
    to a total of €0.2 million as of December 31, 2005 (previous year: €0.1
    million).


Derivative financial
  instruments

In the course of
    its business activities, the SGL Carbon Group may be exposed to risks from
    changes in interest rates and exchange rates. Derivatives are used purely
    for hedging purposes and reducing such risks. The use of these instruments
    is governed by internal guidelines. Risk is continuously assessed and monitored.
    The instruments used in the SGL Carbon Group are primarily interest-rate swaps,
    interest rate and currency options, as well as forward transactions. The counterparties
    are contracting parties with outstanding credit rating.


SGL is exposed to
    foreign currency risks arising from purchase and sales transactions, and internal
    Group loans, which are not denominated in the Companys functional currency
    of the euro. Although the aggregate effects of foreign currency risks can
    be partially offset, SGL hedges against certain material foreign currency
    risks through currency forward contracts and currency options.


A credit risk may
    take the form of a decline in the value of SGLs assets if a contracting
    party is either partially or wholly unable to meet the contractual obligations
    that were agreed upon at the time the financial instrument was created. The
    total of assets disclosed constitutes SGLs maximum credit risk. To reduce
    the credit risk, financial instruments are entered into exclusively with internationally
    recognized financial institutions. The credit standing of the contracting
    parties is continuously monitored and subject to uniform limits, the adherence
    to which is monitored by the Companys Central Finance Department. SGL
    manages credit risks arising from customer receivables


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by requiring in certain
  circumstances advance payments, payment guarantees, confirmed letter of credits
  and credit insurance. No major bad debt losses were incurred throughout fiscal
  2005.

Notional amounts

Nominal amounts
    comprise the aggregate of all underlying purchase and sale amounts arising
    with outside parties. The amounts shown in the following table therefore do
    not represent the amounts exchanged by the parties to the transactions and,
    as a result, are not an indication of the SGL Carbon Groups liabilities
    under these financial instruments.


The nominal amounts
    and fair values of the financial instruments as of December 31, 2005 and 2004
    were as follows:


|                                 | Nominal amounts   |  | Fair
      values   | 
|-------------------------------- | ----------------- |  | ------------------- | 
|                                 |                   |  |                     | 
|                                 | Bought
      Dec. |  | Sold
      Dec. 31, | 
|€m                               | 31,
      2005    |  | 2005                | 
|                                 |                   |  |                     | 
|Foreign
      currency contracts |                   |  |                     | 
|USD
      currency forwards      | 0.0               |  | 66.2                | 
|GBP
      currency forwards      | 0.0               |  | 60.7                | 
|Other
      currency forwards    | 24.0              |  | 3.7                 | 
|Currency
      options           | 115.3             |  | 98.3                | 
|Interest
      rate contracts    |                   |  |                     | 
|Interest
      rate swaps        | 0.0               |  | 127.8               | 
|Interest
      rate options      | 0.0               |  | 0.0                 | 

Currency forward
    contracts and options are primarily used to hedge foreign currency risks that
    arise from fluctuations of receivables and liabilities denominated in foreign
    currencies, from unrecognized firm liabilities and from highly probable forecasted
    transactions. In the SGL Carbon Group, the purpose of hedging transactions
    is to reduce the risks from exchange rate fluctuations that are inherent in
    the Groups foreign currency receivables and liabilities. The underlying
    transactions in the individual foreign currencies are almost entirely hedged
    on the basis of the net position per currency. Maturities are based on the
    maturities of the underlying transactions and range from several days to a
    maximum of 18 months.


Through the end
    of December 2005, hedging positions were build up to secure the U.S. dollar
    earnings risk for fiscal year 2006. A total of U.S.$102 million was hedged
    at rates between USD 1.20/ €1.00 and USD 1.30/€1.00 for 2006.


Cash flow hedges
    were undertaken for fiscal year 2006 to cover highly probable forecasted U.S.
    dollar transactions. The fair value changes on the effective portion of these
    hedges as of December 31, 2005 are recognized directly in equity, after deducting
    deferred taxes, and reported separately in other comprehensive income. As
    of December 31, 2005, the positive fair values of the derivatives recorded
    under other comprehensive income without effect on the income statement amounted
    to €0.5 million (2004: €3.1 million); the negative fair values
    were €-2.5 million (2004: €-0.2 million), with a maturity of 6
    to 12 months. To test the effectiveness, changes of the cash flow of the underlying
    transactions are based on forward rates in the area of forward exchange transactions,
    while in the field of currency options, the fair value component of the fair
    value change of options is excluded from the hedging connection. Effectiveness
    calculations are made at every balance sheet date. Essentially, it is assumed
    that the hedging relationship is effective if the fair value changes to the
    hedging transactions virtually offset the changes to the cash flow of the
    underlying transactions (80 -125%). The fair value of derivatives is the price
    at which one party is willing to assume another partys rights and/or
    obligations. Fair values are measured on the basis of the market information
    available at balance sheet date using standard market valuation methods, as
    follows:


| | • | Currency hedges
      are measured on the basis of reference rates and reflect forward premiums
      and discounts. Currency options are measured using recognized option pricing
      models;  
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | • | Interest rate
      contracts are measured on the basis of discounted expected future cash flows,
      with market rates of interest applied for the remaining maturity of the
      instruments;

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| | • | Interest
      rate options are measured using recognized option pricing models (incl.
      Black- Scholes).
| | - | -------------------------------------------------------------------------------------------------------------

The fair values
    of currency hedges are calculated in the SAP system. The valuation methodology
    was verified by an independent accounting firm, which confirmed its accuracy.
    For the interest rate contracts, the valuation is carried out by an independent
    financial services provider. Derivatives have a credit risk comprised of the
    positive fair values of the derivatives.


The zero cost option
    concluded to hedge the USD liability resulting from the antitrust fine was
    fully released and paid in the third quarter, together with the corresponding
    underlying transaction.


The SGL Carbon Group
    uses interest rate swaps as a hedging instrument to optimize its financing
    costs. In fiscal years 2005 and 2004, the SGL Carbon Group used interest rate
    swaps to convert some of its financial liabilities from a fixed to a floating
    interest rate basis. In fiscal year 2005, over 80 million interest rate swaps,
    the interest rates of which were converted existing debt from fixed to floating
    rates, were announced.


The SGL Carbon Group
    entered into a new 20 million interest rate swap, which converted existing
    liabilities from a fixed to a floating interest rate basis. In addition, the
    SGL Carbon Group entered into a 40 million interest rate swap, which hedges
    the risk of interest rate increases for forecasted transactions. This swap
    is classified as a cash flow hedge and changes fair value are recognized directly
    in equity. Effectiveness calculations are made on every balance sheet date.
    Essentially, it is assumed that the hedging relationship is effective if changes
    in the fair value of the swaps offset the changes of the cash flows of the
    underlying transactions (80 -125%).


Other hedging instruments
    are recognized in accordance with IAS 39.55. At acquisition, hedges are measured
    at acquisition cost. Changes in the fair values of derivatives are booked
    directly to the income statement based on the carrying amount of the underlying
    transaction.


|27. | Segment reporting                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                             
|    | The
      SGL Carbon Group operates in the following Business Areas:                                                                        
|   
|    | •                                                                                                                                           
|    | Graphite
      electrodes and carbon products (electrodes, cathodes, furnace linings)                                                       
|   
|    | •                                                                                                                                           
|    | products for industrial applications, machine components, products for the
      semiconductor industry, composites, and process technology.
|   
|    | and                                                                                                                                         
|    |                                                                                                                                             
|    | •                                                                                                                                           
|    | graphite
      foils, carbon fibers, carbon fiber-based fabrics, composites, structural
      components and carbon-ceramic brake discs.    

External sales revenue
    was attributable almost exclusively to product sales. Trading revenue or other
    sales revenue are insignificant. Intersegment sales revenue is generally based
    on estimated market prices less selling and administrative expenses. Cost-based
    transfer prices may be used in exceptional cases. Other segment sales revenue
    comprise transactions that are largely rendered to the other Business Areas
    and include SGL CARBON AG. Important non-cash expenses concerned in particular
    the depreciation of assets in Italy in the CG Business Area amounting to €10.4
    million and write-down of the carrying amount in the T Business Area amounting
    to €1.2 million. Consolidation adjustments relate to the elimination
    of sales and services between the Business Areas. Certain information on the
    business activities of the SGL Carbon Group is presented below (based on the
    primary reporting format in accordance with IAS 14.50 ff).


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|                                            |       |  |       |  |       |  |       |  |               |  | SGL     | 
|------------------------------------------- | ----- |  | ----- |  | ----- |  | ----- |  | ------------- |  | ------- | 
|                                            |       |  |       |  |       |  |       |  | Consolidation |  | Carbon  | 
|€m                                          | CG    |  | S     |  | T     |  | Other |  | adjustments   |  | Group   | 
|                                            |       |  |       |  |       |  |       |  |               |  |         | 
|2005                                        |       |  |       |  |       |  |       |  |               |  |         | 
|Sales
      revenue                         | 643.7 |  | 263.4 |  | 159.0 |  | 2.7   |  | 0.0           |  | 1,068.8 | 
|Internal
      sales revenue                | 13.3  |  | 3.8   |  | 7.2   |  | 39.2  |  | -63.5         |  | 0.0     | 
|                                            |       |  |       |  |       |  |       |  |               |  |         | 
|Total
      sales revenue                   | 657.0 |  | 267.2 |  | 166.2 |  | 41.9  |  | -63.5         |  | 1,068.8 | 
|Profit/loss
      from operations           | 121.6 |  | 19.8  |  | 0.2   |  | -28.8 |  | 0.0           |  | 112.8   | 
|Capital
      expenditures                  | 26.7  |  | 6.5   |  | 9.4   |  | 2.1   |  | 0.0           |  | 44.7    | 
|Depreciation
      and amortization expense | 38.6  |  | 12.6  |  | 12.4  |  | 1.5   |  | 0.0           |  | 65.1    | 
|Capital
      employed                      | 417.8 |  | 182.1 |  | 198.0 |  | 21.0  |  | 0.0           |  | 818.9   | 
|Segment
      assets                        | 513.8 |  | 227.0 |  | 220.3 |  | 0.0   |  | 0.0           |  | 961.1   | 
|Segment
      liabilities                   | 304.9 |  | 134.3 |  | 43.9  |  | 0.0   |  | 0.0           |  | 483.1   | 
|Income
      from associated companies      | 0.6   |  | 0.0   |  | 0.2   |  | 0.0   |  | 0.0           |  | 0.8     | 
|                                            |       |  |       |  |       |  |       |  |               |  |         | 
|2004
      (restated)                       |       |  |       |  |       |  |       |  |               |  |         | 
|Sales
      revenue                         | 562.5 |  | 246.3 |  | 133.5 |  | 1.7   |  | 0.0           |  | 944.0   | 
|Internal
      sales revenue                | 9.7   |  | 6.9   |  | 2.5   |  | 32.1  |  | -51.2         |  | 0.0     | 
|                                            |       |  |       |  |       |  |       |  |               |  |         | 
|Total
      sales revenue                   | 572.2 |  | 253.2 |  | 136.0 |  | 33.8  |  | -51.2         |  | 944.0   | 
|Profit/loss
      from operations           | 86.4  |  | 13.9  |  | -10.6 |  | -30.7 |  | 0.0           |  | 59.0    | 
|Capital
      expenditures                  | 26.5  |  | 4.2   |  | 8.7   |  | 6.9   |  | 0.0           |  | 46.3    | 
|Depreciation
      and amortization expense | 33.5  |  | 15.2  |  | 13.3  |  | 5.6   |  | 0.0           |  | 67.6    | 
|Capital
      employed                      | 404.6 |  | 179.1 |  | 181.3 |  | 19.5  |  | 0.0           |  | 784.5   | 
|Segment
      assets                        | 520.1 |  | 204.9 |  | 201.1 |  | 0.0   |  | 0.0           |  | 926.1   | 
|Segment
      liabilities                   | 332.5 |  | 130.1 |  | 41.5  |  | 0.0   |  | 0.0           |  | 504.1   | 
|Income
      from associated companies      | -1.0  |  | 0.0   |  | 0.2   |  | 0.0   |  | 0.0           |  | -0.8    | 
|                                            |       |  |       |  |       |  |       |  |               |  |         | 
|2003
      (restated)                       |       |  |       |  |       |  |       |  |               |  |         | 
|Sales
      revenue                         | 564.4 |  | 239.1 |  | 125.2 |  | 2.8   |  | 0.0           |  | 931.5   | 
|Profit/loss
      from operations           | 61.5  |  | 12.2  |  | -14.0 |  | -37.4 |  | 0.0           |  | 22.3    | 
|Capital
      expenditures                  | 22.4  |  | 6.7   |  | 4.9   |  | 9.3   |  | 0.0           |  | 43.3    | 
|Depreciation
      and amortization expense | 36.4  |  | 15.7  |  | 15.9  |  | 0.2   |  | 0.0           |  | 68.2    | 
|Capital
      employed                      | 423.7 |  | 196.4 |  | 179.9 |  | 14.6  |  | 0.0           |  | 814.6   | 
|Segment
      assets                        | 531.1 |  | 224.9 |  | 203.2 |  | 0.0   |  | 0.0           |  | 959.2   | 
|Segment
      liabilities                   | 351.9 |  | 142.8 |  | 32.8  |  | 0.0   |  | 0.0           |  | 527.5   | 
|Income
      from associated companies      | -1.0  |  | 0.0   |  | 0.2   |  | 0.0   |  | 0.0           |  | -0.8    | 
|                                            |       |  |       |  |       |  |       |  |               |  |         | 

|                                             |         |  |                    |  |         |  |       |  |               |  | SGL     | 
|-------------------------------------------- | ------- |  | ------------------ |  | ------- |  | ----- |  | ------------- |  | ------- | 
|                                             |         |  | Europe
      excl. |  | North   |  |       |  | Consolidation |  | Carbon  | 
|€m                                           | Germany |  | Germany            |  | America |  | Other |  | adjustments   |  | Group   | 
|                                             |         |  |                    |  |         |  |       |  |               |  |         | 
|2005                                         |         |  |                    |  |         |  |       |  |               |  |         | 
|Sales
      revenue (by destination)         | 142.7   |  | 380.4              |  | 283.8   |  | 261.9 |  | 0.0           |  | 1,068.8 | 
|Sales
      revenue (by company headquartes) | 358.1   |  | 440.7              |  | 264.6   |  | 5.4   |  | 0.0           |  | 1,068.8 | 
|Segment
      assets                         | 330.6   |  | 328.6              |  | 275.8   |  | 26.1  |  | 0.0           |  | 961.1   | 
|Capital
      expenditures                   | 15.5    |  | 17.6               |  | 11.3    |  | 0.3   |  | 0.0           |  | 44.7    | 
|                                             |         |  |                    |  |         |  |       |  |               |  |         | 
|2004
      (restated)                        |         |  |                    |  |         |  |       |  |               |  |         | 
|Sales
      revenue (by destination)         | 140.0   |  | 320.2              |  | 250.0   |  | 233.8 |  | 0.0           |  | 944.0   | 
|Sales
      revenue (by company headquartes) | 313.9   |  | 390.1              |  | 229.1   |  | 10.9  |  | 0.0           |  | 944.0   | 
|Segment
      assets                         | 296.3   |  | 365.2              |  | 237.3   |  | 27.3  |  | 0.0           |  | 926.1   | 
|Capital
      expenditures                   | 16.9    |  | 18.5               |  | 10.7    |  | 0.2   |  | 0.0           |  | 46.3    | 
|                                             |         |  |                    |  |         |  |       |  |               |  |         | 
|2003
      (restated)                        |         |  |                    |  |         |  |       |  |               |  |         | 
|Sales
      revenue (by destination)         | 137.6   |  | 314.4              |  | 250.7   |  | 228.8 |  | 0.0           |  | 931.5   | 
|Sales
      revenue (by company headquartes) | 311.4   |  | 383.9              |  | 228.0   |  | 8.2   |  | 0.0           |  | 931.5   | 
|Capital
      expenditures                   | 17.5    |  | 16.9               |  | 8.9     |  | 0.0   |  | 0.0           |  | 43.3    | 

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|28. | List
      of shareholdings
|--- | ---------------------------

The list of shareholdings
    has been filed with the commercial register of the Wiesbaden local court (HRB
    9448). It is also available for inspection at the Annual General Meeting of
    SGL CARBON Aktiengesellschaft to be held on April 28, 2006.


|29. | Remuneration
      of the Board of Management and the Supervisory Board of SGL CARBON AG
|--- | ----------------------------------------------------------------------------------------

Remuneration for
    the members of the Board of Management includes both a fixed and a variable
    component. The remuneration of the Board of Management and the number of shares
    held are as follows:


|                      |                   |  |       |  | SGL
      shares |  | Stock
      options |  | thereof   |  | SARs    |  
|--------------------- | ----------------- |  | ----- |  | ---------------- |  | ------------------- |  | --------- |  | ------- | -
|                      | Base
      salary |  | Bonus |  | held             |  | (2000
      - 2004) |  | exercised |  | (2005   | )
|                      | €t                |  | €t    |  | no.              |  | no.                 |  | no.       |  | no.     |  
|                      |                   |  |       |  |                  |  |                     |  |           |  |         |  
|R.
      J. Koehler   | 424               |  | 424   |  | 79,389           |  | 120,000             |  | 20,000    |  | 50,000  |  
|T.
      H. Breyer    | 294               |  | 294   |  | 31,296           |  | 72,000              |  | 0         |  | 30,000  |  
|S.
      Daugaard     | 294               |  | 200   |  | 1,152            |  | 6,000               |  | 0         |  | 30,000  |  
|Dr.
      H. Kottmann | 294               |  | 294   |  | 27,861           |  | 57,000              |  | 0         |  | 30,000  |  
|                      |                   |  |       |  |                  |  |                     |  |           |  |         |  
|Total                 | 1,306             |  | 1,212 |  | 139,698          |  | 255,000             |  |           |  | 140,000 |  
|                      |                   |  |       |  |                  |  |                     |  |           |  |         |  

For fiscal year
    2005, the expensed remuneration of the Board of Management amount to a total
    of €3,172 thousand including payments in kind and bonuses, which are
    to be paid in 2006.


In addition, the
    members of the Board of Management also receive a variable compensation component
    in the form of management incentive plans (see also Note 30). The Board of
    Managements stock options include option rights from the Stock Option
    Plan, granted from 2000 to 2004 and not yet expired. In addition, stock appreciation
    rights (SARs) were granted in 2005. Beginning in fiscal year 2005, stock options
    granted since fiscal year 2003 must be expensed in accordance with IFRS 2.
    The corresponding valuation of the stock options is based on a binominal model
    or a Monte Carlo simulation using SGL Carbon-specific measurement parameters.
    The members of the Board of Management were granted a total of 68,000 options
    in an aggregate value of €418 thousand in 2004 (€6.15 per option)
    and in 2005 a total of 140,000 SARs in an aggregate value of €616 thousand
    (€4.40 per SAR). The actual values of these stock options and SARs upon
    exercise will likely differ from the estimated values at issuance and may
    be either higher or lower.


The settlement of
    the Matching Shares Plan of 2003 resulted in the granting of 12,648 SGL matching
    shares and in a payment to the members of the Board of Management of €60
    thousand in 2005. Total expense for the active members of the Board of Management
    under the Matching Shares Plan was €212 thousand in 2005, and for the
    LTCI Plans, lasting over several years the expense was €1,256 thousand.
    The active members of the Board of Management hold shares in SGL CARBON AG
    as private assets and at December 31, 2005 these amounted to a total of 119,110
    shares and 61,764 ADRs, equivalent to a total of 139,698 shares.


The total remuneration
    of former members of the Board of Management and executive management and
    their surviving dependents amounts to €0.4 million. Provisions of €3.4
    million have been recognized to cover pension obligations to former members
    of executive management and their surviving dependents.


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The total remuneration
    of the Supervisory Board totaled €339 thousand. The following amounts
    were paid in 2005:


|                                             | Base         |  | Additional   |  |       | 
|-------------------------------------------- | ------------ |  | ------------ |  | ----- | 
|€t                                           | remuneration |  | remuneration |  | Total | 
|                                             |              |  |              |  |       | 
|Max
      Dietrich Kley                      | 40.0         |  | 12.6         |  | 52.6  | 
|Chairman                                     |              |  |              |  |       | 
|Heinz
      Schroth                          | 9.6          |  | 4.2          |  | 13.8  | 
|Deputy
      Chairman (until April 27, 2005) |              |  |              |  |       | 
|Josef
      Scherer                          | 26.8         |  | 10.6         |  | 37.4  | 
|Deputy Chairman (since April 28, 2005)       |              |  |              |  |       | 
|Prof.
      Dr.rer.nat. Utz-Hellmuth Felcht  | 20.0         |  | 6.6          |  | 26.6  | 
|Peter
      Fischer                          | 20.0         |  | 0.6          |  | 20.6  | 
|Dr.-Ing.
      Claus Hendricks               | 20.0         |  | 6.6          |  | 26.6  | 
|Ju ̈rgen
      Kerner                         | 20.0         |  | 2.5          |  | 22.5  | 
|Dr.-Ing.
      Hubert Lienhard               | 20.0         |  | 6.6          |  | 26.6  | 
|Jacques
      Loppion                        | 20.0         |  | 2.6          |  | 22.6  | 
|Edelbert
      Schilling                     | 20.0         |  | 2.6          |  | 22.6  | 
|Andrew
      H. Simon                        | 20.0         |  | 6.6          |  | 26.6  | 
|Heinz
      Will (since April 28, 2005)      | 13.6         |  | 0.3          |  | 13.9  | 
|Hans-Werner
      Zorn                       | 20.0         |  | 6.6          |  | 26.6  | 
|                                             |              |  |              |  |       | 
|Total                                        | 270.0        |  | 69.0         |  | 339.0 | 
|                                             |              |  |              |  |       | 

Additional remuneration
    results from attendance compensation as well as compensation for committee
    activity.


|30. | Management
      and employee stock option programs
|--- | ---------------------------------------------------

SGL currently has
    five different management and employee incentive plans. The Long-Term Incentive
    Plan, which was approved in 1996, originally comprised the Stock Appreciation
    Rights Plan (“SAR Plan 1996”) and the Long-Term Cash Incentive
    Plan (“LTCI Plan”). Whereas the exercise period of the SAR Plan
    runs through 2006, the term to maturity of the LTCI Plan was limited to three
    years and has already expired on December 31, 1998. The current Long Term
    Cash Incentive Plan is valid for the period from 2005 through 2007 (the LTCI
    Plan 2005-2007) and replaced the expired LTCI Plan 2002-2004 at the end of
    2004. Furthermore, on April 27, 2000, the Companys Annual General Meeting
    approved the introduction of a Share Plan or Matching Shares Plan (“Share
    Plan”) as well as a Stock Option Plan (“Stock Option Plan”).
    The Share Plan was launched in March 2001. The Stock Option Plan, which was
    implemented in July 2000, superseded the SAR Plan 1996, whose eligibility
    period ended in 2001, and has a maturity of five years. As a successor plan
    for the Stock Option Plan that expired at the end of 2004, the Annual General
    Meeting of April 30, 2004, approved the introduction of a Stock Appreciation
    Rights Plan (“SAR Plan 2005”) for Board of Management and the
    top three management levels. The plan provides for the issue of SARs beginning
    on January 1, 2005 over a period of five years, whose increase in value provides
    their holders with the right to subscribe to shares of SGL.


Stock Appreciation
  Rights Plan 1996 (SAR Plan)

Under the SAR Plan,
    the members of the Board of Management and certain members of senior management
    of the SGL Group have been granted stock appreciation rights (“SARs”).
    Each SAR represents (i) with respect to members of the Board of Management,
    the right to receive an amount equal to the difference, on the one hand, between
    the average SGLs middle share price officially quoted on the Frankfurt
    Stock Exchange on March 16 of the year in which the option is exercised, and
    on the other hand, the respective exercise price, which, prior to adjustment
    for dilution, ranges from €33.03 to €102.26; and (ii) with regard
    to employees of the SGL Group, the right to purchase one share at the respective
    exercise price.


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One SAR is associated
    with one share. A total of 840,500 shares are linked to the SAR Plan, representing
    approximately 3.79 % of all shares outstanding at the time. Until December
    21, 2004, SARs representing a total of 746,800 shares had been granted to
    members of the Board of Management and to 60 members of senior management.
    Of these SARs, 637,350 had been exercised as of December 31, 2005.


Under the SAR Plan,
    an option representing a specific number of SARs (a “SAR Option”),
    as determined by the Board of Management, or, if the beneficiary was a member
    of the Board of Management, by the Supervisory Board, was granted to each
    beneficiary at the beginning of the SAR acquisition period (January 1, 1996-
    January 1, 2000). The SARs allotted via this SAR Option during the eligibility
    period (January 1, 1997- January 1, 2001) are vested on January 1 for the
    preceding fiscal year in five equal annual tranches of 20% each. Each vested
    SAR may be exercised during the period March 1 to March 15 each year, on March
    15, 2006, at the latest or upon termination of service (as described below).
    Board of Management members exercising SAR Options must utilize a portion
    of the net proceeds corresponding to 15% of the gross proceeds to purchase
    shares of the Company in the stock market. For this purpose, the Company instructs
    a financial institution to acquire the shares for the account and in the name
    of the member of the Board of Management. SGL or the relevant subsidiary provides
    the financial means to effect the purchase directly to the bank and deduct
    the amounts from the funds due to the beneficiary from exercising the SAR.
    The bank retains these shares in safekeeping on behalf of the member of the
    Board of Management for the successive twelve months. The remaining net proceeds
    are paid out to the member of the Board of Management.


All the shares earned
    by an employee of the SGL Group upon exercise of the SARs must immediately
    be resold. An exception is made for the number of shares that can be purchased
    with 15% of the gross proceeds from the sale of all the shares. Such retained
    shares may not be sold and are blocked for a period of twelve months. As the
    exercise price of these SARs from 1996 is considerably higher than the current
    share price, the fair value of these options is zero euros.


Long-Term Cash
  Incentive Plan (LTCI)

LTCI Plan 2002 
  2004

Under the LTCI Plan
    2002-2004, over a three-year period SGL granted the members of the Board of
    Management and 36 members of senior management a cash bonus payment that is
    linked to certain performance targets. The current planning period runs from
    2002 through 2004. Bonuses totaling a maximum of €7.8 million may be
    paid out. The performance target that the SGL Group must reach in order for
    participating members of senior management and Board of Management members
    to qualify for the maximum bonus under the LTCI Plan was set at a ratio of
    net debt to EBITDA of 2.3 to 1.


The minimum requirement
    for a bonus payment is a ratio of 3.6 to 1. Beneficiaries of the LTCI Plan
    2002-2004 must use a portion of the net proceeds of the LTCI premiums corresponding
    to 15% of the gross proceeds to buy shares of SGL on the stock market. For
    this purpose, the Company instructs a financial institution to acquire the
    shares for the account and in the name of the respective beneficiary and transfers
    the funds out of withheld bonus payments directly to the bank for the purchase
    of the shares. These shares are subsequently held by the financial institution
    in safekeeping on behalf of the beneficiary for the successive twelve months.
    The remaining proceeds were payable on April 30, 2005.


The Supervisory
    Board meeting of December 5, 2003, specified that when calculating the performance
    target, any implemented capital increase is to be neutralized. The meeting
    of the Board of Management of December 22, 2003, approved the same measure
    for senior management. The performance target had been achieved to 45.7 %
    at the end of the three-year planned term. Therefore, a total of €3.4
    million was paid in LTCI bonuses to members of the Board of Management and
    members of senior management. In accordance with the conditions of the plan,
    the active participants in the plan have reinvested 15% of the gross proceeds
    in a total of 42,700 SGL shares, which are blocked until March 31, 2006.


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LTCI Plan 2005 
  2007

Under the LTCI Plan
    2005-2007, over a three-year period SGL can grant the members of the Board
    of Management and 40 members of senior management a cash bonus payment that
    is linked to certain performance targets. The current planning period runs
    from 2005 through 2007. Bonuses totaling a maximum of €7.4 million may
    be paid out. The performance target that the SGL Group must reach in order
    for participating members of senior management and Board of Management members
    to qualify for the maximum bonus under the LCTI Plan was set at a ratio of
    net debt to EBITDA of 3.4 to 1 as per December 31, 2005, 2.7 to 1 as per December
    31, 2006 and 2.3 to 1 as per December 31, 2007. The Plan also stipulates that
    20% of the maximum bonus can be paid if the performance target is reached
    by December 31, 2005, 30% if the performance target is reached by December
    31, 2006 and 50% if the performance target is reached by December 31, 2007.


Beneficiaries of
    the LTCI Plan 2005-2007 must use a portion of the net proceeds of the LTCI
    premiums corresponding to 15% of the gross proceeds to buy shares of SGL on
    the stock market. For this purpose, the Company instructs a financial institution
    to acquire the shares for the account and in the name of the respective beneficiary
    and transfers the funds out of withheld bonus payments directly to the bank
    for the purchase of the shares. These shares are subsequently held by the
    financial institution in safekeeping on behalf of the beneficiary for the
    successive 12 months. The remaining proceeds are payable on April 30, 2008.


As per December
    31, 2005, the performance target of 3.4 to 1 of net debt to EBITDA was achieved.
    The participants in the Plan have thus already acquired a claim to 20% of
    the maximum bonus. A total of €2.6 million has been reserved for these
    bonus accrual that have already been earned as well as further possible bonus
    payments to members of the Board of Management and members of senior management.


Matching Share
  Plan

In March 2001, SGL
    launched the Matching Shares Plan for the members of the Board of Management
    as well as the first three management levels below the Board of Management.
    Under the plan, participants may invest up to 50% of their annual bonuses
    in shares of the Company. If they hold these shares for at least two years,
    they receive the same number of shares (matching shares) against payment of
    a special bonus in a corresponding amount.


The Companys
    Share Plan was adopted by SGLs shareholders at the Annual General Meeting
    of April 27, 2000, and went into effect on March 31, 2001. Originally, a maximum
    of 250,000 new shares was reserved out of authorized capital for implementation
    of the Matching Shares Plan. At the end of March 2005, 36,025 new shares were
    granted from authorized capital out of the capital increase to those members
    of senior management and executive staff participating in the Share Plan during
    2003; a total of 12,648 outstanding shares, acquired on the stock market,
    were granted to members of the Board of Management. The value of the matching
    shares amounted to €9.96 per share on the reporting date of March 29,
    2005, which was regarded as compensation on which the individual plan participants
    paid taxes. The net amount corresponding to the number of matching shares
    was transferred to the individual securities accounts of the participants.
    Participants could subsequently freely dispose of these net matching shares
    as well as shares invested from 2003, whose two-year lock-up period expired
    on March 31, 2005.


Following the refinancing
    package of the SGL Carbon Group, which was implemented in 2004, and corresponding
    adjustment of authorized capital by the ordinary Annual General Meeting on
    April 30, 2004, a total of 350,000 new shares were available to service future
    share plans. In 2005, a total of 36,025 shares were used to process the Matching
    Shares Plan 2003.


During the fiscal
    year, members of the Board of Management and 74 members of senior management
    took part in the Matching Shares Plan 2005-2007, acquiring a total of 113,343
    SGL shares from their taxed income at a price of €10.10 per share on
    the stock market.


Stock Option
  Plan

SGLs shareholders
    approved the Stock Option Plan at the Annual General Meeting of April 27,
    2000. A maximum of 1,600,000 shares may be reserved from contingent capital
    to service the


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Stock Option Plan.
  The options may be issued until the end of 2004. The Stock Option Plan went
  into effect in July 2000.

The Supervisory
    Board administers the plan for the members of the Companys Board of
    Management. Under the Stock Option Plan, the Supervisory Board is authorized
    to grant options on shares to members of the Board of Management. The Board
    of Management administers the Stock Option Plan for approximately 150 members
    of senior management as well as the executive staff of the Company and its
    subsidiaries. The Stock Option Plan thereby authorizes the Board of Management
    to determine on its own the members of senior management of the Company as
    well as members of the management and senior management of its subsidiaries
    that should be granted options. In both cases, upon exercise of the options
    the Supervisory Board or the Board of Management make available and transfer
    new shares out of contingent capital, which is created for that purpose.


The stock options
    are distributed as follows:


| | • | Members of the
      Board of Management: up to 30%;                  
| | - | ----------------------------------------------------------------------
| |   |                                                                       
| | • | Members of the
      Companys executive staff: up to 20%;            
| |   |                                                                       
| | • | Members of management
      of subsidiaries: up to 20%; and           
| |   |                                                                       
| | • | Other members
      of the executive staff of subsidiaries: up to 30%.

If any one of the
    groups mentioned above is granted less than the maximum number of options,
    the remaining options may be distributed to the beneficiaries of the next
    or previous group - even over and above the maximum number of options granted
    to that group - in order to ensure that the total volume of options is used.
    The Board of Management - or if members of the Board of Management are affected,
    the Supervisory Board - determine how any remaining options are to be granted.
    Nevertheless, no more than 30% of the available options may be granted to
    Board of Management members.


The options have
    a term to maturity of ten years from their date of grant; they expire without
    compensation if they are not exercised during this period. The options may
    only be exercised after expiration of a two-year waiting period. This period
    begins the day after an option is granted, thereby resulting in an exercise
    period of eight years. During the exercise period, options may only be exercised
    on trading days during predetermined days when trading windows are open. Following
    publication of the Companys operating results, two trading windows of
    ten days each are made available for each options tranche, during which time
    options may be exercised. The times these trading windows are open is determined
    by the Supervisory Board if the members of the Board of Management are granted
    options, and by the Board of Management if options are granted to the remaining
    participants. Options may be exercised only if the SGL Group has met its performance
    targets at the time the options are exercised. The performance target is the
    increase in the total shareholder return of the SGL share. The Stock Option
    Plan defines this as the sum of the share price plus retained dividends plus
    the value of the options. For options to be eligible for exercising, total
    shareholder return must be at least 15% higher than the exercise price.


Calculation of the
    exercise price to be paid by beneficiaries under the Stock Option Plan is
    based on the average closing price of the shares in the XETRA securities trading
    system of the Frankfurt Stock Exchange for the last 20 trading days before
    the relevant options are granted, excluding transaction costs.


The options are
    subject to certain terms and conditions of sale. Thus, for an additional twelve
    months, beneficiaries must retain Companys shares in a minimum value
    of 15% of the gross proceeds (amounting to the difference between the subscription
    price and the exercise price of all options exercised by the participants)
    generated by the sale of the subscribed shares.


The conditions of
    the Stock Option Plan provide protection against dilution. Accordingly, the
    exercise price of the options is reduced if prior to maturity of the options
    the share capital of SGL Carbon AG, through the issue of new shares with the
    granting of a subscription right to the shareholders, is increased by an amount
    that is calculated based on the average price on the Frankfurt Stock Exchange
    on all trading days of the subscription right to which shareholders are


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entitled. The average
  price of the subscription rights to new shares during the subscription period
  for the capital increase approved by the extraordinary General Meeting on January
  15, 2004, was €4.74.

The number of options
    granted and their respective exercise price before dilution-related adjustments
    are therefore as follows:


| | • | as of July 3,
      2000, 234,500 options were granted to members of the Board of Management
      and 151 members of senior management at a subscription price of €72.45,
      after adjustment for dilution the exercise price is now €67.71;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | • | as of January
      16, 2001, 257,000 options were granted to members of the Board of Management
      and 155 members of senior management at a subscription price of €57.82,
      now €53.08;                                                
|
| | • | as of January
      16, 2002, 261,000 options were granted to members of the Board of Management
      and 170 members of senior management at a subscription price of €25.00,
      now €20.26;                                                
|
| | • | as of August
      12, 2002, 247,000 options were granted to members of the Board of Management
      and 154 members of senior management at a subscription price of €17.65,
      now €12.91;                                                 
|
| | • | as of January
      16, 2003, 258,500 options were granted to members of the Board of Management
      and 168 members of senior management at a subscription price of €8.35,
      now €3.61, and                                              
|
| | • | as of January
      16, 2004, 254,000 options were granted to members of the Board of Management
      and 161 members of senior management at a subscription price of €13.43,
      now €8.69.                                                 

Overall, a total
    of 1,512,000 options were granted within the framework of the stock option
    plan, of which 289,500 options expired without compensation as a result of
    the termination of the employment relationship of plan participants due to
    employee turnover. Options that had been granted in 2003 were exercised for
    the first time in 2005. As a result, the participants exercised a total of
    128,500 options from 2003 during the exercise window defined in accordance
    with the plan conditions at a subscription price of €3.61. This means
    that a total of 1,094,000 options are still available for exercise.


Stock Appreciation
  Rights Plan 2005 (SAR Plan 2005)

The SGL shareholders
    approved the SAR Plan 2005 at the ordinary Annual General Meeting of April
    30, 2004. This plan provides for the granting of stock appreciation rights
    (SARs), whose appreciation of value entitles those entitled to participate
    to subscribe to the Companys shares. A maximum of up to 1,600,000 new
    shares from contingent capital against contribution in kind has been provided
    to service the SAR Plan 2005. The SARs may be issued through the end of 2009.
    The SAR Plan 2005 went into effect on January 1, 2005.


The Supervisory
    Board administers the plan for the members of the Companys Board of
    Management. In accordance with the SAR Plan, the Supervisory Board is authorized
    to grant SARs to the members of the Board of Management. The Board of Management
    administers the SAR Plan for approximately 150 members of senior management,
    the executive staff of the Company and of members of its consolidated subsidiaries
    and is authorized to grant these SARs.


Of the total of
    1,600,000 subscription rights that can be granted to those entitled to be
    issued SARs, a maximum of 30% may be to members of the Board of Management
    of SGL CARBON Aktiengesellschaft, with a maximum of 20% to those participating
    in the SAR Plan who are members of the senior management of affiliated companies.
    Other members of senior management of SGL CARBON Aktiengesellschaft and of
    affiliated companies participating in the SAR Plan have access to the remaining
    50% of the subscription rights. To the extent that the subscription rights
    of the members of the Board of Management of the Company or of the senior
    management of the affiliated company who participate in the SAR Plan do not
    fully use up the above-mentioned shares, these subscription rights may be
    granted to the other members of senior management of the Group. Those entitled
    to participate who belong to more than one of the above-mentioned groups may
    only receive


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subscription rights
  as a member of one of the groups and from the share of the subscription rights
  that is provided for that particular group.

Those entitled to
    SARs may participate in a rise in the price of SGL shares during the period
    between the granting of the SARs and their exercise. A SAR entitles the participant
    to require from the company the grant of a variable remuneration amounting
    to the difference (“appreciation of value”) between the price
    of the SGL shares at the time the SAR is granted (“strike price”)
    and at the time the SAR is exercised (“exercise price”) plus dividends
    paid during this period by the Company and the value of subscription rights,
    and to subscribe to the number of SGL shares at the exercise price whose market
    price corresponds to the appreciation of value. One SAR grants those entitled
    to participate the right to subscribe to a fraction of a new SGL share that
    results from dividing the appreciation of value by the exercise price - however,
    to a maximum of one SGL share.


The strike price
    is calculated based on the average closing prices of SGL shares for the last
    20 stock market trading days in the XETRA trading system (or in a successor
    system) before the day on which the SAR is granted. The exercise price is
    calculated in the same manner as the strike price, however with reference
    to the last 20 stock market trading days before the day the SAR is exercised
    rather than to the last 20 stock market trading days before the day the SAR
    is granted.


The SAR has a maturity
    of up to ten years, beginning at the grant date. The SAR expires without compensation
    if it is not exercised during its term.


The granting of
    the SAR to those entitled to participate may only occur within defined annual
    periods  the so-called “reference windows”. A reference
    window may be a period of up to ten stock market trading days following, respectively,
    the fiscal year-end or the disclosure of the SGL CARBON Aktiengesellschaft
    for its first, second or third quarter results.


A SAR that has been
    granted may be exercised at the earliest after expiration of a waiting period
    of two years after the SAR is granted (“waiting period”) and only
    during defined periods (“exercise window”). Exercise windows are
    open for a period of up to ten stock market trading days, beginning on the
    day following the Companys disclosure of its financial results for the
    first, second and the third quarters.


Furthermore, a SAR
    may only be exercised if after the expiry of the waiting period at the beginning
    of the exercise window the targets set out in the SAR conditions have been
    met. For 75% of the SARs granted to each of those entitled to participate,
    the target is the increase in total shareholder return (“TSR”)
    of a SGL share (“absolute performance target”). Only a relative
    target is applicable for the remaining 25% of the SARs. This portion of the
    SAR may only be exercised if the development of the SGL share corresponds
    at least to the development of the MDAX.


The TSR is defined
    as the absolute rise of the SGL share price between the time the SAR is granted
    and the time it is exercised plus the dividends paid by the Company during
    this period and the value of the subscription rights. The target is met if
    the TSR has reached at least 15% of the striking price.


The relative performance
    target is defined as the relative rise of the SGL share price between the
    period when the SAR is granted and is exercised plus dividends paid by the
    Company during this period and the value of subscription rights compared with
    the development of the benchmark index during the same period. The benchmark
    index is the MDax of the German Stock Exchange (Deutsche Bo ̈ rse), or
    a substitute index representing mid-cap values. For the target to be met,
    the development of the relative rise of the SGL share price must be at least
    equivalent to the benchmark index.


If one of the two
    performance targets in an exercise window is not met, only those SARs may
    be exercised whose target is met; the SARs whose target is not met during
    the exercise window, may be exercised during a later exercise window of the
    exercise period if the target is then met. Finally, in exercising their SARs-related
    shares, those entitled to participate must hold at least the number of shares
    of SGL CARBON Aktiengesellschaft for an additional twelve months, corresponding
    in value to 15% of gross proceeds.


In 2005, a total
    of 605,500 SARs were granted to members of the Board of Management and to
    members of senior management at a striking price of €9.74. The issue
    date was January 14, 2005.


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The stock option
    programs developed as follows:


|                                            |                      |  |                     |  |                      |  | Stock
      options
|------------------------------------------- | -------------------- |  | ------------------- |  | -------------------- |  | -------------------
|Number
      of shares/options              | SAR
      1996       |  | SAR
      2005      |  | Share
      plan     |  | plan               
|                                            |                      |  |                     |  |                      |  |                    
|Balance
      at Jan. 1, 2005               | 143,850              |  | 0                   |  | 58,811               |  | 1,326,000          
|Additions                                   | 0                    |  | 605,500             |  | 113,343              |  | 0                  
|Expired/returned                            | -34,400              |  | 0                   |  | -2,356               |  | -103,500           
|Exercised                                   | 0                    |  | 0                   |  | -56,455              |  | -128,500           
|                                            |                      |  |                     |  |                      |  |                    
|Balance
      at Dec. 31, 2005              | 109,450              |  | 605,500             |  | 113,343              |  | 1,094,000          
|                                            |                      |  |                     |  |                      |  |                    
|Average
      exercise price in €           | 45.79                |  | 9.74                |  |                     |  | 26.97              
|Expiration
      dates                      | March
      15, 2006 |  | Dec.
      31, 2015 |  | March
      15, 2007 |  | 2010
      - 2014  
|Intrinsic
      value at Dec. 31, 2005 (€m) | 0.0                  |  | 2.5                 |  | 1.6                  |  | 2.3                

The SAR Plan as
    well as the Stock Option Plan from 2000 through 2002 are “out of the
    money”. The fair value is thus zero, since the exercise price exceeds
    the actual market price. The Stock Option Plans from 2003 and 2004 with an
    exercise price of €3.61 and €8.69 respectively are “in the
    money” at year end 2005, and with a share price of €13.95 have
    an intrinsic value, respectively, of €10.34 and €5.26 as of December
    31, 2005. This corresponds to a total value of €2.3 million. In 2005,
    a total of 128,500 options were exercised from the 2003 Stock Option Plan.
    This took place in three trading windows in 2005, in which the average share
    price was €9.42, €11.37 and €13.95. Of these instruments,
    only 106,500 stock options were exerciseable at year-end 2005 from the 2003
    tranche at a price of €3.61.


The weighted average
    remaining maturity of SAR 2005 is 10 years, of the Matching Share Plan 1.2
    years and of the Stock Option Plan 6.25 years. The weighted average exercise
    price for the Stock Option Plan at December 31, 2004 was €25.14.


The shares issued
    under the Share Plan were expensed in the consolidated financial statements.
    As equity instruments, all newly granted instruments since November 7, 2002,
    comprising the Stock Option Plans 2003 and 2004 and the SAR 2005, are to be
    accounted for under IFRS 2. During fiscal 2005, the SAR 2005 and the Stock
    Option Plan resulted in total expense of €2.0 million. These instruments
    were valued by an independent financial services provider on the day the plans
    were granted based on a binominal model (Stock Option Plan) and a Monte Carlo
    simulation (SAR 2005). SGL-specific measurement parameters and a special exercise
    behaviour of such employee options are assumed. Various parameters are included
    in the valuation and impact the value of the options, such as anticipated
    future dividends, which were calculated at €0.07 for 2006 and increasing
    thereafter up to €0.15 in 2014. The assumed interest rates amount to
    4.13% for the Stock Option Plan and 3.56 % for SAR 2005. To determine the
    volatilities, the period from June 1, 1995 to December 1, 2004 was used. In
    view of the antitrust proceedings initiated and the fines announced in the
    period from 1998 to 2002, the volatilities were adjusted by the price fluctuations
    occurring in the period. For the Stock Option Plan, a volatility of 41.69
    % was calculated, while for SAR 2005 the volatility was 41.74% .


|31. | Exemption
      in accordance with Article 264 Paragraph 3 of the German Commercial Code
|--- | ----------------------------------------------------------------------------------------

The following companies,
    which are included in the consolidated financial statements of SGL Carbon
    AG, made use of the provision in Article 264 Paragraph 3 of the German Commercial
    Code:


| | • | SGL CARBON GmbH,
      Meitingen, Germany                    
| | - | -------------------------------------------------------------
| |   |                                                              
| | • | SGL CARBON Beteiligung
      GmbH, Wiesbaden, Germany        
| |   |                                                              
| | • | SGL CARBON Holding
      GmbH, Wiesbaden, Germany            
| |   |                                                              
| | • | SGL TECHNOLOGIES
      GmbH, Meitingen, Germany              
| |   |                                                              
| | • | SGL BRAKES GmbH,
      Meitingen, Germany                    
| |   |                                                              
| | • | SGL INFORMATION-SERVICES
      i. L. GmbH, Augsburg, Germany.

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|32. | Declaration
      of Compliance with the German Corporate Governance Code (Article 285 No.
      16 of the German Commercial Code)
|--- | ----------------------------------------------------------------------------------------------------------------------------------

The Board of Management
    and the Supervisory Board declare that the Company is in compliance with the
    recommendations of the “Government Commission on the German Corporate
    Governance Code” (“Regierungskommission Deutscher Corporate Governance
    Kodex”) (publication as of July 20, 2005) as published by the Federal
    Ministry of Justice in the section of official notices of the electronic Federal
    Gazette. The Board of Management and the Supervisory Board further declare
    that the Company had been in compliance with the recommendations of the Government
    Commission on the German Corporate Governance Code since the delivery of the
    last statement. The following exceptions thereto apply:


| | • | Code section
      2.3.4.:                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | Viewing the
      annual meeting of shareholders via the Internet is currently unsupportable
      for cost reasons.                                                                                                                                                                                                                                                                                                                                                                                
|
| | • | Code section
      3.8. (2):                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |   | The liability
      insurance taken out by the Company for the Board of Management and Supervisory
      Board (D&O Insurance) does not contain any deductible. We are generally
      of the view that the agreement of a deductible does not serve to enhance
      responsible action on the part of the Board of Management and the Supervisory
      Board. Moreover, a deductible is not customary in foreign countries, nor
      is it customary for many German companies.                 
|
| | • | Code section
      5.4.3. 1st sentence:                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |   | In our view,
      the election by list (Listenwahl) to the Supervisory Board generally better
      serves the overall responsibilities of the Supervisory Board. The annual
      meeting of shareholders can resolve the election of individual candidates
      (Einzelwahl) at any time and immediately carry out this form of election
      upon a majority vote.                                                                                                                            
|
| | • | Code section
      5.4.3 3rd sentence:                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |   | According to
      the applicable law, the members of the Supervisory Board, and not the shareholders,
      elect the chairman of the Supervisory Board among themselves in a free vote.
      We are of the opinion that the members of the Supervisory Board must remain
      free in making their decision and may therefore not be exposed to the possibly
      improper influence of third parties. This consideration could be undermined
      by a public announcement of the candidates.
|
| | • | Code section
      5.4.7. (2):                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |   | The articles
      of incorporation of SGL CARBON AG provide for fixed remuneration for Supervisory
      Board members and additional remuneration for their work in committees.
      We are of the view that this rule is appropriate to our company and that
      it should thus be maintained for the foreseeable future.                                                                                                                                                                     

The Corporate Governance
    Principles of SGL CARBON AG furthermore satisfy with virtually no exception
    the non-obligatory suggestions of the Corporate Governance Code.


|33. | Events
      occurring after the balance sheet date
|--- | ---------------------------------------------------

On February 9,
    2006, we announced the creation of SSG Ningbo Co., Ltd., a joint venture with
    Sinyuan Industrial Material Co. Ltd., in Ningbo (China) with regard to expanded
    graphite.


| | Wiesbaden, February
      28, 2006
| | ----------------------------------
| |                                   
| | SGL CARBON AG                     
| | The Board of
      Management     
| |                                   




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|34. | Significant
      Differences between International Financial Reporting Standards (“IFRS)
      and United States Generally Accepted Accounting Principles (U.S. GAAP)
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

Since 2001 the
    SGL Carbon Group prepares its consolidated financial statements in accordance
    with IFRS. International Financial Reporting Standards (IFRS) differ in certain
    significant respects from U.S. GAAP. The significant differences that affect
    the consolidated net income (loss) and shareholders equity of the SGL
    CARBON Group are set out below.


Because of the
    restatement of prior period resulting from a change in the scope of consolidation
    and the restropective application of IFRS, the U.S. GAAP reconciliation had
    to be adjusted accordingly. For details please see Note 3, Note 34 e) and
    Note 35 l). All amounts presented for comparative purposes
  in prior periods under IFRS have been restated due to the change in consolidation
  and restrospective application of IFRS 2 in accordance with its transition provisions.


Reconciliation
  to U.S. GAAP

The following is
    a summary of the significant adjustments to net income (loss) and shareholders
    equity which would be required if U.S. GAAP had been applied instead of IFRS.
    The translation of Euros into U.S. dollars has been made solely for the convenience
    of the reader at the noon buying rate of the European Central Bank on December
    31, 2005, which was U.S. $1,1797 = €1.00. No representation is made
    that such amounts in Euros could have been or could be converted into U.S.
    dollars at that or any other exchange rate on such date or any other dates:


|All
      amounts in million except per share data                                             | Note |      | 2005  |      | 2005  |   | 2004(restated) |   | 2003(restated) |  
|---------------------------------------------------------------------------------------------- | ---- | ---- | ----- | ---- | ----- | - | -------------- | - | -------------- | -
|                                                                                               |      |      |       |      |      
|                                                                                               |      | US-$ | Euro  | Euro | Euro 
|                                                                                               |      |      |       |      |       |   |                |   |                |  
|Net
      income (loss) per IFRS as reported in the consolidated statement
      of operations |      |      | 33.3  |      | 28.2  |   | (86.4          | ) | (56.5          | )
|Adjustments
      to conform with U.S.-GAAP:                                                   |      |      |       |      |       |   |                |   |                |  
|Business acquisition and goodwill                                                              | (a)  |      | 0.0   |      | 0.0   |   | 0.0            |   | 3.4            |  
|Internal use software / Development cost / Tangible assets                                     | (b)  |      | 3.7   |      | 3.2   |   | (1.5           | ) | (3.6           | )
|Inventory / Pre-production                                                                     |      |      |       |      |       |   |                |   |                |  
|development cost                                                                               | (c)  |      | (0.8  | )    | (0.7  | ) | 0.0            |   | (0.4           | )
|Pension provision                                                                              | (d)  |      | 0.4   |      | 0.3   |   | 0.9            |   | 1.3            |  
|Incentive plans                                                                                | (e)  |      | 0.0   |      | 0.0   |   | 1.3            |   | 0.7            |  
|Restructuring / Early retirement                                                               | (f)  |      | 0.8   |      | 0.7   |   | (1.2           | ) | 1.7            |  
|Revenue recognition                                                                            | (g)  |      | (10.5 | )    | (8.9  | ) | 0.0            |   | 0.0            |  
|Deferred Taxes  IFRS to U.S.-GAAP reconciliation                                              | (h)  |      | 0.0   |      | 0.0   |   | (1.0           | ) | 1.0            |  
|                                                                                               |      |      |       |      |       |   |                |   |                |  
|Net
      income (loss) in accordance with U.S.-GAAP                                           |      |      | 26.9  |      | 22.8  |   | (87.9          | ) | (52.4          | )
|Basic
      earnings per share in accordance                                                   |      |      |       |      |       |   |                |   |                |  
|with U.S.-GAAP                                                                                 |      |      | 0.47  |      | 0.40  |   | (1.68          | ) | (2.36          | )
|Diluted
      earnings per share in accordance                                                 |      |      |       |      |       |   |                |   |                |  
|with U.S.-GAAP                                                                                 |      |      | 0.47  |      | 0.40  |   | (1.68          | ) | (2.36          | )
|                                                                                               |      |      |       |      |       |   |                |   |                |  
|Shareholders
      equity per IFRS as reported in the consolidated balance sheet               |      |      | 380.0 |      | 322.1 |   | 267.3          |   | 104.4          |  
|Adjustments
      to conform with U.S.-GAAP:                                                   |      |      |       |      |       |   |                |   |                |  
|Business acquisition and goodwill                                                              | (a)  |      | 59.1  |      | 50.1  |   | 44.5           |   | 47.7           |  
|Internal use software / Development                                                            |      |      |       |      |       |   |                |   |                |  
|cost / Tangible assets                                                                         | (b)  |      | (1.3  | )    | (1.1  | ) | (4.2           | ) | (2.8           | )
|Inventory / Pre-production                                                                     |      |      |       |      |       |   |                |   |                |  
|development cost                                                                               | (c)  |      | (1.3  | )    | (1.1  | ) | (0.3           | ) | (0.3           | )
|Pension provision                                                                              | (d)  |      | (75.2 | )    | (63.7 | ) | (33.0          | ) | (26.1          | )
|Incentive plans                                                                                | (e)  |      | 0.0   |      | 0.0   |   | (2.2           | ) | (3.3           | )
|Restructuring / Early retirement                                                               | (f)  |      | 2.4   |      | 2.0   |   | 1.3            |   | 2.5            |  
|Revenue recognition                                                                            | (g)  |      | (10.5 | )    | (8.9  | ) | 0.0            |   | 0.0            |  
|Deferred Taxes  IFRS to U.S.-GAAP reconciliation                                              | (h)  |      | 0.4   |      | 0.3   |   | 0.0            |   | 1.0            |  
|                                                                                               |      |      |       |      |       |   |                |   |                |  
|Equity
      in accordance with U.S.-GAAP                                                      |      |      | 353.6 |      | 299.7 |   | 273.4          |   | 123.1          |  




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|   |                                         
|-- | ----------------------------------------
|a) | Business
      Acquisitions and Goodwill

Prior to the adoption
    of IAS 22 (revised 1993) on January 1, 1995, the Group wrote-off all goodwill
    directly to equity in accordance with IFRS existing at that time. The adoption
    of IAS 22 (revised 1993) did not require prior period restatement. Accordingly,
    a U.S. GAAP difference exists with respect to the recognition of goodwill
    and its related amortization before January 1, 1995. For the purpose of the
    reconciliation to U.S. GAAP, the pre-1995 goodwill was amortized through the
    consolidated statement of operations over the estimated useful lives between
    five and 20 years. Another U.S.-GAAP difference exists with respect to the
    amortization of goodwill after January 1, 2002 and until December
  31, 2003. Since January 1, 2002 under U.S. GAAP goodwill is no longer amortized
  over the estimated useful life instead an annual impairment test per FAS 142
  (“Goodwill and other Intangible Assets) must be performed. Starting January
  1, 2004, in accordance with IFRS 3 goodwill is no longer amortized. The SGL CARBON
    Groups U.S. GAAP unamortized positive goodwill at December 31, 2005
    and 2004 was €116.9 and €106.1 million, respectively (€66.8 and €61.6 million,
    respectively, capitalized under IFRS). The Company estimates that at December
    31, 2005 and 2004, such net goodwill would be allocated among its industry
    segments as follows: Carbon and Graphite: €50.3 million and €45.4 million,
    respectively, Graphite Specialties: €25.4 million and €22.8 million, respectively,
    and SGL Technologies: €41.2 million and €37.9 million, respectively.


Our annual FAS
    142 impairment analysis was performed as of April 1, 2005 and updated September
    30, 2005, and there was no impairment. As of December 31, 2005 and 2004, the
    Company had no unamortizable identifiable intangible assets.


Goodwill is tested
    for impairment using a two step process that begins with a determination of
    the fair value of the reporting unit. The first step is a preliminary test
    to determine if any potential impairment exists and the second step measures
    the amount of impairment, if any. For estimating future cash flows, we use
    our internal budgets. Future cash flows are discounted at a SGL Carbon-specific
    interest rate (2005: 12.2%) .


FAS 142 describes
    the reporting unit as an operating segment, as that term is used in FAS 131,
    or one level below the operating segment, depending on whether certain criteria
    are met. The operating segment is the highest level within the company that
    can be a reporting unit. Guidance used to identify an operating segment was


| | – | whether the component
      constitutes a business per EITF 98-3,      
| | - | -----------------------------------------------------------------------
| |   |                                                                        
| | – | if discrete financial
      information is available,                  
| |   |                                                                        
| | – | whether the segment
      is reviewed by company“s management and      
| |   |                                                                        
| | – | if there are
      similar economic characteristics within the segment.

Based on the above
    our three current reporting units reflect the way SGL manages its operations.
    The above criteria are met only on the level of the operating segment or so
    called “Business Areas”.


Purchased goodwill
    is allocated to the segments based on allocation of identifiable net assets
    to the business areas.


In the first quarter
    2005 SGL sold its consolidated subsidiary SGL ACOTEC GmbH, Siershahn (Germany)
    including most of its subsidiaries. As of December 31, 2004 the Acotec companies
    were included as assets held for sale in the group financial statements and
    SGL wrote off all remaining Acotec goodwill amounting to €14.5 million under
    IFRS.


All changes in
    the Euro amount of the IFRS to U.S. GAAP reconciliation item regarding goodwill
    in 2005 and 2004 were only a result of changes in foreign exchange rates.


|b) | Internal
      Use Software/Development costs/Tangible Fixed Assets
|-- | -------------------------------------------------------------------

Statement of Position
    (SOP) 98-1 (“Accounting for the Costs fo Computer Software developed
    or obtained for internal use) provides U.S. GAAP guidance on accounting for
    the costs of computer software developed or obtained for internal use. Under
    U.S. GAAP overhead costs should not be capitalized as costs of internally
    developed software while under IFRS directly allocated overhead


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costs are allowed
    to be capitalized. During the year ended December 31, 2005 and 2004 the SGL
    Carbon Group capitalized software costs in the amount of €1.0 million
    and €6.8 million, respectively under U.S. GAAP. The accumulated amount
    of this reconciling item as of December 31, 2005 and 2004 was €(3.0)
    million and €(3.5) million, respectively. The unamortized software costs
    as of December 31, 2005 and 2004 amounted to €8.5 million and €9.4
    million, respectively and the amortization in 2005, 2004 and 2003 amounted
    to €1.6 million, €1.0 million and €0.0 million, respectively.

Under IFRS development
    expenses should be capitalized if future economic benefits will flow to the
    company and certain cumulative criteria are met. In 2005 and 2004 SGL capitalized
    development cost of €1.5 million and €2.9 million for its ceramic
    disc brake, respectively before this asset was sold in connection with the
    cooperation agreement with Audi in July 2005. U.S. GAAP does not allow the
    capitalization of such costs. Accordingly, these costs were expensed as incurred
    in 2005 and 2004. Thus, the gain under U.S. GAAP, which has been deferred
    over the life of the contract was €4.4 million higher, than under IFRS.
    The accumulated amount of this reconciling item as of December 31, 2005 and
    2004 was €0.0 million and €(2.9) million, respectively.


U.S. GAAP requires
    the capitalization of interest costs as part of the historical cost of fixed
    assets requiring a period of time to construct. Per IFRS benchmark treatment,
    interest cost (“Borrowing Costs) should be recognized as an expense
    in the period in which they occur. The company has elected to use the IFRS
    benchmark treatment, which results in a reconciliation difference to U.S.
    GAAP for the capitalization of borrowing costs. During the years ended December
    31, 2005, 2004 and 2003 the SGL Carbon Group did not capitalize interest under
    U.S. GAAP. The years 2005, 2004 and 2003 include amortization of previously
    capitalized interest amounting to €0.3 million, €0.3 million and €0.8 million
    respectively. The accumulated amount of this reconciling item as of December
    31, 2005 and 2004 was €1.9 million and €2.2 million, respectively.


|c) | Inventory
      Valuation/Pre-production development cost
|-- | ---------------------------------------------------------

IAS 2 “Inventories”
    identifies two alternatives as valuation methods, the FIFO method and the
    weighted-average cost method. In valuing inventories for IFRS reporting, the
    company has elected to apply the weighted average cost method. Generally,
    the same method is used for U.S.GAAP purposes. However, for certain inventories
    held in the U.S. SGL historically used to apply the LIFO method for U.S. GAAP
    and tax reporting purposes in the U.S. As of December 31, 2005 and 2004 the
    amount of such inventories was zero.


Under IFRS development
    expenses should be capitalized if future economic benefits will flow to the
    company. Under EITF 99-5 costs to perform certain services related to the
    design and development of the products it will sell under long-term supply
    arrangements and costs to design and develop molds, dies, and other tools
    that will be used in producing those products should be expensed as incurred,
    unless they are reimbursed or a noncancelable right to use exists. Certain
    pre-production expenses incurred by one of our domestic subsidiaries in 2005
    (€0.7 million) and one of our U.S. subsidiaries in 2003 (€0.3
    million) did not meet the requirements as specified under EITF 99-5 (Accounting
    for Pre-Production Costs Related to Long-Term Supply Arrangements). Accordingly
    we recorded an U.S. GAAP adjustment to expense these amounts.


Under U.S. GAAP
    inventories amounting to €18 million are recognized pursuant to agreements
    that provide for contractual reimbursement of pre-production design and development
    costs.


|d) | Pension
      Provisions
|-- | ------------------------

Under IFRS, pension
    costs and similar obligations are accounted for in accordance with IAS 19,
    “Employee Benefits”. For purposes of U.S. GAAP, pension costs
    for defined benefit plans are accounted for in accordance with FAS 87 “Employers
    Accounting for Pensions” and the disclosure is presented in accordance
    with FAS 132 (R) “Employers Disclosures about Pensions and Other
    Post-retirement Benefits”. FAS 87 requires that companies located outside
    the United States adopt the provisions of FAS 87 for fiscal years beginning
    after December 15, 1988. Due to the significant period of time which elapsed
    between the date when FAS 87 would have been required to be adopted and the
    time when the SGL Carbon Group first prepared its U.S. GAAP financial information,
    adoption of the provisions of FAS 87 as of January 1, 1989 was not feasible.
    Accordingly, FAS 87




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has been adopted
    from January 1, 1993. As of the date of adoption, the SGL Carbon Groups
    total transition obligation was €16.1 million. Such transition obligation
    is being amortized over a 15 year period. Accordingly, as of December 31,
    1993, €5.4 million, representing 5/15 (the elapsed five year period
    between the required adoption date of January 1, 1989 and December 31, 1993)
    of the total transition obligation, was recorded directly against U.S. GAAP
    shareholders equity.

IAS 19 (“Employee
    Benefits) as applied by the Group is substantially similar to the methodology
    required under FAS 87. The transition provisions under IAS 19 permit the cumulative
    effect of an accounting change to be either recognized immediately or delayed
    and recognized on a straight-line basis
  over a period of up to five years from the date of adoption of IAS 19 (its transition
  period ends in 2004 for enterprises adopting IAS 19 as of its effective date).
  FAS 87 permitted only delayed recognition of the transition obligation on a
  straight-line basis over the average remaining service period of plan participants
  or over 15 years if the average remaining service period is less than 15 years
  (its transition period ends in 2003 for companies located outside the U.S. ).


Upon adoption of
    IAS 19, the Company elected to recognize the cumulative effect of an accounting
    change immediately. Consequently, a difference between IFRS and U.S. GAAP
    was created in the pension liability valuation and corresponding annual pension
    expense relating to the amortization of the transition obligation in accordance
    with FAS 87. As of December 31, 2003, the 15-year amortization period for
    the transition obligation had ended.


In addition, there
    is a difference in the measurement dates used for valuation of the US pension
    funds under IFRS and U.S. GAAP. Under IFRS, a measurement date of December
    31st is used, while a September 30th date, which does not coincide with the
    end of the Companys fiscal year, is used for U.S. GAAP. For the german
    plan a September 30th measurement date is used both under IFRS and U.S. GAAP.


Besides under IFRS
    changes in the market value of plan assets are included in the valuation using
    the 10% corridor approach, while they are deferred over 5 years under U.S.
    GAAP.


The net present
    value of defined benefit plans for services already rendered to date is represented
    by the Accumulated Benefit Obligation (ABO) whereas the employees final benefit
    entitlement at regular retirement age may be higher than the fixed benefits
    at the measurement date due to the inclusion of future increases in compensation
    or benefits. The net present value of such a future benefit entitlement is
    the Projected Benefit Obligation (PBO). The pension provision included in
    the balance sheet is equal to the PBO, when the assumptions used to calculate
    the PBO such as the discount rate and compensation increases are achieved.
    Assumed discount rates, compensation increases and pension progression rates
    used in calculating the PBO together with long-term rates of return on plan
    assets vary according to the economic conditions of the country in which the
    retirement plans are situated, as well as capital market performance.


In the case of
    funded plans, the market value of the external assets is netted against the
    benefit obligations resulting in an under- or over funding of the PBO. Typically,
    due to actuarial gains and losses, like differences between the actual and
    assumed discount rate, compensation increase, and due to the difference between
    expected and actual return on plan assets, the asset or liability recorded
    on the balance sheet is different than the under- or over funding of the PBO,
    because such actuarial gains and losses and gains and losses on plan assets
    are deferred under the 10% corridor valuation approach. Under FAS 87, if the
    difference is so significant that the current benefit obligation represented
    by the ABO (or the amount thereof not funded by plan assets) exceeds the liability
    recorded on the balance sheet, such liability must be increased. The ABO is
    referred to as the Minimum Liability and an accrued pension liability that
    is at least equal to this Minimum Liability should be recognized in the balance
    sheet. The required increase in the liability is referred to as the Additional
    Minimum Liability, and results in the recognition of either an intangible
    asset, a component of shareholders equity (as a reduction) in Other
    Comprehensive Income or both. The recognition of the Additional Minimum Liability
    results in the elimination of any existing prepaid pension asset balance on
    a plan-by-plan basis. The Additional Minimum Liability caused by the underfunded
    ABO increased by €27.4 million in Germany and increased by €2.8
    million for the US companies and by €1.0 million for other countries
    (including currency changes) to a total at year-end 2005 of €67.6 million
    (2004: €35.7 million). This increase had no effect on income because
    the debit




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was recorded
      to other comprehensive income or intangible assets. At year end 2005 €1.2
      million (2004: €0.6 million) were capitalized as an intangible asset.

Under IFRS, the
      Company included €13.6 million, €13.3 million and €14.0
      in 2005, 2004 and 2003, respectively of interest costs associated with the
      Companys provision for pension and similar obligations in interest
      expense. U.S. GAAP does not allow the interest cost associated with the
      provision for pension and similar obligations to be recorded as a component
      of interest expense. Under U.S. GAAP, the interest component of the pension
      expense is included in operating profit.


For postretirement
    benefits, the primary difference between IFRS and U.S. GAAP is similar to
    that of the pension plans, in that different measurement dates are used. Under
    U.S. GAAP a September 30th measurement date is used while IFRS a December
    31st date is used. In addition, under U.S. GAAP SGL is amortizing an amount
    for the unrecognized prior service cost while under IAS 19, SGL has recognized
    the full amount immediately.

|e) | Incentive
      Plans
|-- | ---------------------

As of January
    1, 2005 the SGL Group adopted IFRS 2 “Share-based payment”. IFRS
    2 deals with accounting for share-based payment transactions, including grants
    of share options to employees and specifies the financial reporting by an
    entity when it undertakes a share-based payment transaction and requires an
    entity to reflect in its profit or loss and financial position the effects
    of share-based payment transactions, including expenses associated with transactions
    in which share options are granted to employees. Pursuant to its transition
    provisions, IFRS 2 was applied retrospectively to all share-based payments
    instruments granted since November 7, 2002, that were still outstanding when
    the standard became effective. IFRS 2 required prior year amounts presented
    for comparative purposes to be restated. This also included a restatement
    to the opening balance of the retained earnings in the earliest period presented.
    Generally, IFRS 2 is consistent with the accounting under FAS 123(R) “Accounting
    for Share-based Compensation”. Specifically with regard to incentive
    plans SGL has in place, there are no differences between IFRS 2 and FAS 123(R)
    accounting.


For U.S. GAAP purposes,
    SGL therefore elected to adopt FAS 123(R) early, as encouraged in its transition
    provisions, as of January 1, 2005 using the modified prospective method. Adopting
    FAS 123(R) involved recognizing compensation cost with a corresponding increase
    in equity for all awards granted after January 1, 2005, as well as for earlier
    grants with regard to its remaining service period as of that date. Thus,
    starting from 2005, there is no IFRS U.S. GAAP reconciliation difference.


Because SGL elected
    to adopt FAS 123(R) as of January 1, 2005, prospectively from that date, rather
    than retrospectively, as is permitted in its transition provisions, the U.S.
    GAAP accounting in 2004 and 2003 remained unchanged, i.e. SGL continued to
    apply APB 25 “Accounting for Stock issued to Employees” to all
    incentive plans, as was permitted by FAS 123 “Accounting for Share-based
    Compensation”.


However, since
    all prior years had to be restated due to the retrospective implementation
    of IFRS 2, the US-GAAP reconciliation item for all prior years presented needed
    to be adjusted accordingly. As adjusted, it includes the following:


With regard to
    the Stock Option Plan, compensation cost was recognized in the amount of intrinsic
    value of the options on grant date, which had been zero, rather than its fair
    value used under IFRS 2. Thus, the IFRS 2 compensation cost recognized in
    2004 and 2003 was added back for U.S. GAAP purposes.


By contrast, the
    instruments granted under the Stock Appreciation Rights Plan 1996 were not
    subject to IFRS 2 accounting, i.e. prior to IFRS 2 adoption, no compensation
    cost was recognized on those instruments for IFRS purposes. However, those
    instruments had a positive intrinsic value on grant date and for U.S. GAAP
    purposes, it was debited to compensation cost and credited to liability during
    the underlying service period in 1997 2000. This liability, was reclassified
    to additional paid-in capital for forfeited SARs and continued to be recognized
    for U.S. GAAP purposes as of December 31, 2004 and 2003 for outstanding SARs.
    As of December 31, 2005, the remaining liability was reclassified to additional
    paid capital due to the end of term of those SARs.




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|f) | Restructuring/Early
      retirement
|-- | ------------------------------------

One of the significant
    differences between the restructuring guidance under IAS 37, “Commitments
    and Contingencies” and the relevant U.S. GAAP standards, is found in
    the criteria for the initial recognition of a restructuring provision. The
    applicable U.S. GAAP standard is FAS 146 “Accounting for Costs Associated
    with Exit or Disposal Activities”. For employee termination benefits,
    FAS 146 requires that prior to the date of the financial statements, the benefit
    arrangement be communicated to employees, including sufficient detail to enable
    employees to determine the type and amount of benefits
  they will receive when they are terminated. IAS 37 does not require that the
  communication to employees be so detailed but rather that the communication
  simply include the main features of the plan. As a result, there may be situations
  in which an enterprise following IAS 37 could recognize a restructuring provision
  before it would be permitted to do so if it were following FAS 146. Such difference
  between IFRS and U.S. GAAP treatment amount to €0.0 million, €0.0
  million and €0.5 million as of December 31, 2005, 2004 and 2003, respectively. Included in the
    restructuring expenses are early retirement contracts in Germany, in which
    incremental compensation costs SGL incurs under such contracts are recognized
    under IFRS immediately once a binding contractual agreement has been entered
    into. The early retirement contracts in the SGL Group are generally set up
    according to the block model. Under such block model early retirement agreements,
    the employee works full time during the employment phase although in this
    period he or she is only paid according to the part-time agreement apart from
    the incremental compensation received. By this means, during the employment
    phase, the employer accrues the portion of current wages that will be paid
    out in the future. Under FAS 112 “Employers” Accounting for Postemployement
    Benefits” the complete compensation that the employee receives during
    the released phase (continued part time compensation and the incremental compensation)
    are accrued over the employees service period (employment phase). The
    addition to provisions begins with the signing of the parttime retiree agreement.
    After the employment phase has ended and the employee enters into the released
    phase, the total compensation that the employee will receive during the released
    phase must have been be set aside.


|g) | Revenue
      Recognition
|-- | -------------------------

Audi and SGL entered
    into a cooperation agreement in the third quarter of 2005, which targets to
    develop SGLs existing carbon ceramic brakes technology for mass production.
    Under IFRS the components of these cooperation agreement were accounted for
    as separate agreements in order to reflect the economic substance of the transaction
    as SGL transferred the significant risk and rewards of ownership. Pursuant
    to paragraph 9 of EITF 00-21, a delivered item is accounted for as a separate
    unit if 1) the delivered item has value on a standalone basis, 2) there is
    an objective and reliable evidence of the fair value of the undelivered items,
    and 3) the customer has a general right of return relative to the delivered
    item, delivery or performance of the undelivered item is considered probable
    and substantially in the control of the vendor. After testing for these conditions
    two items were seen as one unit for revenue recognition purposes and a determinable
    period of performance existed from July 2005 to December 2006 and therefore
    revenue is recognized per Proportional-Performance Method (SAB 104)
    ratably over that period of performance. Accordingly the profit of such parts
    was recognized immediately under IFRS and was deferred under U.S. GAAP.


|h) | Deferred
      Taxes IFRS to U.S. GAAP Reconciliation
|-- | -----------------------------------------------------

Some of the items
    discussed above create additional differences between the book value (according
    to U.S. GAAP) and tax basis of the assets and liabilities, requiring the recognition
    of associated deferred tax assets and liabilities. Deferred tax assets and
    liabilities are recognized for all timing differences between the book and
    tax basis of the assets and liabilities using future statutory tax rates.
    For U.S. GAAP purposes, a valuation allowance is established when it is more
    likely than not, that deferred tax assets will not be realized. A valuation
    allowance was recognized for the portion of the deferred tax assets that the
    Company projected will not be recognized considering primarily the effects
    of future reversals of temporary differences and tax planning strategies.
    Accordingly, we have recognized an offsetting valuation allowance on all deferred
    tax assets in excees of deferred tax liabilities for U.S. GAAP reconciliation
    items in Germany, United States and the United Kingdom.


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35. Additional
  Disclosure Information Required by U.S. GAAP

|a. | Other
      Postretirement Benefits and Pension Benefits
|-- | --------------------------------------------------------

For purposes of
    disclosure in accordance with U.S. GAAP, the following information for the
    SGL Carbon Groups significant other postretirement benefit plans is
    provided in accordance with the requirements of FAS 106 Employers Accounting
    for Postretirement Benefits Other Than Pensions.


Certain of the
    SGL Carbon Groups U.S. operations provide post retirement health care
    and other benefits to most of their retired employees and their eligible dependents
    (Retiree Medical and Retiree Life). Beginning in 2005, the amounts include
    the expected federal subsidy for providing prescription drug benefits under
    a plan that is actuarially equivalent to Medicare D. The net periodic postretirement
    benefit costs for 2005 were reduced for the expected subsidy (approximately
    USD 0.2 million). The measurement period for the plan year is October 1, 2004
    to September 30, 2005 and there was no charge to expense for the year due
    to a settlement, curtailment or termination of plan benefits.


Net annual postretirement
    benefit expense for the postretirement benefit plan included the following
    components:


|                                                                     | 2005            |      |      |  |     | 
|-------------------------------------------------------------------- | --------------- | ---- | ---- |  | --- | 
|€m                                                                   | (after subsidy) | 2004 | 2003
|                                                                     |                 |      |     
|Service
      cost-benefits attributed to service during the period  | 0.2             |      | 0.2  |  | 0.2 | 
|Interest
      cost on accumulated postretirement benefit obligation | 1.3             |      | 1.2  |  | 1.5 | 
|Amortization
      and deferral                                      | 0.6             |      | 0.6  |  | 0.5 | 
|                                                                     |                 |      |      |  |     | 
|Net
      periodic postretirement benefit cost                       | 2.1             |      | 2.0  |  | 2.2 | 
|                                                                     |                 |      |      |  |     | 

Following is a
    summary of the changes in the accumulated benefit obligation for postretirement
    benefits:


|€m                                                        | 2005  |   | 2004  |  
|--------------------------------------------------------- | ----- | - | ----- | -
|                                                          |       |   |       |  
|Benefit
      obligation at the beginning of the year     | 20.6  |   | 23.1  |  
|First
      time inclusion of expected subsidy            | (1.3  | ) |      |  
|Foreign
      currency translation                        | 3.1   |   | (1.8  | )
|Service
      cost                                        | 0.2   |   | 0.2   |  
|Interest
      cost                                       | 1.3   |   | 1.2   |  
|Curtailment/settlement
      and change in plan provision | 0.0   |   | 0.0   |  
|Plan
      participant contributions                      | 0.6   |   | 0.5   |  
|Actuarial
      loss                                      | 1.2   |   | 0.5   |  
|Benefits
      paid                                       | (3.4  | ) | (3.1  | )
|                                                          |       |   |       |  
|Benefit
      obligation at the end of the year           | 22.3  |   | 20.6  |  
|                                                          |       |   |       |  
|Unrecognized
      net loss                               | (11.3 | ) | (10.4 | )
|Unrecognized
      prior service cost                     | 0.6   |   | 0.6   |  
|                                                          |       |   |       |  
|Net
      amount recognized                               | 11.6  |   | 10.8  |  
|                                                          |       |   |       |  

The Medicare Prescription
    Drug, Improvement and Modernization Act of 2003 (the Act) was signed into
    law on December 8, 2003. In accordance with FASB Staff Position FAS 106-1,
    the Corporation made a one-time election to defer recognition of the effects
    of the law in the accounting for its plan under FAS 106 in 2004 and in providing
    disclosures related to the plan until authoritative guidance on the accounting
    for the federal prescription drug subsidy is issued. Therefore, in accordance
    with FASB Staff Position FAS 106-2, any measures of the Accumulated Postretirement


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Benefit Obligation
  or Net Periodic Postretirement Benefit Cost do not reflect the effects of the
  Act on the plan up to 2004.

The health care
    cost trends used in determining the Accumulated Postretirement Benefit Obligation
    for 2005 and 2004 were 0.0% . The health care cost trend rate is expected
    to remain at 0.0% . Generally this assumption has an effect on the amounts
    reported. However increasing or decreasing the assumed trend by 1% would not
    change materially the accumulated postretirement benefit obligation and the
    service and interest cost components of net periodic postretirement benefit
    cost for the years ended December 31, 2005 and 2004. In determining the accumulated
    postretirement benefit obligation, the weighted average discount rate used
    was 5.75% and 6.0% for the years ended December 31, 2005 and 2004, respectively.


The Investment
    Policy and Strategy, as established by the Pension Plan Committee, is to provide
    for growth of capital with a moderate level of volatility by investing in
    assets per the target allocations stated below. The assets will be reallocated
    quarterly to meet those target allocations. The investment policy will be
    reviewed on a regular basis, under the advisement of a certified investment
    advisor, to determine if the policy should be changed. 73% of the fair value
    of the plan assets are invested in equity securities, 26% are invested in
    debt securities and 1% is held as short term funds.


The expected long-term
    rate of return for the Plans total assets is based on the expected return
    of each of the targeted allocation categories, weighted based on the median
    of the target allocation for each class. Equity securities are expected to
    return 10% to 11% over the long-term, while cash and fixed income are expected
    to return between 4% and 6%. Based on historical experience, the Committee
    expects that the Plans asset managers will provide a modest (0.5% to
    1.5% over a complete market cycle of three- to five-year periods) premium
    to their respective market benchmark indices.


The total accumulated
    benefit obligation as of December 31, 2005 and 2004 amounted to €259.9 million
    and €214.1 million, respectively.


The contributions
    to the Company’s pension fund (Hoechst Pensionskasse) are considered
    payments to a defined contribution plan. The expenses of the company are in
    a relation to the contributions paid by each employee. Orginally such relation
    was a 1:1 relation but increased in 2003 to 2:1 and is expected to increase
    in 2006 to a ratio of 3:1, so that SGL will pay three times the amount as
    contributed by the employee.


|b. | Income
      Taxes
|-- | ------------------

German corporations
    are subject to a uniform 25% corporate income tax on both distributed and
    retained earnings. Furthermore, a solidarity surcharge of 5.5 % is added to
    the corporation tax rate, resulting in an overall corporation income tax rate
    of 26.4 % for 2005, 2004 and 2003. German corporations are also subject to
    the trade tax. The amount of the trade tax depends on the municipality in
    which a company maintains its operations. The trade tax generally amounts
    to between approximately 15% and 20% of taxable earnings, depending on the
    municipalitys tax assessment rate. Trade tax is deductible as an operating
    expense in the calculation of the companys taxable income. With an average
    effective trade tax burden of 12%, the overall German income tax rate amounts
    to 38.4 %.


Since January 1,
    2004, German tax law imposes a so-called minimum taxation (Mindestbesteuerung)
    in case of tax losses carried forward. Under this rule, only 60% of the current
    year taxable income may be offset by tax loss carry-forwards, unless such
    taxable income does not exceed €1 million. A portion of the 5% of the dividend
    income and gains on disposition of corporations, which is generally tax exempt,
    are taxable for purposes of corporate and trade tax. The changed law is applicable
    beginning with tax assessment year 2004. These changes as well as potential
    future changes with respect to tax loss carry-forwards, or a denial of the
    deductibility of certain expenses, could lead to material tax payments for
    SGL Group companies in Germany from 2005 onwards and significantly impair
    our deferred tax assets. In addition, deferred tax assets related to German
    tax loss carryforwards could be impaired if the German tax group companies,
    to which these tax loss carryforwards are available, fail to generate sufficient
    taxable profits in future.


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Under U.S. GAAP,
    the effective income tax rate would approximate 45.9%, 173.3% and 22.9% in
    2005, 2004 and 2003. The income before income taxes from continuing operations
    from foreign operations in 2005 under U.S. GAAP amounted to €78.5 million
    and €(36.7) million for domestic operations.


As of December
    31, 2005 and 2004, the SGL Group had tax loss carryforwards amounting to approximately
    €410 million and €370 million respectively. Some of the tax loss carryforwards
    have an unlimited carryforward period under local tax laws. Under U.S. GAAP,
    a valuation allowance relating to deferred tax assets recorded for tax loss
    carryforwards was recognized. The amounts of such valuation allowance for
    the years ended December 2005 and 2004 were €70.7 million and €68.3 million,
    respectively.


The valuation allowances
    with regard to deferred tax assets on tax loss carryforwards at December 31,
    2005 and 2004 are derived primarily from tax loss carryforwards in the United
    States, Germany and the United Kingdom, the realization of which is unlikely.
    Tax benefits relating to the valuation allowance for deferred tax assets at
    December 31, 2005 that are subsequently recognized will be reflected in the
    consolidated statement of operations of the period in which the event occurs.


Under IFRS SGL
    had total gross deferred tax assets amounting to €204.0 million as of December
    31, 2005. Together with additional deferred tax assets recognized on timing
    differences in the U.S. GAAP reconciliation, amounting to €29.7 million as
    of December 31, 2005, the total gross deferred tax assets under U.S. GAAP
    amounted to €233.7 million as of December 31, 2005. From these gross tax assets,
    a total valuation allowance amounting to €103.3 million as of December 31,
    2005 was subtracted. Thus, under U.S. GAAP, the SGL Carbon Group would have
    recorded net deferred tax assets at December 31, 2005 and 2004 of €94.4 and
    €84.9 million consisting of deferred tax assets relating to tax loss carryforwards
    at December 31, 2005 and 2004 of €88.1 and €85.8 million, respectively, and
    other deferred tax assets of €42.3 and €45.5 million, respectively, and deferred
    tax liabilities of €36.0 and €46.4 million, respectively.


In assessing the
    realizability of deferred tax assets, management considers whether it is more
    likely than not that some portion of the deferred tax assets will not be realized.
    The evidence considered in determining the valuation allowance includes the
    scheduled reversal of deferred tax liabilities, projected future taxable income
    and tax planning strategies. The ultimate realization of deferred tax assets
    is dependent upon the generation of future taxable income.


|c. | FAS 130
      “Reporting Comprehensive Income
|-- | ---------------------------------------------

FAS 130 requires
    disclosures regarding comprehensive income (loss). These include all changes
    in equity not transacted with owners of the business. Comprehensive income
    (loss) is comprised as follows:


|                                                    |       |          | 2004  |  
|--------------------------------------------------- | ----- | -------- | ----- | -
|€m                                                  | 2005  | restated
|                                                    |       |          |       |  
|Consolidated
      net profit (loss) U.S. GAAP      | 22.8  |          | (87.9 | )
|Other
      comprehensive income, net of tax        |       |          |       |  
|Change in cumulative translation adjustment         | 26.3  |          | (0.3  | )
|Cash-Flow Hedges                                    | (2.5  | )        | (1.1  | )
|Minimum pension liability adjustment, net of tax *) | (31.0 | )        | (7.7  | )
|Other
      comprehensive income                    | (7.2  | )        | (9.1  | )
|                                                    |       |          |       |  
|Comprehensive
      income/loss                     | 15.6  |          | (97.0 | )
|                                                    |       |          |       |  

|  
|--
|*)

The other comprehensive
    income (loss) relates to the cumulative translation adjustment, a positive
    impact from cash-flow hedges, available for sale securities and an additional
    minimum pension liability.


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|                       | Cumulative |                | Derivative |           | Available |  | Minimum |    |       |  
|---------------------- | ---------- | -------------- | ---------- | --------- | --------- |  | ------- | -- | ----- | -
|Translation            | Financial  | for
      sale | Pension    |          
|€m                     | Adjustment | Instruments    | Securities | Liability | Total    
|                       |            |                |            |           |           |  |         |    |       |  
|12/31/2004
      gross | (42.2      | )              | 2.3        |           | 0.1       |  | (35.1   | )  | (74.9 | )
|Change                 | 26.3       |                | (4.2       | )         | 0.1       |  | (31.3   | )* | (9.1  | )
|t/o
      Tax effect   | 0.0        |                | 1.6        |           | 0.0       |  | 0.3     |    | 1.9   |  
|                       |            |                |            |           |           |  |         |    |       |  
|12/31/2005
      gross | (15.9      | )              | (1.9       | )         | 0.2       |  | (66.4   | )  | (84.0 | )
|                       |            |                |            |           |           |  |         |    |       |  
|Deferred
      tax     | 0.0        |                | 0.8        |           | 0.0       |  | 0.3     |    | 1.1   |  
|                       |            |                |            |           |           |  |         |    |       |  
|12/31/2005
      net   | (15.9      | )              | (1.1       | )         | 0.2       |  | (66.1   | )  | (82.9 | )
|                       |            |                |            |           |           |  |         |    |       |  

|  
|--
|*)

Information with
    Respect to Cash Flow Hedges: Changes in the fair value of forward foreign
    currency exchange contracts and currency options designated and qualifying
    as cash flow hedges are reported in accumulated other comprehensive income
    (loss). These amounts are subsequently reclassified into operating income,
    in the same period as the underlying transactions affect operating income.
    For the year ended December 31, 2005 and 2004, no gains or losses had to be
    reclassified from accumulated other comprehensive income (loss) into earnings
    as a result of ineffectiveness of cash flow hedges. It is anticipated that
    €(1.9) million of net loss included in accumulated other comprehensive income
    (loss) at December 31, 2005, will be reclassified into earnings during the
    next year. As of December 31, 2005, SGL held derivative financial instruments
    with a maximum maturity of 12 months to hedge its exposure to the variability
    in future cash flows from foreign currency forecasted transactions.


Marketable Securities
    and Investments: Securities and certain investments are accounted for at fair
    value, if fair value is readily determinable. Unrealized gains and losses
    on available-for-sale securities are included as a component of accumulated
    other comprehensive income (loss), net of applicable taxes, until realized.
    Those securities relate to investment certificates in Austria with no fixed
    maturity dates purchased for €2.2 million and having a fair value of €2.4
    million. The difference of €0.2 million is included in accumulated other comprehensive
    income (loss) (2004: €0.1 million). No gains or losses have been reclassified
    into earnings during the 2005 period.


|d. | Stock
      Compensation Plans
|-- | ------------------------------

In December 2004,
    the Financial Standards Accounting Board (FASB) issued FAS 123 (revised 2004)
    Share-Based Payments (FAS 123R), which replaces FAS 123, Accounting for Stock
    Based Compensation and APB 25, Accounting for Stock Issued to Employees, and
    the related interpretations. FAS 123R requires companies to recognize the
    cost resulting from all share based payment transactions, over the service
    period, in the financial statements. SGL elected to adopt FAS 123R as of January
    1, 2005 using the modified prospective transition method. Prior to January
    1, 2005, the Company accounted for its equity-based compensation plans under
    the recognition and measurement provisions of APB 25, and the related interpretations,
    as permitted by FAS 123. SGL recognized all stock option plans and stock appreciation
    rights in accordance with the provisions of FAS 123 and APB 25. Under the
    modified prospective transition method, compensation cost recognized in fiscal
    2006 includes: (a) compensation cost for all equity-based payments granted
    prior to but not yet vested as of January 1, 2005, based on the grant date
    fair value estimated in accordance with the original provisions of FAS 123
    and (b) compensation cost for all equity-based payments granted subsequent
    to January 1, 2005, based on the grant date fair value estimated in accordance
    with the provisions of FAS 123R. Results for prior periods have not been restated.
    As a result of adopting FAS 123R on January 1, 2005, the Companys income
    from continuing operations, income before income taxes and net income for
    the year ended December 31, 2005 were €2.0 million lower than if the
    Company had continued to account for equity-based compensation under APB 25.
    Basic and diluted earnings per share for the year ended December 31, 2005
    would have each been


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€0.04 higher if the
  Company had not adopted SFAS 123R, compared to reported basic and diluted earnings
  per share of €0.50 each. There was no impact on operating and financing cash
  flows.

The following table
    (in thousands, except per share amounts) illustrates the effect on net income
    and net income per share if the Company had applied the fair value recognition
    provisions of FAS 123 to equity-based compensation for the years ended December
    31, 2004 and 2003.


|                                     |                       |    | 2004  |   | 2003  |  
|------------------------------------ | --------------------- | -- | ----- | - | ----- | -
|                                     |                       |    |       |   |       |  
|Net
      loss                       | As
      reported     | €m | (87.9 | ) | (52.4 | )
|Deduct:                              | FAS
      123 expense | €m | (1.4  | ) | (3.6  | )
|Net
      loss                       | Pro
      forma       | €m | (89.3 | ) | (56.0 | )
|Earnings
      per share basic (EPS) | As
      reported     | €  | (1.68 | ) | (2.36 | )
|Earnings
      per share basic (EPS) | Pro
      forma       | €  | (1.71 | ) | (2.53 | )

The amount of compensation
    cost related to unvested awards not yet recognized at December 31, 2005 is
    €1.3 million, all of which is expected to be recognized in 2006. A
    summary of option activity under the plans as of December 31, 2005, and changes
    during the year then ended is presented below:


Stock Appreciation
    Rights Plan 1996

|SARs                                         | Shares
        (000 | ) | Weighted-
        Average
        Exercise
        Price
        (€ | ) | Weighted-
        Average
        Remaining
        Contractual
        Term
        (years | ) | Aggregate
        Intrinsic
        Value
        (€
          mln. | )
|-------------------------------------------- | ------------------- | - | ------------------------------------------------------------------- | - | ------------------------------------------------------------------------------------------- | - | ------------------------------------------------------------------- | -
|                                             |                     |   |                                                                     |   |                                                                                             |   |                                                                     |  
|Outstanding at January
        1, 2005       | 143,850             |   | 45.79                                                               |   |                                                                                             |   |                                                                     |  
|Granted                                      |                    |   |                                                                    |   |                                                                                             |   |                                                                     |  
|Exercised                                    |                    |   |                                                                    |   |                                                                                             |   |                                                                     |  
|Forfeited or expired                         | -34,400             |   | 45.79                                                               |   |                                                                                             |   |                                                                     |  
|Outstanding at December
        31, 2005     | 109,450             |   | 45.79                                                               |   | 0.2                                                                                         |   | 0                                                                   |  
|t/o vested at
        December 31, 2005      | 109,450             |   | 45.79                                                               |   | 0.2                                                                                         |   | 0                                                                   |  
|t/o expected
        to vest                 |                    |   |                                                                    |   |                                                                                            |   |                                                                    |  
|t/o exercisable
        at December 31, 2005 | 109,450             |   | 45.79                                                               |   | 0.2                                                                                         |   | 0                                                                   |  

|SARs                                   | Shares
          (000 | ) | Weighted-
          Average
          Grant-Date
          Fair Value(€ | )
|-------------------------------------- | --------------------- | - | ----------------------------------------------------------------------- | -
|                                       |                       |   |                                                                         |  
|Non-vested at January
        1, 2005  |                      |   |                                                                        |  
|Granted                                |                      |   |                                                                        |  
|Vested                                 |                      |   |                                                                        |  
|Forfeited                              |                      |   |                                                                        |  
|Nonvested at December
        31, 2005 |                      |   |                                                                        |  

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Stock Option Plan

|Stock Options                                | Shares
        (000 | ) | Weighted-
        Average
        Exercise
        Price
        (€ | ) | Weighted-
        Average
        Remaining
        Contractual
        Term
        (years | ) | Aggregate
        Intrinsic
        Value
        (€
          mln. | )
|-------------------------------------------- | ------------------- | - | ------------------------------------------------------------------- | - | ------------------------------------------------------------------------------------------- | - | ------------------------------------------------------------------- | -
|                                             |                     |   |                                                                     |   |                                                                                             |   |                                                                     |  
|Outstanding at January
        1, 2005       | 1,326,000           |   | 27.21                                                               |   |                                                                                             |   |                                                                     |  
|Granted                                      |                    |   |                                                                    |   |                                                                                             |   |                                                                     |  
|Exercised                                    | -128,500            |   | 3.61                                                                |   |                                                                                             |   |                                                                     |  
|Forfeited or expired                         | -103,500            |   | 38.57                                                               |   |                                                                                             |   |                                                                     |  
|Outstanding at December
        31, 2005     | 1,094,000           |   | 26.97                                                               |   | 6.25                                                                                        |   | 2.3                                                                 |  
|t/o vested at
        December 31, 2005      | 861,500             |   | 31.91                                                               |   | 5.79                                                                                        |   | 1.1                                                                 |  
|t/o expected
        to vest in January 2006 | 232,500             |   | 8.69                                                                |   | 8                                                                                           |   | 1.2                                                                 |  
|t/o exercisable
        at December 31, 2005 | 106,500             |   | 3.61                                                                |   | 7                                                                                           |   | 1.1                                                                 |  

|Stock Options                          | Shares
          (000 | ) | Weighted-
          Average
          Grant-Date
          Fair Value(€ | )
|-------------------------------------- | --------------------- | - | ----------------------------------------------------------------------- | -
|                                       |                       |   |                                                                         |  
|Non-vested at January
        1, 2005  | 502,000               |   | 5.32                                                                    |  
|Granted                                |                      |   |                                                                        |  
|Vested                                 | -252,250              |   | 4.51                                                                    |  
|Forfeited                              | -17,250               |   | 6.15                                                                    |  
|Nonvested at December
        31, 2005 | 232,500               |   | 6.15                                                                    |  

Matching Share Plan

|Shares                                       | Shares
        (000 | ) | Weighted-
        Average
        Exercise
        Price
        (€ | ) | Weighted-
        Average
        Remaining
        Contractual
        Term
        (years | ) | Aggregate
        Intrinsic
        Value
        (€
          mln. | )
|-------------------------------------------- | ------------------- | - | ------------------------------------------------------------------- | - | ------------------------------------------------------------------------------------------- | - | ------------------------------------------------------------------- | -
|                                             |                     |   |                                                                     |   |                                                                                             |   |                                                                     |  
|Outstanding at January
        1, 2005       | 58,811              |   |                                                                    |   |                                                                                             |   |                                                                     |  
|Granted                                      | 113,343             |   |                                                                    |   |                                                                                             |   |                                                                     |  
|Exercised                                    | -56,455             |   |                                                                    |   |                                                                                             |   |                                                                     |  
|Forfeited or expired                         | -2,356              |   |                                                                    |   |                                                                                             |   |                                                                     |  
|Outstanding at December
        31, 2005     | 113,343             |   |                                                                    |   | 1.2                                                                                         |   | 1.6                                                                 |  
|t/o vested at
        December 31, 2005      |                    |   |                                                                    |   |                                                                                            |   |                                                                    |  
|t/o expected
        to vest in March 2007   | 113,343             |   |                                                                    |   | 1.2                                                                                         |   | 1.6                                                                 |  
|t/o exercisable
        at December 31, 2005 |                    |   |                                                                    |   |                                                                                            |   |                                                                    |  

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|Shares                                 | Shares
          (000 | ) | Weighted-
          Average
          Grant-Date
          Fair Value(€ | )
|-------------------------------------- | --------------------- | - | ----------------------------------------------------------------------- | -
|                                       |                       |   |                                                                         |  
|Nonvested at January
        1, 2005   | 58,811                |   | 8.23                                                                    |  
|Granted                                | 113,343               |   | 10.10                                                                   |  
|Vested                                 | -56,455               |   | 8.23                                                                    |  
|Forfeited                              | -2,356                |   | 8.23                                                                    |  
|Nonvested at December
        31, 2005 | 113,343               |   | 10.10                                                                   |  

SAR Plan 2005

|Stock Appreciation
        Rights Plan 2005
        SARs | Shares
        (000 | ) | Weighted-
        Average
        Exercise
        Price
        (€ | ) | Weighted-
        Average
        Remaining
        Contractual
        Term
        (years | ) | Aggregate
        Intrinsic
        Value
        (€
          mln. | )
|-------------------------------------------------------- | ------------------- | - | ------------------------------------------------------------------- | - | ------------------------------------------------------------------------------------------- | - | ------------------------------------------------------------------- | -
|                                                         |                     |   |                                                                     |   |                                                                                             |   |                                                                     |  
|Outstanding at January
        1, 2005                   |                    |   |                                                                    |   |                                                                                             |   |                                                                     |  
|Granted                                                  | 605,500             |   | 9.74                                                                |   |                                                                                             |   |                                                                     |  
|Exercised                                                |                    |   |                                                                    |   |                                                                                             |   |                                                                     |  
|Forfeited or expired                                     |                    |   |                                                                    |   |                                                                                             |   |                                                                     |  
|Outstanding at December
        31, 2005                 | 605,500             |   | 9.74                                                                |   | 9                                                                                           |   | 2.5                                                                 |  
|t/o vested at
        December 31, 2005                  |                    |   |                                                                    |   |                                                                                            |   |                                                                    |  
|t/o expected
        to vest in January 2007             | 605,500             |   | 9.74                                                                |   | 9                                                                                           |   | 2.5                                                                 |  
|t/o exercisable
        at December 31, 2005             |                    |   |                                                                    |   |                                                                                            |   |                                                                    |  

|SARs                                   | Shares
          (000 | ) | Weighted-
          Average
          Grant-Date
          Fair Value(€ | )
|-------------------------------------- | --------------------- | - | ----------------------------------------------------------------------- | -
|                                       |                       |   |                                                                         |  
|Nonvested at January
        1, 2005   |                      |   |                                                                        |  
|Granted                                | 605,500               |   | 4.40                                                                    |  
|Vested                                 |                      |   |                                                                        |  
|Forfeited                              |                      |   |                                                                        |  
|Nonvested at December
        31, 2005 | 605,500               |   | 4.40                                                                    |  

For the 2005 Stock
    Appreciation Rights granted, the Company has utilized a Monte-Carlo Simulation
    with the following assumptions: expected volatility of 41.74%, expected future
    dividends, which were calculated at €0.07 for 2006 and increasing up
    to €0.15 in 2014, and risk-free interest rate of 3.56% . The per share
    grant date weighted average fair value of the 2005 Stock Appreciation Rights,
    were €4.40. See Note 30 for a discussion of the assumptions utilized
    in the determination of fair value in the Monte Carlo Simulation.


As described in Note
      30, the Stock Appreciation Rights and the stock options granted in 2005
      and 2004, respectively, each contain a market condition (Instruments can
      only be exercised upon the achievement of a specified price of the Company's
      shares) and a post-vesting restriction. Both the market condition and the
      post-vesting restriction have been considered in the determination of the
      respective instrument's fair value.
  For the stock options
    granted in 2004, the Company utilized a Binomial model with the following
    assumptions: expected volatility of 41.69%, expected future dividends, which
    were calculated at €0.07 for 2006 and increasing up to €0.14 in
    2013, and risk-free interest rate of 4.13% . The vesting period for both plans
    is 2 years. The per share grant date weighted average fair value of the stock
    options granted during 2004 were €6.15. See Note 30 for a discussion
    of the assumptions utilized in the determination of fair value in the Binomial
    model.




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For the 2003 and
      2002 stock options granted, the Company utilized a Black Scholes option-pricing
      model with the following assumptions for each year: expected volatility
      of 40.00%, risk-free interest rate of 5.00%, expected dividend yield of
      0.0% and expected term of 6 years. The per share grant date weighted average
      fair value of the stock options granted during 2003 were €4.52 and
      2002 were €10.30 and €14.50.


For purposes
      of the Black Scholes option-pricing model, the Company uses the following
      assumptions: Volatility  The measure of the amount by which a financial
      variable such as a share price has fluctuated (historical volatility) or
      is expected to fluctuate (expected volatility) during a period. The Company
      uses the historical volatility over the expected life of the equity instruments.
      Risk-Free Interest Rate- The average U.S. Treasury rate for the year in
      which the option was granted. Expected Life of the Option- The period of
      time that the options granted are expected to remain outstanding. This estimate
      is based primarily on historical exercise data. Options granted during the
      year ended December 31, 2005 have a maximum term of 10 years.


As of December
      31, 2005, the Company had several equity-based compensation plans, which
      are described in Note 30. The compensation cost that has been charged against
      income for those plans for the year ended December 31, 2005 was approximately
      €2.0 million. There was no income tax benefit recognized in the income
      statement for share-based compensation arrangements. No compensation costs
      capitalized as part of inventory during the year ended December 31, 2005.
      There was no impact on operating and financing cash-flow. Basic and diluted
      EPS decreased by €0.04.


|e. | Non-current
        assets
|-- | --------------------------

Trade receivables
      due after one year at December 31, 2005 and 2004 amounting to €0.1
      million and €0.3 million , respectively would be classified as non-current
      assets under U.S. GAAP. There were no other receivables or other assets
      due after one year at December 31, 2005 and 2004 that would be classified
      as non-current assets under U.S. GAAP.


SGL has entered
    into various operating lease arrangements, most of them for small EDP-or office
    equipment and some of them having renewal or purchase options at market conditions.
    For an operating lease of an office building in Germany SGL has a purchase
    option to buy the property if the lease is terminated or when the lease term
    ends after 12 years in 2014.

The equity method
    investments included a 51% investment in SGL Tokai Carbon Limited Shanghai
    (China) (voting interest 50%), a 50% investment in Carbon Fiber Technology
    LLC (USA) and a 50.9% investment in DONCARB GRAPHITE OOO (Russia).


The estimated aggregate
    amortization expense for finite lived intangible assets under U.S. GAAP for
    each of the following fiscal years is approximately €5 million per year.


In accordance with
    FAS 144, long-lived assets held and used, such as property, plant and equipment,
    and purchased intangible assets subject to amortization, are reviewed for
    impairment whenever events or changes in circumstances indicate that the carrying
    amount of an asset or group of assets may not be recoverable. Recoverability
    of assets to be held and used is measured by comparing the carrying amount
    of an asset or asset group to the estimated future undiscounted cash flows
    expected to be generated by the asset or group of assets. If the carrying
    amount of an asset or group of assets exceeds its estimated future undiscounted
    cash flows, an impairment charge is recognized in the Groups financial
    statements by the amount by which the carrying amount of the asset or group
    of assets exceeds fair value (estimated discounted future cash-flows) of the
    asset or group of assets.


As a result of
    the relocation of our carbon electrode production from Italy to Poland, an
    impairment charge was taken to the fixed assets (plant, machinery and office
    equipment) at the Ascoli, Italy facility amounting to €10.4 million.


|f. | Recent
      U.S. GAAP Accounting Pronouncements
|-- | ------------------------------------------------

In June 2005,
    the FASB ratified Emerging Issues Task Force (EITF) Issue 05-5, Accounting
    for Early Retirement or Post-employment Programs with Specific Features (Such
    As Terms Specified in Altersteilzeit Early Retirement Arrangements), effective
    for periods beginning after December 15, 2005. Altersteilzeit (ATZ) in Germany
    is an incentive and benefit program for early retirement. Under




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this plan, employers
    are required to recognize a participants salary ratably over their remaining
    active service period. Employer granted bonuses would be accrued ratably over
    the period commencing with the employees entry into the ATZ program
    to the end of their active service period. At the time the criteria to receive
    them is met, any related government subsidies are accounted for separately
    from the ATZ benefits. The adoption of EITF 05-5 is not expected to have a
    material impact on our consolidated financial statements, because our accounting
    for ATZ is consistent with its provisions.

In November 2004
    FASB issued FAS 151 “Inventory Costs” ), effective for periods
    beginning after June 15, 2005. This statement clarifies the accounting for
    abnormal amounts of idle facility expense, freight, handling costs and wasted
    material (spoilage) and requires that those items be recognized as current
    period charges rather than included in inventory costs. The adoption of SFAS
    151 is not expected to have a material impact on our consolidated financial
    statements, because our accounting is consistent with its provisions.


In May 2005, FASB
    issued FAS 154, Accounting for Changes and Error Corrections a replacement
    of APB No. 20 and FASB Statement No. 3. This statement changes the requirements
    for the accounting for and reporting of a change in accounting principle.
    It applies to all voluntary changes in accounting principle, error corrections
    and required changes due to new accounting pronouncements, which do not specify
    a certain transition method. Unless it is impracticable to determine either
    the period-specific effects or the cumulative effect of a change in accounting
    principles, FAS 154 generally requires retrospective application to the prior
    periods financial statements. FAS 154 also requires that any retrospective
    application of a change in accounting principle be limited to the direct effects
    of the change. A change in depreciation, amortization or depletion method
    for long-lived, non-financial assets should be accounted for on a prospective
    basis. In accordance with the effective date for fiscal years ending after
    June 15, 2005, SGL Carbon has adopted FAS 154 effective
  January 1,2005 and it did not have a material impact on our consolidated financial
  statements.


|g. | Earnings
      (Loss) per Share
|-- | -------------------------------

Under U.S. GAAP,
    earnings per share are calculated and presented in accordance with the provisions
    of Statement of Financial Accounting Standards No. 128, “Earnings per
    Share”, which requires the presentation of both basic and diluted earnings
    per share information for all periods presented. Basic net income/(loss) per
    share is computed by dividing net income/(loss), as calculated in accordance
    with U.S. GAAP, by the weighted average number of shares outstanding of: 56,390,621
    in 2005, 52,152,691 in 2004 and 22,148,078 in 2003.


Diluted net profit
    /(loss) per share includes the effect of incremental shares, if any, that
    would have been outstanding under the share option plans or other obligations
    to issue such shares. Stock options and the convertible bond were outstanding
    for a potential dilution impact in both fiscal years (see Note 30). After
    adjustment for interest costs of the convertible bond, the Groups after-tax
    earnings increase by €0.8 million to €23.6 million. The weighted-average number
    of shares changes by 560,750 shares regarding the convertible bond. Accordingly,
    there is no dilution effect on earnings per share from the convertible bond,
    rather, its conversion would have an antidiluted effect and therefore, is
    not included in the calculation of diluted earnings per share. Following an
    exercise of shares under the Stock Option Plan, 106,500 shares are to be included
    for dilution from the Stock Option Plan (weighted average shares of 86,075).
    There is no change to consolidated earnings. In total, 56,476,696 shares are
    to be used to determine the diluted earnings per share for 2005. Because this
    number of potentially dilutive shares is very low, earnings per share (diluted)
    in 2005 are unchanged to the undiluted earnings per share. Due to the fact
    that there was a loss in previous reported periods there was no difference
    between basic and diluted (loss) per share for 2004 and 2003.


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|h. | Cash
      Flow Statements  Changes in Corporate Debt
|-- | ------------------------------------------------------

|                                   |                         |   |        |   |        |  
|---------------------------------- | ----------------------- | - | ------ | - | ------ | -
|                                   | Year ended December 31, |  
|                                   |                         |   |        |   |        |  
|€m                                 | 2005                    |   | 2004   |   | 2003   |  
|                                   |                         |   |        |   |        |  
|Proceeds
      from corporate debt | 67.8                    |   | 389.6  |   | 330.0  |  
|Repayment
      of corporate debt  | (91.0                   | ) | (440.0 | ) | (284.0 | )
|                                   |                         |   |        |   |        |  
|                                   | (23.2                   | ) | (50.4  | ) | 46.0   |  
|                                   |                         |   |        |   |        |  

|i. | Derivative
      financial instruments and fair value of financial instruments
|-- | ------------------------------------------------------------------------------

Derivatives are
    used for hedging purposes, i.e. to reduce the risks hedged. The use of these
    instruments is governed by internal guidelines. Risk is continuously assessed
    and monitored. The instruments used in the SGL Carbon Group are primarily
    interest-rate swaps, interest rate and currency options, as well as forward
    currency transactions. The counterparties are contracting parties with outstanding
    credit rating. The accounting of derivative instruments is based upon the
    provisions of FAS 133, “Accounting for Derivative Instruments and Hedging
    Activities,” as amended. On the date a derivative contract is entered
    into, SGL designates the derivative as either a hedge of the fair value of
    a recognized asset or liability or of an unrecognized firm commitment (fair
    value hedge) or a hedge of a forecasted transaction or the variability of
    cash flows to be received or paid related to a recognized asset or liability
    (cash flow hedge). SGL recognizes all derivative instruments as assets or
    liabilities on the balance sheet and measures them at fair value, regardless
    of the purpose or intent for holding them. Changes in the fair value of derivative
    instruments are recognized periodically either in earnings or stockholders
    equity, as a component of accumulated other comprehensive income (loss), depending
    on whether the derivative is designated as a hedge of changes in fair value
    or cash flows. For derivatives designated as fair value hedges, changes in
    fair value of the hedged item and the derivative are recognized currently
    in earnings. For derivatives designated as cash flow hedges, fair value changes
    of the effective portion of the hedging instrument are recognized in accumulated
    other comprehensive income on the balance sheet, net of applicable taxes,
    until the hedged item is recognized
  in earnings. The ineffective portions of the fair value changes (2005: €0.0
  million) and/or fair value changes attributable to components of the derivatives
  fair value excluded from designation as a hedging instrument (i.e. the time
  value of currency options) (2005: €(0.9) million,) are recognized in other
  operating expenses immediately. Derivatives not meeting the criteria for hedge
  accounting are marked to market and impact earnings.

Gains and losses
    from currency derivatives for operating purposes are recognized in other expenses,
    net, whereas gains and losses for interest derivatives and currency derivatives
    for financing purposes are recognized in other financing costs in the consolidated
    statement of operations.


Management actively
    evaluates the credit worthiness of the financial institutions which are counter
    parties to derivative instruments, and it does not expect any counter parties
    to default in meeting their obligations under these instruments. The credit
    exposure of derivative instruments is represented by the unrealized gain in
    the underlying instrument.


The estimated fair
    value of financial instruments (cash, receivables, payables, accrued expenses,
    other liabilities and long-term debt) are considered to approximate their
    carrying value because such instruments, except for long-term debt, have short
    maturity. As of December 31, 2005 the market price on the Frankfurt Stock
    Exchange for the senior subordinatied notes was 108.25%, the total fair value
    amounted to €292.3 million. The fair value of the remaining long-term debt
    approximates its carrying value. At December 31, 2005 and 2004 the estimated
    fair value of derivative financial instruments has been disclosed in note
    26 to the financial statements.


|j. | Concentration
      of credit risks
|-- | -----------------------------------

Financial instruments
    which potentially subject the SGL Group to concentrations of credit risk consist
    principally of cash and cash equivalents, derivatives and accounts receivable.
    Management believes, however, that the loss due to credit risk to be incurred
    by the Company if parties to these




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financial instruments
      fail completely to perform according to the terms of the contracts is not
      material. In the refinancing of the Company in 2004 encumbrances have been
      installed, please refer to Item 10 C (Material Contracts). The Company estimates
      an allowance for doubtful accounts based on the credit worthiness of its
      customers as well as general economic conditions. Consequently, an adverse
      change in those factors could affect estimates of bad debts.

|k. | Warranty
        Obligations
|-- | ----------------------------

The Company
      warrants to the purchasers of its line of products that the product will
      be free of defects in material and workmanship. The Company records the
      estimated cost that may be incurred under its warranties at the time the
      product revenue is recognized based upon the relationship between historical
      and anticipated warranty costs and sales volumes. The Company periodically
      assesses the adequacy of its recorded warranty liability and adjusts the
      amounts as necessary. While the Company believes that its estimated liability
      for product warranties is adequate and that the judgment applied is appropriate,
      the estimated liability for product warranties could differ materially from
      actual future warranty costs.


|l. | Restatements                  
|-- | ------------------------------
|  
|   | Scope
        of consolidation

Until December
      31, 2003, 25 subsidiaries and two joint ventures were excluded from consolidation
      and accounted for at cost. In the consolidated financial statements as of
      December 31, 2005, these subsidiaries have been included in consolidation
      and the joint ventures have been accounted for using the equity method.
      In this context, the opening balances of assets, liabilities and equity
      as of January 1, 2003, as well as the consolidated balance sheet as of December
      31, 2003 and the consolidated income statement and cash flow statement for
      the year then ended, have been restated retrospectively.


The retrospective
    restatement had the following effects on the consolidated income statement
    and earnings per share for the year then ended:

|€m                                                              | 2003 
|--------------------------------------------------------------- | -----
|                                                                |      
|Sales
      revenues                                            | 15.7 
|Cost
      of sales                                             | -11.2
|Gross
      profit                                              | 4.5  
|R&D,
      Selling, administrative and other operating expenses | -7.4 
|Operating
      Profit                                          | -2.9 
|Net
      Financing cost                                        | 1.3  
|Loss
      before taxes                                         | -1.6 
|Income
      tax expense                                        | -0.2 
|Loss
      from continuing operations                           | -1.8 
|Profit
      from discontinued operations                       | -1.9 
|                                                                |      
|Net
      profit for the year                                   | -3.7 
|                                                                |      
|Thereof
      relating to minority interests                    | 0.2  
|Earnings
      per share in EUR (basic)                         | 0.18 
|Earnings
      per share in EUR (diluted)                       | 0.18 

The retrospective
    restatement to equity including the minority interests at January 1, 2003
    amounted to (€3.6 million). The first time consolidation of these companies
    has increased net income for fiscal 2005 by €0.6 million and had an
    impact to earnings per share of €0.01.


Share-based
    payment


IFRS 2 “Share-based
    payment” is effective for annual periods beginning on or after January
    1, 2005. The IFRS is to be applied retrospectively on all share-based payments
    granted since November 7, 2002, that still existed when the standard became
    effective and requires comparable information to




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be restated. This
    also includes a restatement to the opening balances of the retained earnings
    in the earliest period presented.

The retrospective
    restatement as at January 1, 2003 had no effect: Through the application of
    IFRS 2 in 2004 and 2003, net income under IFRS decreased by €5.5 million
    and €2.3 million, respectively and earnings per share (diluted and undiluted)
    were reduced by €0.11 and €0.10, respectively.


|m. | Other
|-- | -----

No loans to executive
    committee or supervisory board members were granted or outstanding as of December
    31, 2005 and 2004.


According to U.S.
    GAAP, costs incurred to issue debt securities should be reported as deferred
    financing costs and classified as a non-current asset as the underlying debt
    is long-term. For U.S. GAAP purposes, SGL reclassified the Euro 16.0 million
    recorded as of December 31, 2005 in accrued refinancing costs to non-current
    assets.


Shipping and Handling
    costs are included in Selling Expenses.


Long lived assets
    located in Germany amount to €106.3 million and €110.5 million
    and located outside Germany amount to €326.3 million and to €319.8
    million as of December 31, 2005 and 2004, respectively.


In 2005 restructuring
    expenses of €20.8 million were recognized under IFRS. This amount included
    asset write-down and differs to U.S. GAAP as we had accrued for some of these
    expenses under IFRS in 2004 already, which were not allowed for U.S. GAAP.
    Under U.S. GAAP we had a beginning restructuring provision of €1.5 million,
    that increased by €8.7 million and decreased in 2005 by €5.1 million
    for payments made. Together with a currency difference of €0.0 million
    we have an ending U.S. GAAP restructuring provision of €5.1 million.
    The addition to restructuring provision together
  with asset write-downs in connection with such restructuring measures amounted
  to total restructuring charges of €20.8 million and €19.7 milllion
  in 2005 and 2004.


Under U.S. GAAP
    restricted cash amounting to €0.0 million and €128.0 million as of December
    31, 2005 and 2004 should not be included in the total of cash and cash equivalents
    on the statement of cash flows, as it was included in the IFRS cash flow statement.
    Thus cash provided by financing activities would be €37.0 million and €41.8
    million under U.S. GAAP in 2005 and 2004.


The following table
    shows the assets and liabilities related to discontinued operations as of
    December 31, 2004


|Assets                              | 2004  |  | Liabilities                     | 2004 
|----------------------------------- | ----- |  | ------------------------------- | -----
|                                    |       |  |                                 |      
|                                    | Mio.€ |  |                                 | Mio.€
|                                    |       |  |                                 |      
|Intangible
      assets             | 15.5  |  | Equity                          | 0.0  
|Property,
      plant and equipment | 31.3  |  | Pension
      provisions        | 29.8 
|Non-current
      financial assets  | 0.0   |  | Other
      provisions          | 10.9 
|Inventories                         | 14.7  |  | Trade
      payables            | 12.5 
|Trade
      receivables             | 27.6  |  | Other
      liabilities         | 8.0  
|Other
      assets                  | 10.4  |  |                                 |      
|Deferred
      tax assets           | 20.3  |  | Deferred
      tax liabilities  | 4.0  
|Loss
      from disposal            | -54.6 |  |                                 |      
|                                    |       |  |                                 |      
|Assets
      held for sale          | 65.2  |  | Liabilities
      held for sale | 65.2 
|                                    |       |  |                                 |      
|                                    |       |  |                                 |      

|36. | Subsequent
      Events
|--- | -----------------------

On March 16 and
    17, 2006 SGL Carbon announced and completed an capital increase of 5,583,529
    shares. The shares have been placed at a price of €15.00 per share resulting
    in gross proceeds totalling €83.7 million. The shares were placed with German
    and international institutional investors.


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SGL Carbon received
    an upgrade from the rating agency Moodys Investors Service on March
    20, 2006 on its credit worthiness. The rating of the SGL Carbon AG Corporate
    Family was raised by one notch from “B1” to “Ba3”
    with a stable outlook. The rating on secured facilities was increased from
    “B1” to “Ba3”, and the rating on senior notes of SGL
    Carbon Luxembourg from “B3” to “B2”. In April 2006 we
    further deposited an amount of €88.9 million to the EU, covering the
    present level of the first fine including interest, in an interest bearing
    escrow account of the EU antitrust authorities until the final decisions of
    the courts are made.


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Exhibits
  to SGL CARBON AG

Annual Report

on
  Form 20-F

EXHIBIT INDEX

|                  |  |                                                              |  | Sequentially       
|----------------- |  | ------------------------------------------------------------ |  | -------------------
|Exhibit
      No. |  | Exhibit                                                      |  | Numbered
      Page
|                  |  |                                                              |  |                    
|3(i)              |  | Articles
      of Incorporation (Satzung) of the Registrant. |  |                    
|14                |  | CODE
      OF ETHICS for Senior Financial Officers.          |  |                    
|31                |  | Rule
      13a-14(a)/15d-14(a) Certifications                |  |                    
|32                |  | Section
      1350 Certifications                            |  |                    
|                  |  |                                                              |  |                    

---