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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 20-F



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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  x

For the fiscal year ended September 30, 2005

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from  to

OR

SHELL COMPANY REPORT PURSUANT
TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report

Commission file number: 1-14964



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EPCOS AG

(Exact name of Registrant
as specified in its charter)



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|                                                |  |                                                
|----------------------------------------------- |  | -----------------------------------------------
|N/A                                             |  | Federal Republic of Germany                    
|(Translation of registrants name into English) |  | (Jurisdiction of incorporation or organization)

St.-Martin Strasse 53, D-81669 Munich, Federal Republic of Germany

(Address of principal executive offices)



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



|                                                                                                                                                 |  |                                          
|------------------------------------------------------------------------------------------------------------------------------------------------ |  | -----------------------------------------
|Title of each class                                                                                                                              |  | Name of each exchange On which registered
|American Depositary Shares (as evidenced by American Depositary Receipts), each representing one ordinary share, no par value,
notional value 1 |  | New York Stock Exchange                  
|                                                                                                                                                 | 
|Ordinary shares, no par value, notional value 1*                                                                                                |  | New York Stock Exchange                  



|* | Listed, not for trading or quotation purposes, but only in connection with the trading of American Depositary Shares.
|- | ---------------------------------------------------------------------------------------------------------------------

Securities registered or 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



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The number of outstanding shares of each of the issuers classes of capital or common stock as of
September 30, 2005: 65,300,000 ordinary shares, no par value, notional value 1.

Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes ̈No  x

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 Act 1934.    Yes ̈No  x

Indicate by check mark whether the Registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and
(2) has been subject to such filing requirements for the past 90 days.    Yes  x    No ̈Not applicable ̈

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  x        Non-accelerated filer ̈

Indicate by check mark which financial statement item the registrant has elected to follow.    Item 17 ̈Item 18  x

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  x



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##### Table of Contents

In this annual report on Form 20-F, the terms the Company, we,
us and our refer to EPCOS AG including its predecessor companies and subsidiaries when the context requires.

As
used herein, references to  are to euro and references to dollars, USD or $ are to U.S. dollars.

For information regarding recent rates of exchange between euros and dollars, see Item 3. Key Information  Exchange Rates. On March 21, 2006, the noon buying rate for the euro was
1.00 = $ 1.2079, translated from euros at the official fixed exchange rate. As used in this document, the term noon buying rate refers to the rate of exchange for euro, expressed in U.S. dollars per euro, as announced by the
Federal Reserve Bank of New York for customs purposes as the rate in The City of New York for cable transfers in foreign currencies. We discuss the impact of exchange rate fluctuations on our business below under Item 5. Operating and
Financial Review and Prospects and Item 3. Key Information.

The consolidated financial statements for each of the
years in the three-year period ended September 30, 2005 (the Consolidated Financial Statements) included in this Form 20-F, have been prepared in accordance with United States generally accepted accounting principles
(U.S. GAAP).

Our beliefs about our market shares and market growth rates are based on both external and internal market
research. External sources include both public sector institutions, such as national and international trade and production institutions, and private organizations, such as independent market research institutions. Internal market research is based
on customer communications, review of annual and business reports and press releases of competitors, direct communication with competitors, and information gathered from our former joint venture partners, Siemens AG (Siemens) and
Matsushita Electronic Components (Europe) GmbH (together with its affiliates Matsushita).



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CAUTIONARY STATEMENT WITH RESPECT TO FORWARD-LOOKING STATEMENTS

This annual report contains statements that constitute forward-looking statements within the meaning of Section 27A of the U.S.
Securities Act of 1933, as amended, and Section 21E of the U.S. Securities Exchange Act of 1934, as amended. In addition, other written or oral statements which constitute forward-looking statements have been made and may in the future be made
by or on behalf of the Company.

In this annual report, such forward-looking statements include, without limitation, statements relating
to:



| | 1. | management goals and objectives,
| | -- | --------------------------------



| | 2. | trends in results of operations or margins,
| | -- | -------------------------------------------



| | 3. | the development of revenues overall and within specific business areas,
| | -- | -----------------------------------------------------------------------



| | 4. | the development of expenses,
| | -- | ----------------------------



| | 5. | the effects of our restructuring and cost-cutting program,
| | -- | ----------------------------------------------------------



| | 6. | the market risks associated with interest and exchange rates, and
| | -- | -----------------------------------------------------------------



| | 7. | other statements relating to our future business development and economic performance.
| | -- | --------------------------------------------------------------------------------------

The words anticipate, believe, expect, estimate, intend, plan and similar expressions identify certain of these forward-looking statements.
Readers are cautioned not to put undue reliance on forward-looking statements because actual events and results may differ materially from the expected results described by such forward-looking statements.

Many factors may influence our actual results and cause them to differ materially from expected results as described in forward-looking statements. Such
factors include:



| |  |  | changes in our customers industries,
| | - |  | -------------------------------------



| |  |  | technological developments impacting the prospects for our products,
| | - |  | --------------------------------------------------------------------



| |  |  | slower growth in significant markets,
| | - |  | -------------------------------------



| |  |  | decline in demand and more pronounced recessionary trends in our markets,
| | - |  | -------------------------------------------------------------------------



| |  |  | interest rate levels,
| | - |  | ---------------------



| |  |  | currency exchange rates, including the euro  U.S. dollar and euro  Japanese yen exchange rates,
| | - |  | -------------------------------------------------------------------------------------------------



| |  |  | increasing levels of competition in Europe, North America, Asia and other international markets for our products,
| | - |  | -----------------------------------------------------------------------------------------------------------------



| |  |  | changes in our business strategy,
| | - |  | ---------------------------------



| |  |  | changes in our relationships with our principal shareholders,
| | - |  | -------------------------------------------------------------



| |  |  | the ability to realize cost reductions and operating efficiencies without unduly disrupting business operations,
| | - |  | ----------------------------------------------------------------------------------------------------------------



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| |  |  | unforeseen additional costs in connection with the sale of our tantalum business unit,
| | - |  | --------------------------------------------------------------------------------------



| |  |  | unforeseen environmental obligations,
| | - |  | -------------------------------------



| |  |  | changes in laws and regulations,
| | - |  | --------------------------------



| |  |  | interruption of production due to strikes, acts of nature, or other unforeseeable events,
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | unforeseeable events impacting the economy on a global basis, and
| | - |  | -----------------------------------------------------------------



| |  |  | general economic and business conditions and competitive factors, in each case on a global and regional basis.
| | - |  | --------------------------------------------------------------------------------------------------------------

We disclaim any intention or obligation to update and revise any forward-looking statements, whether as a result of new information, future events or
otherwise.



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TABLE OF CONTENTS



|          |  |                                                                              |  |     
|--------- |  | ---------------------------------------------------------------------------- |  | ----
|          |  |                                                                              |  | Page
|PART I    |  |                                                                             
|          |  |                                                                             
|Item 1.   |  | Identity of Directors, Senior Management and Advisers                        |  | 1   
|          |  |                                                                             
|Item 2.   |  | Offer Statistics and Expected Timetable                                      |  | 1   
|          |  |                                                                             
|Item 3.   |  | Key Information                                                              |  | 1   
|          |  |                                                                             
|Item 4.   |  | Information on the Company                                                   |  | 8   
|          |  |                                                                             
|Item 4A.  |  | Unresolved Staff Comments                                                    |  | 30  
|          |  |                                                                             
|Item 5.   |  | Operating and Financial Review and Prospects                                 |  | 30  
|          |  |                                                                             
|Item 6.   |  | Directors, Senior Management and Employees                                   |  | 54  
|          |  |                                                                             
|Item 7.   |  | Major Shareholders and Related Party Transactions                            |  | 62  
|          |  |                                                                             
|Item 8.   |  | Financial Information                                                        |  | 66  
|          |  |                                                                             
|Item 9.   |  | The Offer and Listing                                                        |  | 67  
|          |  |                                                                             
|Item 10.  |  | Additional Information                                                       |  | 70  
|          |  |                                                                             
|Item 11.  |  | Quantitative and Qualitative Disclosures about Market Risk                   |  | 85  
|          |  |                                                                             
|Item 12.  |  | Description of Securities other than Equity Securities                       |  | 86  
|          | 
|PART II   |  |                                                                             
|          |  |                                                                             
|Item 13.  |  | Defaults, Dividend Arrearages and Delinquencies                              |  | 87  
|          |  |                                                                             
|Item 14.  |  | Material Modifications to the Rights of Security Holders and Use of Proceeds |  | 87  
|          |  |                                                                             
|Item 15.  |  | Controls and Procedures                                                      |  | 87  
|          |  |                                                                             
|Item 16A. |  | Audit Committee Financial Expert                                             |  | 87  
|          |  |                                                                             
|Item 16B. |  | Code of Ethics                                                               |  | 87  
|          |  |                                                                             
|Item 16C. |  | Principal Accountant Fees and Services                                       |  | 88  
|          |  |                                                                             
|Item 16D. |  | Exemptions from the Listing Standards for Audit Committees                   |  | 88  
|          |  |                                                                             
|Item 16E. |  | Purchases of Equity Securities by the Issuer and Affiliated Purchasers       |  | 88  
|          | 
|PART III  |  |                                                                             
|          |  |                                                                             
|Item 17.  |  | Financial Statements                                                         |  | 88  
|          |  |                                                                             
|Item 18.  |  | Financial Statements                                                         |  | 88  
|          |  |                                                                             
|Item 19.  |  | Exhibits                                                                     |  | 89  



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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 Consolidated Financial and Statistical Data

Our Consolidated Financial Statements have been prepared in accordance with U.S. GAAP and audited by the independent auditors KPMG Deutsche
Treuhand-Gesellschaft Aktiengesellschaft Wirtschaftsprüfungsgesellschaft (KPMG).

The selected consolidated financial data have been
derived from our Consolidated Financial Statements and should be read in conjunction with the Consolidated Financial Statements, related notes, and other financial information included herein and in Item 5. Operating and Financial Review
and Prospects.

The consolidated financial information presented below may not be indicative of our future performance. We describe
some of the relevant risk factors below under Risk Factors.



|                                               |  |                                              |   |  |         |  |         |  |         |   |  |        
|---------------------------------------------- |  | -------------------------------------------- | - |  | ------- |  | ------- |  | ------- | - |  | -------
|                                               |  | Fiscal year ended September 30,             
|                                               |  | 2005                                         |   |  | 2004    |  | 2003    |  | 2002    |   |  | 2001   
|                                               |  | (euro in millions, except per share amounts)
|Consolidated statement of income data:         |  |                                              |   |  |         |  |         |  |         |   |  |        
|Net sales                                      |  | 1,237.5                                      |   |  | 1,362.2 |  | 1,271.6 |  | 1,311.7 |   |  | 1,905.3
|Gross profit                                   |  | 121.0                                        |   |  | 270.5   |  | 212.4   |  | 163.5   |   |  | 465.0  
|Operating income/(loss)                        |  | (78.9                                        | ) |  | 59.0    |  | 8.0     |  | (77.5   | ) |  | 214.0  
|Net income/(loss)                              |  | (119.3                                       | ) |  | 49.2    |  | 6.7     |  | (38.5   | ) |  | 148.6  
|Basic earnings/(loss) per share                |  | (1.83                                        | ) |  | 0.75    |  | 0.10    |  | (0.59   | ) |  | 2.28   
|Diluted earnings/(loss) per share              |  | (1.83                                        | ) |  | 0.71    |  | 0.10    |  | (0.59   | ) |  | 2.28   
|                                               | 
|                                               |  | As of September 30,                         
|                                               |  | 2005                                         |   |  | 2004    |  | 2003    |  | 2002    |   |  | 2001   
|                                               |  | (euro in millions)                          
|Consolidated balance sheet data:               |  |                                              |   |  |         |  |         |  |         |   |  |        
|Working capital                                |  | 288.5                                        |   |  | 314.0   |  | 228.3   |  | 26.9    |   |  | 59.4   
|Property, plant and equipment, net             |  | 576.3                                        |   |  | 604.4   |  | 649.5   |  | 737.1   |   |  | 802.8  
|Total assets                                   |  | 1,376.9                                      |   |  | 1,486.2 |  | 1,429.0 |  | 1,343.6 |   |  | 1,417.7
|Short-term borrowings                          |  | 107.5                                        |   |  | 103.0   |  | 96.7    |  | 126.4   |   |  | 109.8  
|Long-term debt, excluding current installments |  | 206.1                                        |   |  | 192.7   |  | 215.0   |  | 65.5    |   |  | 49.7   
|Shareholders equity                           |  | 556.5                                        |   |  | 679.6   |  | 638.7   |  | 642.2   |   |  | 695.3  



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|                                                                      |  |                                              |   |  |       |  |       |  |       |   |  |       |  
|--------------------------------------------------------------------- |  | -------------------------------------------- | - |  | ----- |  | ----- |  | ----- | - |  | ----- | -
|                                                                      |  | Fiscal Year ended September 30,              |  
|                                                                      |  | 2005                                         |   |  | 2004  |  | 2003  |  | 2002  |   |  | 2001  |  
|                                                                      |  | (euro in millions, except per share amounts) |  
|Other data:                                                           |  |                                              |   |  |       |  |       |  |       |   |  |       |  
|Earnings/(loss) before interest, taxes and minority interest (EBIT) |  | (88.4                                        | ) |  | 64.9  |  | 5.5   |  | (72.1 | ) |  | 207.9 |  
|Capital expenditures                                                  |  | 152.6                                        |   |  | 111.4 |  | 98.4  |  | 131.5 |   |  | 348.9 |  
|Depreciation and amortization                                         |  | 208.1                                        |   |  | 155.3 |  | 157.3 |  | 171.6 |   |  | 193.9 |  
|Dividends per share                                                   |  |                                             |   |  |      |  |      |  |      |   |  | 1.0   | *

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|* | Declared on March 6, 2001 in respect of fiscal year 2000.
|- | ---------------------------------------------------------

At September 30, 2005, we had 65,300,000 ordinary shares outstanding. Our basic earnings per share are calculated on the basis of the weighted average shares outstanding of 65,300,000 for fiscal year 2005, 65,296,107 for fiscal year
2004, 65,275,000 for fiscal year 2003, 65,288,838 for fiscal year 2002 and 65,289,526 for fiscal year 2001. For potentially dilutive securities outstanding during the fiscal year ended September 30, 2005, see Note 16 to our Consolidated
Financial Statements. Under two stock option plans adopted by our shareholders on September 28, 1999 (the 1999 SOP) and February 11, 2004 (the 2004 SOP), respectively, we granted to our management and some
of our employees



| |  |  | options to purchase a total of 2,269,500 shares under the 1999 SOP;
| | - |  | -------------------------------------------------------------------



| |  |  | in December 2004, options to purchase a further 340,000 shares under the 2004 SOP; and
| | - |  | --------------------------------------------------------------------------------------



| |  |  | in December 2005, options to purchase a further 339,000 shares under the 2004 SOP.
| | - |  | ----------------------------------------------------------------------------------

For further information see Item 6. Directors, Senior Management and Employees  Options to Purchase Securities from Registrant or Subsidiaries. We have not paid any dividends in respect of
fiscal years 2001 through 2005. Our dividends per share in respect of fiscal year 2000 amounted to $ 0.9274, based on the noon buying rate for 1.00 on March 7, 2001, the date of payment. For further information on statutory
limitations to our ability to pay dividends, see Item 8. Financial Information  Dividend Policy.

We present EBIT
because that is the basis on which our management evaluates the operating performance of our four reportable segments and of the Company as a whole and on which it establishes budgets and operational goals. We report EBIT information because we
believe that it provides investors with meaningful information about our operating performance and especially about the performance of our separate business segments. We believe that EBIT is a better measure of operating performance than net income
since the latter includes interest income (expenses) and benefit (provision) for income taxes, whereas EBIT permits investors to examine the performance of each business segment and the Company as a whole between years with a higher degree of
comparability.



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We calculate EBIT as net income (loss) plus (minus) minority interest minus (plus) benefit (provision)
for income taxes minus interest income plus interest expense. The following table reconciles EBIT for each year shown in the table above to the net income reported for such year:

Reconciliation of EBIT to net income



|                                     |  |                                 |   |  |      |   |  |       |   |  |       |   |  |       |  
|------------------------------------ |  | ------------------------------- | - |  | ---- | - |  | ----- | - |  | ----- | - |  | ----- | -
|                                     |  | Fiscal Year ended September 30, |  
|                                     |  | 2005                            |   |  | 2004 |   |  | 2003  |   |  | 2002  |   |  | 2001  |  
|                                     |  | (euro in millions)              |  
|Net income (loss)                    |  | (119.3                          | ) |  | 49.2 |   |  | 6.7   |   |  | (38.5 | ) |  | 148.6 |  
|Minority interest                    |  | 0.2                             |   |  | 0.2  |   |  | 0.2   |   |  | 0.0   |   |  | 1.2   |  
|Provision (benefit) for income taxes |  | 22.0                            |   |  | 9.6  |   |  | (10.2 | ) |  | (40.1 | ) |  | 55.9  |  
|Interest income                      |  | (3.2                            | ) |  | (4.3 | ) |  | (1.9  | ) |  | (1.7  | ) |  | (4.6  | )
|Interest expense                     |  | 11.8                            |   |  | 10.2 |   |  | 10.7  |   |  | 8.2   |   |  | 6.8   |  
|                                     |  |                                 |   |  |      |   |  |       |   |  |       |   |  |       |  
|EBIT                                 |  | (88.4                           | ) |  | 64.9 |   |  | 5.5   |   |  | (72.1 | ) |  | 207.9 |  

Exchange Rates

Fluctuations in the exchange rate between the euro and the U.S. dollar will affect the U.S. dollar amounts received by owners of shares or American Depositary Shares (ADS) on conversion of dividends, if
any, paid in euro on the shares and will affect the U.S. dollar price of the ADSs on the New York Stock Exchange.

To enable you to
ascertain how the trends in our financial results might have appeared had they been expressed in U.S. dollars, the table below shows the average exchange rates of U.S. dollars per euro for the periods shown.

Average exchange rates of U.S. dollars per euro



|                                     |  |        
|------------------------------------ |  | -------
|                                     |  | Average
|Fiscal year ended September 30, 2005 |  | 1.2727 
|Fiscal year ended September 30, 2004 |  | 1.2199 
|Fiscal year ended September 30, 2003 |  | 1.0919 
|Fiscal year ended September 30, 2002 |  | 0.9208 
|Fiscal year ended September 30, 2001 |  | 0.8886 

The table below shows the high and low exchange rates of U.S. dollars per euro for each month from
September 2005 through March 2006:

Recent exchange rates of U.S. dollars per euro



|                                    |  |        |  |       
|----------------------------------- |  | ------ |  | ------
|                                    |  | High   |  | Low   
|September 2005                      |  | 1.2538 |  | 1.2011
|October 2005                        |  | 1.2148 |  | 1.1914
|November 2005                       |  | 1.2067 |  | 1.1667
|December 2005                       |  | 1.2041 |  | 1.1699
|January 2006                        |  | 1.2287 |  | 1.1980
|February 2006                       |  | 1.2100 |  | 1.1860
|March 2006 (through March 21, 2006) |  | 1.2197 |  | 1.1886

The noon buying rate for euro on September 30, 2005 was 1.00 = $ 1.2058. The noon
buying rate on March 21, 2006 was 1.00 = $ 1.2079.



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Risk Factors

Our business, financial condition or results of operations could suffer material adverse effects due to any of the following risks. The risks described below are not the only ones we face. Additional risks not known to us or that we now
consider immaterial may also impair our business operations.

This annual report also contains forward-looking statements that
involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward looking statements as a result of certain factors, including the risks faced by us described below and elsewhere in this Annual
Report. For a summary of statements that may include forward-looking statements and of factors that may influence our actual results, see Cautionary statement with respect to forward-looking statements on pages (ii) and
(iii) above.

If the anticipated moderate growth in the global economy and in the electronics industry is weaker or shorter
than expected, demand in the electronic component industry may decline again, which could lead to increased price erosion and adversely affect our results of operations.After a prolonged downturn in the global economy in general and the
passive electronic component industry in particular, we experienced a global upturn in the first half of fiscal year 2004, accompanied by a generally positive trend in demand for passive electronic components from all industries and regions.
However, this recovery slowed down quickly and was followed by a further downturn, especially in our home market Europe, lasting until the second quarter of fiscal year 2005. During the periods of economic downturn, we suffered from declining demand
in the passive electronic component industry, which caused a significant drop in our average sales prices, resulting in a reduction in our gross margins and operating profits, though demand for passive components stabilized somewhat in the second
half of fiscal year 2005. As the future development of the global economy and the demand of the electronic component industry remain uncertain, it has been more difficult for us to predict our future sales, which has made it more difficult to manage
our operations. If the current economic recovery is weaker or shorter than expected, such developments may recur, which could adversely impact our results of operations.

We must consistently reduce the total costs of our products to combat the impact of downward price trends and may incur additional restructuring costs in future.Our industry is intensely competitive,
and prices for existing products tend to decrease steadily over their life cycle. Pricing pressure was notably pronounced in fiscal years 2002 and 2003 as demand declined. Even though prices stabilized in the second half of fiscal year 2004, there
was substantial and continuing pressure from customers to reduce the total cost of using our parts and components. In the first half of fiscal year 2005, orders for passive electronic components dropped again due to weak demand in the industry,
causing price pressure. This trend was intensified by an unfavorable USD/euro exchange rate. As demand stabilized somewhat in the second half of the fiscal year, pressure on prices for passive electronic components eased. To remain competitive, we
must achieve continuous cost reductions through process and product improvements. We must also be in a position to minimize our customers shipping and inventory financing costs and to meet their other goals for rationalization of supply and
production. Our growth and the profit margins of our products will suffer if our competitors are more successful in reducing the total cost to customers of their products than we are. For a more complete discussion of the competitive factors
affecting our major markets, see Item 4. Information on the Company  Competition. As a result of our efforts to streamline operations in response to the competition in the electronic components market, we incurred
restructuring costs during fiscal year 2005 and may incur additional restructuring costs in future.

Our cash flow from operations
may not be adequate to finance all of our planned investments.We have planned capital expenditures over the next several years to raise productivity, to enable us to develop new products and, in some cases, to expand our capacity. We
describe these expenditures in more detail in Item 5. Operating and Financial Review and Prospects  Capital Expenditures. To the extent our cash flow from operations is not adequate to finance these expenditures, we may
rely on debt financing to meet a portion of our remaining investment needs. If



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we cannot obtain this debt financing on favorable terms, then we may forego or delay some of these expenditures, which
could hinder the development of our business and our competitiveness. Our profitability will suffer if the return on the investments financed through debt is less than the costs of financing these expenditures.

Exchange rate fluctuations could affect our ability to price our products competitively. Many of our competitors are based in Japan, the
United States, Asia (especially China) and other countries whose currencies fluctuate against the euro. Our business will suffer if we are unable to compensate for any competitive advantage others may derive from having a substantial portion of
their costs based in another currency if this currency should weaken vis-à-vis the euro. In recent years, we have increasingly relocated our value chain and materials-sourcing activities from Central Europe to countries with lower labor
costs. The currencies in many of these countries are more or less closely tied to the U.S. dollar. If our competitors benefit from weakening currencies by offering their products at prices that are lower than ours, we may need to reduce our prices
to make our products competitive, lowering our profit margins. This was the case in particular in fiscal year 2004 as well as in the first quarter of fiscal year 2005, when the increasing devaluation of the U.S. dollar and Yen against the euro
intensified price erosion for our products. If the weakness of the USD will continue, it could intensify price erosion for our products further and our competitive position and profitability may suffer.

Cyclical changes in our customers industries have resulted, and may in future result, in significant fluctuations in demand for our products,
increasing our unit costs and reducing our profitability.Most of our customers are in cyclical industries. Their requirements for passive components fluctuate significantly as a result of changes in general economic activity and other
factors. During periods of increasing demand they typically seek to increase their inventory of our products to avoid production bottlenecks. When demand for their products has peaked and begins to decline, as happened in the second half of fiscal
year 2004 and in the first half of fiscal year 2005, they tend to decrease rapidly or even cancel orders for our products while they use up accumulated stocks. During the first half of 2005 in particular, persistent price erosion reduced our
profitability because reduction of these inventories lasted unexpectedly long and we were not able to utilize production capacity as planned. Business cycles vary somewhat in different geographical regions and customer industries. Significant
fluctuations in sales of our products increase our unit costs and reduce our potential profitability by making it more difficult for us to predict our production, raw materials and shipping needs. We are also vulnerable to general economic events or
trends beyond our control, and our sales and profits may suffer in periods of weak demand.

We must continue to develop innovative
products and production techniques to combat downward price pressure for our products and to meet market requirements.EPCOS operates primarily in markets that are subject to very rapid technological change. Sustaining and improving our
profitability depends a great deal on our ability to develop new products quickly and successfully to customer specifications. Pressure on the prices of our products increases with the age of the product. Non-customized commodity products are
especially vulnerable to price pressure, but customized products have also experienced severe price pressure in the last fiscal years. We have traditionally resisted downward pricing trends in part by offering products with new technologies or
applications that offer our customers advantages over older products. We also seek to maintain profitability by developing products to our customers specifications that are not readily available from competitors stocks. Developing and
marketing these products requires continuous efforts and high start-up costs that may not be recouped if those new products or production techniques are not successful. If we are unable to develop innovative products and production techniques, our
competitive position and profitability will suffer. Additionally, if EPCOS is not able to respond as quickly as competitors to new market trends or technologies, we may lose market share.

Our efforts to expand our business in Asia and elsewhere may lead to increased competition with our shareholder Matsushita and harm our growth and
our cooperation with them.Our shareholder Matsushita, which is one of the worlds largest manufacturers of passive components,



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remains active in the passive components industry. We expect to face increased competition with Matsushita as we continue
our expansion in Asia, where Matsushita has especially strong market positions. Increased competition with Matsushita may harm our growth. Although we have entered into cross license and technical cooperation agreements to govern our cooperation
with Matsushita, the possibility of more intense competition between the two companies may also hinder cooperation. Difficulties in this relationship may harm our ability to jointly develop some of our products resulting in higher research and
development expenses.

Losing the services of members of our management board or our other highly qualified and experienced employees
could harm our competitiveness.Our success depends upon the continued contributions of experienced members of management who are able to implement our business strategy. We must also attract and maintain experienced and highly skilled
engineering, sales and marketing and managerial personnel. Competition for qualified personnel is intense in our industry, and we may not be successful in hiring and retaining these people. If we unexpectedly lose the services of any members of
management or cannot attract and retain other qualified personnel, our business could suffer through less effective management due to loss of knowledge of our business or through less competitive products due to a reduced ability to design,
manufacture and market innovative products. If management is not able to implement our strategy, we may not be able to realize our goals and our results of operations may suffer.

Shortages and price increases in some of our raw materials as well as defective incoming raw materials may increase our costs and reduce our
profitability.For some of our product lines, we require raw materials that only a limited number of suppliers can provide in sufficient quality or amount to meet our needs. The most significant of these materials include silver/palladium
powder and foils for ceramic capacitors, ceramic packaging materials and wafers made of lithium niobate, lithium tantalate and quartz for SAW components. We describe our use of these materials in more detail in Item 4. Information on the
Company  Description of Business  Raw Materials and Sources of Supply. To reduce the risk of supply interruptions or price increases of our significant raw materials, we generally try to maintain alternative sources and
seek to reduce our needs of those that are expensive or subject to shortages through technical innovation. Despite these measures, we could experience shortages in the availability of these and other raw materials or a higher volume of defective
incoming raw materials that would increase our costs, limit our business volume and hurt our margins.

Environmental laws and
regulations may expose us to liability and increase our costs.Our operations are subject to many environmental laws and regulations wherever we operate governing, among other things, air emissions, wastewater discharges, the use and
handling of hazardous substances, waste disposal and the investigation and remediation of soil and groundwater contamination. In the past, we have incurred some costs in connection with liability for remediation of soil and groundwater
contamination. In addition, in February 2003, two directives of the European Union governing waste electrical and electronic equipment and restricting the use of specified hazardous substances in electrical and electronic equipment became effective.
These directives require equipment vendors to take back used equipment and ban lead, cadmium, mercury, hexavalent chromium and some flame-retardants in electronic components. These directives could adversely affect our manufacturing costs or product
sales because they may force us to change production processes or use more costly materials for our products in order to make them capable of withstanding the higher temperatures required for lead-free soldering processes that our customers use. For
further details, see Item 8. Financial Information  Legal Matters  Environment. As with other companies engaged in similar activities, a risk of environmental liability is inherent in our current and historical
manufacturing activities. Future additional environmental compliance or remediation obligations could adversely affect our business through increased production costs from implementing environmentally compliant manufacturing facilities. By
restricting or prohibiting the distribution of our current products, environmental regulations could also harm our business by forcing us to increase research and development expenditures and by shortening the useful sales lives of our products.



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We might be faced with product liability or warranty claims, either directly or indirectly through
our customers.Despite extensive quality assurance measures, there remains a risk that defects may occur in our products. Such defects could, in turn, lead to defects in our customers products that incorporate our products. The
occurrence of defects in our products could give rise to warranty claims against us or to liability for damages caused by such defects to our customers or to the customers of our customers. Such defects could also lead to liability for consequential
damages. Defects in our products could, moreover, impair the markets acceptance of our products. Any of these events could have a material adverse effect on our business and financial condition.

Our principal shareholders can together block some and influence other major corporate actions, reducing the value of your investment.To
our knowledge, our shareholders Siemens and Matsushita each hold 12.5% plus one share of our share capital. They may have the power to influence significantly the outcome of any matter requiring a shareholder vote, including the approval of
dividends and the election of members of the supervisory board. If they act together, they could block action on a capital increase that excludes preemptive rights or on a capital decrease, a merger, consolidation, spin-off or sale or other transfer
of all or substantially all of our assets, a change in our corporate form or business purpose or the dissolution of EPCOS. The value of your investment in EPCOS may suffer as a result.

A decline in the value of the euro could reduce the value of your investment and any dividends you receive.Fluctuations in the exchange
rate between the dollar and the euro have affected and will continue to affect the dollar equivalent of the euro price per share and the dollar value of any cash dividends. If the value of the euro relative to the dollar declines, the market price
of the ADSs is likely to be adversely affected. Any decline in the value of the euro would also adversely affect the dollar amounts received by ADS holders on the conversion of any cash dividends paid in euro on the shares.

Because U.S. investors may be unable to participate in future rights offerings, your percentage shareholding may be diluted.Except in
limited circumstances, German public companies must offer preemptive rights to existing shareholders when issuing new shares. For reasons relating to U.S. securities laws or other factors, U.S. investors may not be able to participate in rights
issues we may choose to make and may face dilution as a result.

Rights of shareholders in a German corporation may differ from
rights of shareholders in a corporation organized in another jurisdiction. EPCOS is a public company organized under the laws of Germany. The rights of our shareholders are governed by our articles of association and by German law. These
rights may differ in some respects from the rights of shareholders in corporations organized in jurisdictions other than Germany. In addition, it may be difficult for investors to enforce the securities laws of other jurisdictions, or to prevail in
a claim against the Company based on those laws.

Because we and most of our directors and officers are located in Germany, it may be
difficult for you to sue these persons in the United States or to enforce judgments by U.S. courts against them.We are a corporation organized under the laws of the Federal Republic of Germany, and most of our directors and executive
officers are residents of Germany. In addition, most of our assets owned and those of the aforesaid individuals are located outside the United States. As a result, it may be difficult or impossible for you to effect service of process upon us or any
of the aforesaid persons within the United States with respect to matters arising under the U.S. federal securities laws or to enforce against us or any of such persons judgments of U.S. courts predicated upon the civil liability provisions of the
U.S. federal securities laws. We have been advised by counsel that it is doubtful as to whether original actions of liabilities predicated on the U.S. federal securities laws may be enforced in Germany and that in Germany both recognition and
enforcement of U.S. court judgments with respect to the civil liability provisions of the U.S. federal securities laws are solely governed by the provisions of the German Civil Procedure Code (Zivilprozessordnung or ZPO). In some cases, especially
when the relevant statutory provisions of German law do not recognize the



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international jurisdiction of a U.S. court or the judgment conflicts with certain basic principles of German law
(e.g., the prohibition against punitive damages and limited pre-trial discovery), a U.S. judgment might not be recognized by a German court. Service of process in U.S. proceedings on persons in Germany, however, is regulated by a multilateral
treaty guaranteeing service of writs and other legal documents in civil cases if the current address of the defendant is known.

Item 4. Information on the Company

Description of Business

EPCOS, headquartered in Munich, Germany, is one of the worlds leading producers and suppliers of passive electronic components. Passive electronic
components process electrical signals, control power supplies and protect electronic circuitry, among other things. The core of EPCOS was Siemens Matsushita Components, a former fifty-fifty joint venture formed in 1989 between Siemens AG and
Matsushita Electronic Components (Europe) GmbH with diverse activities in passive components. EPCOS also includes several additional former subsidiaries and operations of Siemens AG, as well as Crystal Technology, Inc., the Palo Alto company that
mainly makes the lithium niobate crystals we use in our SAW components. We describe the transactions through which EPCOS was created in more detail under Item 10. Additional Information  Material Contracts 
Agreements with Siemens and  Agreements with Matsushita.

The main categories of passive components that we
manufacture are capacitors, thermistors and varistors, sensors, surge voltage arresters, piezo actuators, filters, soft ferrite cores and inductors. Passive components are used in every electronic circuit and are found in equipment and systems
marketed by all sectors of the electrical and electronics industries. With more than 40,000 different products, we supply customers across a spectrum of industries and applications with a comprehensive line of standardized passive components as well
as customer or application-specific solutions. We manufacture our products using an extensive array of proprietary processes in advanced facilities in twelve countries on four continents.

In fiscal year 2005, we report our business in the following four reportable segments:



| | 1. | Surface Acoustic Wave (SAW) Components: SAW components, together with integrated modules and microwave ceramic components, are key components of modern information and
communications. SAW components select frequencies and have a decisive impact on picture and sound quality in audio and TV equipment as well as in mobile phones. Our subsidiary Crystal Technology, Inc. in Palo Alto, California, is the world market
leader in lithium niobate crystals and wafers, which are the raw materials for many SAW components.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2. | Ceramic Components: Ceramic components use the properties of ceramic materials to filter electrical signals, measure physical quantities, such as temperature, and protect
electronic circuitry against overvoltage and overcurrent. Our products in this segment cover applications in the mobile communications, automotive, industrial consumer and household electronics markets.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3. | Capacitors: Capacitors store and release electric charges and filter or regulate current and voltage in electronic circuitry. Applications for capacitors range from mobile
phones to automotive and industrial electronics to high speed trains.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 4. | Inductors and Ferrites: Inductors are used, among other things, in switch-mode power supplies for industrial, automotive and entertainment electronics, as well as for
information and communications. The heart of inductors are ferrites. Ferrite cores concentrate electromagnetic fields to transmit electrical signals and power. This segment also includes transformers and other finished inductors made by winding
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  | ferrite cores with wire, as well as some accessories. Electromagnetic compatibility (EMC) components, which also belong to this segment, suppress high frequency electromagnetic
radiation in electronic devices.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We explain the basic functionalities of these different categories of electronic parts and
components below under  The Passive Components Industry. You can find more specific information about the types of products we make and their typical applications below under  Products.

In March 2005, we closed our ferrites plant in Bordeaux, France due to a deterioration in earnings over the last several years. The production equipment
was transferred to our plants in the Czech Republic and India. In connection with the plant closing, we incurred additional expenses in the amount of 5 million. While some cost items were higher than initially planned, others were driven by
the extended operation of the plant in the second quarter of fiscal year 2005, leading to reduced cash flow in fiscal year 2005. Also our expectations for future cash flows are now lower than planned. This, and a significant adverse change of
expected ferrite sales volume, led us to conduct an impairment test, as a result of which we recorded a 12 million impairment of goodwill in the ferrites division in the second quarter of fiscal year 2005.

On December 12, 2005, EPCOS signed a definitive agreement to sell its tantalum capacitors unit to KEMET Corporation, a Delaware corporation, for an
aggregate purchase price of 86.5 million. KEMET has agreed to acquire EPCOSs plant in Évora, Portugal and to take on the employees of this production facility. Additionally, KEMET has agreed to take on some, but not all of
our tantalum capacitor-related research and development as well as of our marketing and sales staff from Heidenheim and Munich. The transaction is expected to close in the spring of 2006, subject to regulatory approvals. A Manufacturing and Supply
Agreement has been signed for the transitional period, and we expect the transfer to be complete later in 2006.

The sale is expected to
bring a cash inflow of approximately 70 million in fiscal year 2006. This amount is less than the selling price because, among other things, KEMET is also taking on liabilities of the company in Évora, Portugal and because EPCOS
must bear specified restructuring costs, including the costs of a planned headcount reduction in Heidenheim, Germany. The anticipated cash inflow of 70 million is expected to strengthen both our cash flow and our balance sheet in fiscal
year 2006.



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The following table shows the total sales by segment in each of the last three fiscal years:

Total sales by segment



|                       |  |                                 |  |       |  |      
|---------------------- |  | ------------------------------- |  | ----- |  | -----
|                       |  | Fiscal year ended September 30,
|                       |  | 2005                            |  | 2004  |  | 2003 
|                       |  | (euro in millions)             
|SAW components         |  | 369.5                           |  | 449.7 |  | 403.8
|Ceramic components     |  | 361.3                           |  | 374.3 |  | 355.8
|Capacitors             |  | 336.2                           |  | 353.7 |  | 350.4
|Inductors and ferrites |  | 170.5                           |  | 184.5 |  | 161.6

Our production and design facilities are located throughout Europe, the Asian region and the
Americas, and our sales network covers about 90 countries worldwide, either directly or through partners such as Siemens and independent agents. The table below shows net sales by region in each of the last three fiscal years:

Total sales by region



|              |  |                                 |  |       |  |      
|------------- |  | ------------------------------- |  | ----- |  | -----
|              |  | Fiscal year ended September 30,
|              |  | 2005                            |  | 2004  |  | 2003 
|              |  | (euro in millions)             
|Europe        |  | 734.8                           |  | 800.9 |  | 798.7
|Asia          |  | 346.5                           |  | 393.8 |  | 328.9
|United States |  | 70.6                            |  | 78.6  |  | 75.6 
|Other         |  | 85.6                            |  | 88.9  |  | 68.4 

Following two years of significant decline, in particular in fiscal year 2002, the European market
for passive components, which is characterized largely by telecommunications and automotive and industrial electronics, experienced moderate growth both in Germany as well as in the other European markets in fiscal year 2004. In fiscal year 2005,
however, sales in Europe decreased. EPCOS attributes this mainly to inventory reductions in mobile phones and entertainment electronics products, while business in Germany remained more or less stable due to our strong position in industrial and
automotive electronics.

Production of mass-market consumer goods and electronic data processing equipment has increasingly shifted to the
Asian region over the last twenty years, with many European companies transferring production to remain competitive with local producers. Passive components markets in the Asian region witnessed strong growth rates through 2004. In fiscal year 2005,
inventory reductions by manufacturers of mobile phones and entertainment electronics products, many of which are based in or manufacture in Asia, were principal factors contributing to a decline in sales. In the coming years we expect sales to
rebound in this fast growing market. Consequently, we have expanded our presence in this key growth region.

Following a decline in sales
in fiscal year 2003, sales in the North American market picked up again in fiscal year 2004. Although sales in the North American market declined again in fiscal year 2005, our business activities in this region remain very important as many
American customers still develop most of their new products and systems in this region.

Our product line is characterized by quality,
technological sophistication and innovative design. We focus our product development efforts on areas of particular importance to our key customers, such as modules (which integrate a variety of components in and on one substrate), piezo stacks
(mainly for advanced fuel injection systems) and SAW components for third-generation telecommunications equipment. We also offer commodity components to complete our product lines and to generate higher production volumes to benefit from the
economies of scale.



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We structure our product offering to meet the needs of the principal industry groups that we serve:
telecommunications, automotive, and consumer and industrial electronics. Some of these industries have a strong presence in our European home market and require increasing amounts of the technologically advanced passive components that form the core
of our business. For instance, in industrial electronics, greater use is being made of renewable energy sources, such as wind and solar energy, and demand for electronic components for the associated generators and control systems is rising.

Our customers include equipment manufacturers, as well as other companies that make component modules for equipment manufacturers. To
satisfy customers that increasingly seek to reduce the number of their suppliers, our strategy had been to offer one of the most comprehensive product lines in the industry. However, we are currently shifting our focus to customer- and
application-specific products and solutions and reducing our business with standard components. By streamlining our product portfolios of multilayer ceramic capacitors and ferrites, we are gradually withdrawing from providing these unprofitable
standard products. We are instead seeking to concentrate our multilayer ceramic capacitors business primarily on automotive electronics and on our home region in Europe. For ferrites, we are sharpening our focus on customer- and application-specific
solutions, in particular for industrial electronics and telecommunication applications in our domestic European market. See Strategy. By achieving a more balanced portfolio of products by industries, we are becoming less dependent on any
particular industry.

In November 2005, we set up a joint venture with the Chinese component manufacturer Beijing Jones to produce EMC
components, reinforcing our presence in the fast growing Chinese market for EMC applications. In September 2005, EPCOS signed a contract to establish a joint venture with the Chinese conglomerate Xiamen Xindeco Co., Ltd. to manufacture aluminum
electrolytic capacitors, strengthening our position in the Chinese market. The capacitors and EMC components manufactured by these two joint ventures will be marketed exclusively via the EPCOS sales organization.

We sell our products through our own sales network in most of Europe, North America, the Asian region and Brazil. In fiscal years 2002 and 2003, we
expanded our sales network in Asia by establishing new EPCOS subsidiaries in China and in Taiwan. Since October 1, 2000, we have gradually assumed from Siemens sales companies the responsibility for sales of our products in China, Finland,
France, India, Japan, Sweden and the United Kingdom. In October 2004, we fully assumed the Siemens sales activities in Austria, Czech Republic and Hungary that focus on sales of our products in the South-East European markets. In some countries we
continue to rely on the Siemens group sales network. Sales to Siemens sales companies for resale have declined, from 38.0% of our net sales in fiscal year 2000 to 2.8% in fiscal year 2003, 2.6% in fiscal year 2004 and 1.0% in 2005. In addition,
sales made directly to third-party customers but through the agency of Siemens sales agents accounted for 12.1% of our net sales in fiscal year 2005, 9.8% in fiscal year 2004 and 10.5% in fiscal year 2003. The impact of Siemenss sale of the
mobile device business is minor.

Sales to Siemens for use in its own products accounted for 14.0% of our net sales in fiscal year 2005,
13.4% in fiscal year 2004 and 14.5% in fiscal year 2003. No other customer accounted for more than 10% of our net sales in fiscal year 2005. Our ten largest customers in fiscal year 2005 were (in alphabetical order) Arrow (U.S.), Bosch (Germany),
Elcoteq (Finland), Flextronics (Singapore), LG (Korea), Motorola (U.S.), Nokia (Finland), Samsung (Korea), Siemens (Germany) and Sony Ericsson (Sweden). These customers accounted for about 45% of our net sales in fiscal year 2005. For many of our
customers, some or even most of our sales are to one or more of their subsidiaries.

The Passive Components Industry

The fundamental categories of passive electronic components include resistors, capacitors, inductors and filters. All of these are devices or combinations
of devices that offer resistance to an



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electric current. The resistance may depend on voltage, as in a varistor, or temperature, as in a thermistor. The
resistance of a passive component may also vary with the frequency of alternating current applied to the device. As the frequency increases, the resistance may go down, as in a capacitor, or it may go up, as in an inductor. In a filter, it is lowest
(or highest) around a specified frequency and higher (or lower) for other frequencies.

Capacitors consist essentially of two electrically
charged surfaces called electrodes separated by an insulating material called a dielectric. Capacitors can be used to store electrical energy and to modify the frequency or phase of electrical signals.

Inductors are coils of wire wrapped around a core, which may be hollow or made of a metal or ferrite or another synthetic material. They can function as
electromagnets or can use the relationship between electric and magnetic fields to couple parts of circuits to each other or to change the voltage of alternating current, as in a transformer.

Filters may be made as discrete devices or by combining one or more capacitors and inductors. Discrete filters include microwave ceramic components,
which use ceramics to filter electrical signals in the microwave part of the spectrum, and SAW, or surface acoustic wave components, which use crystals to filter radio frequency signals.

Virtually all electrical and electronic equipment contain passive components of several of these types. They are used in large numbers wherever
semiconductors are present. As more and more systems, machinery and equipment become even more sophisticated, the need for passive components is expected to increase. The automobile industry, for example, has steadily increased the amount of
electronics used in a vehicle. The growth in mobile telecommunications has also increased consumption of passive components over the last several years as mobile phones are equipped with an increasing number of applications. In the industrial
electronics industry, demand is generally increasing for factory automation and measuring, testing, analyzing and process control equipment.

Makers of passive components comprise companies with diverse worldwide operations such as EPCOS and smaller companies that concentrate on a particular geographic region or a particular product family or group. Very few of the other global
companies produce a broad range of products covering all or nearly all of the categories mentioned above. Most producers instead focus on a limited range of technologies or component types. Some companies that use passive components in their
products produce a portion of their own requirements in-house. Competition among passive components makers is based on many factors, including price, design capabilities, quality and performance, service and ability to satisfy volume requirements on
schedule. The most important competitive factor, however, has become total cost of ownership, which means the total cost to the customer of using a particular manufacturers products. This concept includes not only the price of the component
but also the cost and timeliness of delivery, the impact on customers design activities and all other factors that affect customers costs relating to the use of the component. We believe that the range of technologies available to
passive component manufacturers is becoming increasingly important as a competitive factor, as it facilitates the development of new products integrating different technologies, thereby reducing the size and cost for particular modules or
subsystems.

Customers for passive components mainly comprise manufacturers of electronic equipment for a broad variety of industries
ranging from telecommunications to automobiles, consumer goods and industrial equipment. Some products are further processed by third parties before being sold to equipment manufacturers. For example, producers of ferrite cores typically sell most
of their output to other companies that process them into transformers and other types of inductors.

Increasingly, electronic equipment
vendors are outsourcing all or part of their manufacturing activities to electronic manufacturing service (EMS) providers. Since such vendors typically continue to develop their own products, they rather than the EMS providers still determine the
specifications for the passive components these products will contain. The EMS providers then place orders for and receive deliveries of such components. We have adapted our sales and logistic processes to this important trend and intend to take
further measures in this regard in future.



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Although consumption of passive components has been increasing over time, the market has experienced
periods of decline, reflecting the cyclicality of the markets for all the types of products that use passive components. As demand begins to decline in a downturn, purchases of passive components tend to fall rapidly because equipment manufacturers
wish to reduce their own inventories of parts and components as their needs decline. On the other hand, as equipment manufacturers perceive increases in demand for their own products, they tend to increase their stocks of electronic components
rapidly so as not to risk being caught short as their suppliers come under pressure. This cycle is similar to the semiconductor cycle since a significant portion of the demand for passive components is for products that are based on or incorporate
semiconductors.

In fiscal year 2005, the passive electronic components industry experienced weak demand, especially in the first half.
EPCOS attributes this development in part to customers relatively high inventory levels resulting from very strong demand in the first half of 2004. Orders for components dropped sharply as a result, keeping capacity utilization in the
component industry below satisfactory levels, which in turn drove prices down, before demand rebounded in the second half of 2005. In 2004, the global economy improved on a broad front, accompanied by a generally positive trend in demand for passive
electronic components from all industries and regions. This led also to a better capacity utilization in our industry. In 2002 and 2003, the passive electronic components industry experienced a downward trend caused by recessionary trends, the
collapse in the market for telecommunications infrastructure, stagnation in the mobile communications market and weak consumer demand.

Most of the fundamental technologies used in the passive components industry have been available for a long time. The market is nonetheless typified by rapid changes in product designs and technological advances allowing for better
performance and/or lower cost. New applications are frequently found for existing technologies, and new technologies occasionally replace existing technologies for some applications or open up new business opportunities in other areas of
application. Successful innovation is critical for maintaining profitability in the face of chronic erosion of prices for existing products. Since new generations of electronic equipment demand new and improved passive components, it is common for
components and equipment manufacturers to work together on the design of new equipment. Components manufacturers offer these services to promote the sale and use of their products.

One of the most important developments in the passive components industry in the past twenty years has been the shift to surface-mounted devices. This
trend has been driven by the semiconductor industrys dramatic success in reducing chip size while increasing the number of transistors or other devices on a single chip. Their success in miniaturization has put pressure on the passive
components industry to make smaller components. Increasing automation in electronic equipment manufacturing at the same time has increased demand for sturdier and more easily mountable products. Advances in materials and manufacturing technologies
over the last twenty-five years have made it possible to produce sturdier and smaller passive components that can be mounted rapidly and at high density directly on printed circuit boards using short electrodes in place of fragile wire leads. These
features are especially useful in mobile telephones, laptop computers and other applications that place a premium on small size, mass production and low cost. The increasing functionality of these devices may also call for a larger number of passive
components as well as further miniaturization. Therefore, electronic equipment manufacturers are working closely together with electronic component manufacturers to develop integrated passive devices that comprise several single components or
component functions in one surface-mounted device.



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Strategy

We are a leading global designer and manufacturer of a broad range of passive electronic components. Our business objectives are to maintain and enhance our position as the largest supplier of passive components in Europe and to further
improve our position in the Americas and especially in the expanding markets of the Asian region. We seek to grow our business profitably at above market rates. To achieve these goals we have implemented an integrated strategy incorporating the
following main elements:

Continue to focus on the fastest growing and technologically most demanding sectors within the passive
components industry.We intend to build on and further improve our traditional strengths in designing and manufacturing passive components for the automotive, telecommunications, high-end industrial, and consumer electronics industries. We
also continuously seek to intensify our customer relationships with electronic manufacturing service (EMS) providers by, for example, offering outstanding logistical services. To gain market share and to take advantage of the further need for
miniaturization in the mobile telecommunications industry, we are improving our product offering for SAW components and modules. To capitalize on the trend towards increased use of electronics in the automotive industry, we are increasing the
performance of a variety of our capacitors and ceramic components and are offering new solutions, such as for fuel injection and various sensor applications. We are enhancing our product offerings for applications in the evolving markets for digital
media and optical communication networks. We intend to continue to identify and exploit opportunities in these and other rapidly growing markets. We explain these products and applications in more detail below under  Products.

Deliver customer-oriented innovation and service and develop application-specific products.We strive to anticipate our
customers needs faster than our competition through continuous dialog and close collaboration during all stages of the design and production process. To satisfy the high technical performance requirements of our customers, we focus on
innovative products tailored to meet the needs of a particular customer or application. Most of our sales force consists of qualified engineers, and their understanding of our products and customers design needs forms a significant part of our
close technical cooperation with our customers. We believe that application-specific products may be more resistant to price erosion than standardized components. By focusing on this higher margin business, we also seek to capitalize on our
strengths in innovation and design.

Further globalize production and sales.We are especially focused on expansion in sales
in the Asian and Eastern European markets. We have been increasing both the size and the level of professional qualification of our sales force as a means of improving sales growth. In tandem with our customers, we are increasingly globalizing our
production by shifting some of our operations to Asia and Eastern Europe. In fiscal year 2005, we continued to relocate product lines to lower cost countries such as China, Singapore, the Czech Republic and Hungary. In addition to this relocation
process, we have continued our efforts to train our personnel, our temporary staff and our subcontractors and to increase our engineering staff and know-how at our lower-cost sites. We plan to expand our global production further through joint
ventures and acquisitions when attractive opportunities arise.

Expand and enhance the development of advanced components.Our business is characterized by an increasing rate of technological change. We believe that the diversity of our product portfolio, the applications and industries we serve, the technologies we master and our intense and ongoing dialogue
with customers help us to identify promising development opportunities and to act on them quickly. For example, we offer ceramic technologies that allow us to put increasing numbers of passive components on and in a single small module. Our
multilayer ceramic technology has enabled us to develop a whole series of new multilayer ceramic components. In addition, we have continued to improve the production of and technology for our ultra capacitors, which bridge the technological gap
between batteries and capacitors. We have also expanded our production of piezo



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ceramic components for fuel-injection systems. Our product development efforts also include new temperature-sensing
systems for automotive applications and new materials for capacitors and ferrites. We intend to continue to focus our research and development efforts on adapting quickly to new technological trends and on improving our position in high growth
markets. We describe the products and technologies that we believe have particularly promising market potential in greater detail under  Research and Development below.

Address customers demands for zero-defect quality. Due to the constantly rising electronics content in cars, the associated risk of
vehicle failures also increases. The automobile industry sets increasingly higher quality standards, which are passed on to suppliers to the industry. In response to this development, in fiscal year 2004, we launched a company-wide quality program
which aims to make EPCOS a zero-defect company. In fiscal year 2005, the quality program began to show positive results, improving our quality and, we believe, moving us closer to our goal of becoming a zero-defect company.

Accelerate our cost reduction program.Success in our business requires a continuous focus on cost reduction and productivity improvement.
In Spring 2001, in response to deteriorating conditions in our industry, we introduced a cost-cutting program. We intensified this program during fiscal year 2002 and 2003 as the world economy and electronic equipment market failed to recover. In
fiscal year 2003, we combined all of our cost-cutting activities under the program COMPETE, which also includes a company-wide campaign to deploy the six sigma methodology. In 2004, we completed the implementation of this campaign at all major EPCOS
sites worldwide. In addition, we further reduced the number of our employees in countries with relatively high labor costs in fiscal year 2004 and fiscal year 2005. In order to guarantee our competitive strength, we plan to continue optimizing our
advanced manufacturing processes, intensifying our efforts to reduce the cost of materials and to reduce costs by further increasing the efficiency of our production and logistics processes at all our facilities in order to optimize the supply chain
from our customers through to our suppliers. As part of this effort, we implemented a new Enterprise Resource Planning software package that includes supply chain and customer relations management and other functions.

Restructure and relocate manufacturing operations.As a consequence of the deterioration of business expectations in recent years, we have
been relocating manufacturing operations for labor-intensive processes and products to lower-cost countries in Eastern Europe and to Brazil, India, Singapore, Malaysia and China. We are currently evaluating all of our manufacturing operations for
cost-savings potential. This process led us to close our facility in Bordeaux, France in the second quarter of fiscal year 2005. In our capacitor segment, the main relocations in the past were from Heidenheim, Germany, to Szombathely, Hungary, and
Gravataí, Brazil (aluminum electrolytic capacitors). In ceramic components, we are relocating parts of our manufacturing operations Deutschlandsberg, Austria, to Zhuhai, China and to the Czech Republic. In addition, manufacturing capacity was
transferred from Germany to Singapore (SAW components) and from Germany and France to the Czech Republic, India and Hungary (inductors and ferrites segment).

Reduce our exposure to demand cycles.We aim to reduce our exposure to the effects of individual industry business cycles on our operations, for example, by outsourcing selected labor intensive processes
to subcontractors, which reduces our manufacturing costs and increases our flexibility to react to demand cycles. Through our complementary portfolio of products designed for the automotive, telecommunications, industrial, electronic data processing
and household and consumer electronics industries, we serve a wide range of customers, thereby limiting our susceptibility to industry-specific demand cycles.

Products

We offer an extensive line of electronic parts and components, aimed at providing our customers with both
standardized and custom products for a wide range of applications across different industries. The following sections describe the main product families for each of our four



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segments and some of their typical applications. We discuss the major customers and markets for each segment in more
detail under  Customers and Markets and the key manufacturing locations for each segment under  Description of Property.

Surface acoustic wave components

Surface acoustic wave (SAW) components and bulk acoustic wave (BAW) components
employ acoustic waves to filter radio frequency electrical signals. For many applications, SAW and BAW devices offer smaller size, higher frequency selectivity, better stability and lower cost than alternative signal processing and filtering
technologies. Their high selectivity facilitates the efficient utilization of todays crowded electromagnetic spectrum for applications using radio frequency signals.

SAW components use piezoelectric crystals to convert electromagnetic signals into mechanical waves and vice versa. A piezoelectric crystal is a crystal
that will vibrate when stimulated by an electrical signal. Through careful design and manufacturing of the crystals and especially of the electrodes carrying current to and from the crystal, SAW components can be made to respond selectively to
specific frequencies and act as filters or resonators. We believe that having our own in-house supplier of lithium niobate wafers gives us an important competitive advantage in the SAW components market.

BAW technology combines the benefits of SAW and microwave ceramic filters and duplexers, offering more performance in less space. BAW filters have lower
electrical losses in the passband than in SAW, with values comparable to those of larger microwave ceramic filters. However, BAW filters have a degree of miniaturization similar to that of SAW filters, significantly smaller than microwave ceramic
filters. BAW filters also have a substantially higher power compatibility than in SAW filters and have extremely steep slopes.

BAW
resonators use acoustic waves that propagate between the top and bottom surfaces of a thin-film piezoelectric structure and then traverse the entire thickness of the piezoelectric bulk. The waves are excited by metal electrodes attached to both
sides of the piezoelectric layer. BAW filters and duplexers are based on thin-film deposition technologies. EPCOS utilizes SMR-technology (Solidly Mounted Resonator), a layer stacking concept which is similar to the Bragg reflector technique
familiar from optics, as this allows us to use standard thin-film technology from semiconductor fabrication. The carrier substrate for BAW devices is silicon wafers of high ohmic resistance and a protective passivation layer of dielectric material
covers the top surface of the resonator.

EPCOS is the world market leader in the design and production of SAW devices. We believe that we
design and manufacture the broadest range of any company manufacturing SAW devices and that our products cover most price and performance levels for nearly all existing applications. We pioneered the widespread application of SAW technology in
consumer electronics. We have generated an increasingly significant portion of our net sales by entering new markets for our products, including keyless automobile locks and alarm systems in 1990, mobile telephones in 1992, mobile communications
base stations in 1996 and wireless tire pressure monitoring systems in 2001. In the last three fiscal years, we have focused on combining our integrated passive circuits with our SAW technology to provide complete solutions, such as front-end
modules for mobile phones. Our competitive strength in the area of fast design and our reputation for consistently high technical performance have enabled us to become the market leader in several of the applications for which we manufacture SAW
devices. With our production and design facilities in Munich (Germany), Singapore, Deutschlandsberg (Austria), and Wuxi (China) we are able to work closely with our customers to quickly design products to their specifications and produce them in
locations close to our customers and at lower cost. This allows us to customize products and to deliver them more quickly than many of our competitors.



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In July 2004, we set up a joint venture with the Chinese components manufacturer Jiangsu Baotong
Electronic & Technology Co., Ltd. to manufacture SAW filters mainly for use in television sets. We expect this joint venture to strengthen our position in Chinas vigorously expanding consumer electronics market. In addition, this
cooperation will enable us to take greater advantage of the significant growth potential of local Chinese consumer electronics manufacturers.

We have introduced a new type of SAW package in response to the need for miniaturization in applications such as mobile telephones, the Chip-Sized SAW Package (CSSP). The CSSP is nearly as small as the crystal chip itself, allowing our
customers to reduce the size of their products and their production costs. We are currently introducing the third generation of the CSSP technology. We have also developed surface-mounted SAW filters for a variety of consumer electronics
applications. Our switchable SAW filters allow the filter characteristics to be selected to accommodate two or more different transmission standards, thereby reducing the number of discrete filters required.

To support our customers efforts toward further miniaturization and functional integration, we have developed devices with multiple filter
functions in a single package, such as dual-band and triple-band filters and duplexers. Duplexers are combinations of filters that enable mobile phones to transmit and receive simultaneously without a switch. The SAW components segment also produces
modules for application in mobile telephones that integrate diode switches, radio frequency filters and passive components on multilayer ceramic modules called Low Temperature Co-fired Ceramics (LTCC), which are manufactured in-house by our ceramic
components segment.

The following table shows some examples of the principal industries and applications that use our SAW components:



|                       |  |                                                                                                               
|---------------------- |  | --------------------------------------------------------------------------------------------------------------
|Industries             |  | Applications                                                                                                  
|Telecommunications     |  | Mobile telephones and base stations for cellular networks, cordless telephones, and wireless LAN applications.
|Consumer electronics   |  | Television sets, video and digital video disk recorders, digital set-top boxes, and tuners.                   
|Automotive electronics |  | Keyless entry devices, and tire pressure monitoring systems.                                                  

We design and manufacture SAW devices for use as filters in mobile and cordless telephones,
pagers, and short-range radios. Mobile communications base stations are also an important application for our SAW components. Here we can offer price/performance optimized solutions by making application-specific designs and using the mass
production technologies we have developed for mobile telephone components.

Within the family of full-duplex mobile phone systems of the
second and third generations, this combination of transmission standard and frequency range demands optimum decoupling and interference suppression. Essentially, our BAW products offer maximum RF performance in a minimum of space. Bulky microwave
ceramic duplexers can now be replaced by miniaturized BAW products so that more functions can be integrated into handsets. This is a decisive advantage, especially for mobile phones destined for the U.S. market. In the mid-term, BAW technology will
also allow integration of additional filter functions into modules, so that future generations of mobile phones can be built with even more complex designs than today.

Our SAW devices for consumer electronics cover the entire range of price and performance for television receivers, video and digital video disk recorders, satellite receivers, multimedia and cable television set-top
boxes, and television transmitters.

A smaller, but growing, application for our SAW devices is in keyless entry systems for automobiles.
These small remote control devices can be attached to a key and use SAW devices to create, transmit, and receive a radio frequency signal that allows the user to lock or unlock a car or to



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turn its alarm system on or off from a distance. We are working to reduce the size of our SAW devices for this market to
allow our customers to produce smaller remote control devices at lower cost. One recent application in the automotive industry is air pressure control devices for use in tires.

Ceramic components

The main product types of our ceramic components segment are thermistors,
multilayer ceramic capacitors, varistors, piezo stacks and surge voltage arresters. The first four product families comprise components that make use of the physical properties of ceramics, while our surge voltage arresters are mainly made of
gas-filled ceramic tubes. Like varistors, when voltage exceeds a safe level they divert power surges away from electronic equipment to protect it from damage.

Our ceramic components segment is one of the global market leaders in the design and production of ceramic electronic devices. We believe that our ceramic components product line is one of the industrys most
comprehensive, and we cover all of the most significant applications for each of our markets, including the mobile communications and automotive, industrial, consumer, and household electronics industries. We believe that in terms of market share we
are the leading global manufacturer of thermistors, varistors and gas-filled surge voltage arresters and the sole mass manufacturer of piezo stacks. We support our customers intensively by designing products to meet their specific needs and aiding
them with product applications. We believe that our expertise in mixing our own ceramic powders gives us an important advantage over most competitors and that our in-house powder manufacturing gives us both a financial and technical advantage over
our competitors.

Important recent developments in the ceramic components segment include the development of thermistors that can control
evaporation in systems such as automotive air conditioners and of multilayer varistor arrays for applications requiring miniaturization. Using surge voltage arrester technology, we have developed switching spark gaps for use in high-intensity
discharge automobile headlights and high-intensity xenon professional projectors. Our surface-mounted product range includes multilayer ceramic capacitors, thermistors and varistors. We are especially strong in energy varistors, which are used to
protect power lines from lightning.

The following table shows some examples of the industries that use our ceramic components and surge
voltage arresters and typical applications for each type of product:



|                              |  |                                                              |  |                                                                 
|----------------------------- |  | ------------------------------------------------------------ |  | ----------------------------------------------------------------
|Product family                |  | Industries                                                   |  | Applications                                                    
|Thermistors                   |  | Automotive electronics Home appliances                       |  | Heating systems. Sensors.                                       
|Multilayer ceramic capacitors |  | Automotive electronics Telecommunications                    |  | Engine management. Mobile telephones: decoupling and
protection.
|Varistors                     |  | Automotive electronics Telecommunications Power transmission |  | Airbags. Telephone line protection. Lightning protection.       
|Piezo stacks                  |  | Automotive electronics                                       |  | Fuel injection systems.                                         
|Surge voltage arresters       |  | Automotive electronics Telecommunications                    |  | High intensity headlights. Telephone
exchanges.                 

Our thermistorsinclude both ceramic temperature sensors and heating elements. Ceramic
temperature sensors are known as NTCs, which stands for negative temperature coefficient, since their resistance decreases as temperature increases. The decrease of the resistance of the NTC ceramic material results from the increasing number of
conductive electrons correlating to the temperature. Heating elements are known as PTCs, which stands for positive temperature coefficient, since the relationship is the opposite to NTCs. For PTCs, with increasing temperature, the resistivity is
rising. Thermistors are used for measuring and controlling temperature in automobile engines and home appliances, to restrict temperature variations in sensitive electronic equipment and to demagnetize color television picture tubes to maintain
picture quality. Many thermistors are custom-designed and application-specific.



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Our multilayer ceramic capacitors, or MLCCs, are high-volume, high-quality commodity products that
are manufactured mainly as surface-mounted devices for applications requiring small size, low cost and durability. For example, MLCCs are used in mobile communications and consumer electronics applications requiring miniaturization. In automotive
electronics, however, MLCCs are suitable for high-temperature applications near the engine or transmission. Our customers also use them in large numbers to protect semiconductors and to filter signals for processing by semiconductors. Multilayer
technology may be used to create new innovative and potentially successful products such as LTCC and piezo stacks. In fiscal year 2005, we realigned our product portfolio of multilayer ceramic capacitors and are gradually withdrawing from more
unprofitable standard products. We are now focusing instead on automotive electronics and on our home region in Europe.

Our varistorsare used mainly to protect electronic devices against power surges or electrostatic discharge. Lightning, uneven power transmission or the startup of heavy equipment can cause damaging power surges. Electrostatic discharge is the sudden
discharge of static electricity, and can cause damage to all kinds of electronic circuits.

Our piezo stacksbelong to the family of
multilayer ceramic components. If a voltage is applied to a piezoelectric crystal, its dimensions change. Piezo stacks boost the efficiency of modern common rail diesel injection systems. They are currently mainly used in injection systems made by
Siemens VDO and Bosch in Germany. We believe that they may become an industry standard within a relatively short period of time. Advantages are improved combustion of fuel, higher efficiency and 15% lower fuel consumption, substantially reduced
exhaust emission and reduced noise emission. In September 2004, we entered into an agreement with Siemens VDO to supply piezo stacks for pump injection systems used in automobiles manufactured by Volkswagen (VW). In December 2003, we entered into an
agreement with Robert Bosch GmbH for the supply of piezo actuators for diesel injection common rail systems. This agreement was originally scheduled to run at least until December 2008 and was extended by an amendment agreement in December 2004 to
run through December 2009. It is anticipated that the number of units to be supplied will increase significantly over the next years through 2008. We started production of piezo actuators for Bosch gasoline injection systems in 2004, and for Siemens
gasoline injection systems in fiscal year 2006.

Our surge voltage arrestersprotect people, industrial installations and equipment
from injury and damage caused by power surges. Typically used together with PTC thermistors and varistors, surge voltage arresters react more quickly to power surges but divert less current. Therefore, in optimized systems, a cascade of PTC
thermistors, varistors and surge voltage arresters is used to take advantage of the way in which the physical properties of these products complement each other.

Capacitors

Our capacitors segment includes five product families: film capacitors, power capacitors, tantalum
capacitors, aluminum electrolytic capacitors and ultra capacitors. The various capacitor product families are distinguished mainly by how they are manufactured and the material they use as a dielectric, although power capacitors, which use a variety
of dielectrics, differ from other families mainly in their applications. In December 2005, we sold our tantalum capacitors business to Kemet Corporation, a U.S. manufacturer of capacitors. For more information, see above under 
Description of Business.

We believe that we are the worlds largest manufacturer of power electronic capacitors and that we
have the largest market share in Europe for aluminum electrolytic and tantalum electrolytic capacitors. In fiscal year 2005, we enhanced our product portfolio in the field of tantalum capacitors by expanding the production capacity of polymer
capacitors and broadening our product range of



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tantalum capacitors with lower ESR (equivalent series resistance values). In 2003, we entered into a cooperation
agreement with Continental Temic for the development of components for power electronics in future hybrid vehicles. We believe that this cooperation will enable us to attain a good position for the delivery of power capacitors in the automobile
industry.

The following table shows some examples of the industries that use our capacitors and typical applications for each product
family. Capacitor product families are listed in order of their contribution to our fiscal year 2005 net sales.



|                                 |  |                                                            |  |                                                                                                                            
|-------------------------------- |  | ---------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------
|Product family                   |  | Industries                                                 |  | Applications                                                                                                               
|Aluminum electrolytic capacitors |  | Industrial electronics                                     |  | Drives, inverters, uninterruptible power supplies (UPS), and switch-mode power supplies.                                   
|                                 |  | Automotive electronics                                     |  | Diesel and gasoline injection, electronic power steering, airbag, and fan control.                                         
|                                 |  | Consumer electronics                                       |  | TV, video, audio, and white goods.                                                                                         
|                                 |  | Lighting                                                   |  | Energy-saving lamps, electronic ballasts, high intensity discharge (HID) lamps, and fluorescent lamps.                     
|                                 |  |                                                           
|Film capacitors                  |  | Lighting                                                   |  | Energy saving lamps, electronic ballasts, and fluorescent lamps.                                                           
|                                 |  | Consumer electronics                                       |  | Multimedia, and switch-mode power supplies.                                                                                
|                                 |  | Automotive electronics                                     |  | Motor management systems, EMC protection, and high intensity discharge (HID) lamps.                                        
|                                 |  |                                                           
|Power capacitors                 |  | Traction systems                                           |  | Electric locomotives.                                                                                                      
|                                 |  | Electrical power transmission                              |  | Power-factor correction.                                                                                                   
|                                 |  | Consumer electronics/Home appliances                       |  | Air conditioners, washing machines, and refrigerators.                                                                     
|                                 |  |                                                           
|Tantalum capacitors              |  | Telecommunications                                         |  | Mobile telephones, base stations, and DSL-applications.                                                                    
|                                 |  | Electronic data processing                                 |  | Servers and laptops.                                                                                                       
|                                 |  | Automotive electronics                                     |  | Airbags, antilock braking, gear and engine management, car entertainment, navigation systems, and parking distance control.
|                                 |  |                                                           
|Ultra capacitors                 |  | Automotive and industrial electronics and traction systems |  | Electric and hybrid vehicles, energy storage devices, and power quality.                                                   

Our aluminum electrolytic capacitorshave many industrial applications in the power supply
and power electronics fields. The substantial majority of our aluminum electrolytic capacitors are designed for use in drives and switch-mode power supplies for the industrial and consumer electronics industries, as well as for other applications in
traction systems and lighting. In automotive electronics, aluminum electrolytic capacitors are suitable, among other things, for electronic power steering and fan control. Aluminum electrolytic capacitors use thin foils of very pure aluminum as
their positive electrodes. The electrode surface area is increased by electrochemical etching. This large surface area, combined with an ultra thin aluminum oxide dielectric, enables us to produce very compact, light-weight and especially reliable
capacitors. In September 2005, we entered into an agreement with Xiamen Xindeco Co., Ltd. to set up a joint venture for the manufacture of aluminum electrolytic capacitors. EPCOS will hold a 60% stake in the joint venture. We expect that the joint
venture will enable us to serve the rapidly growing local Chinese market from a low-cost manufacturing location.



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Our film capacitorscover a wide variety of applications. They are typically used in picture tube
TVs and computer monitors, voltage converters and switch-mode power supplies. Switch-mode power supplies consist mainly of transformers that lower the voltage for electronic circuits. Capacitors enable these devices to use smaller and lighter
transformers, saving space and weight. In the lighting area, capacitors are present in nearly all energy saving lamps and are used for energy storage and voltage stabilization in special electronic devices that are called electronic
ballasts for fluorescent lamps. Another growing field of application is automotive electronics, where film capacitors can be found in motor management systems and ignition circuits for xenon headlight lamps. Film capacitors are also useful for
radio interference suppression applications in various kinds of equipment.

Our power capacitorsare used in electric locomotives
and other traction systems that convert electrical power into mechanical energy on a large scale in industrial equipment. Power capacitors are also used to improve the power quality and reduce the cost of power transmission (power-factor
correction). AC film capacitors are used for home appliances in air conditioners, washing machines and refrigerators. They are also used in modern high intensity discharge (HID) lamps for street, tunnel, and industrial lighting as well as in
fluorescent lamps. We are also developing capacitors for hybrid vehicles.

Our tantalum capacitors have applications in laptop
computers, servers, high-speed internet access, mobile telephones and other applications where smaller size, ease and speed of assembly, and extreme reliability are high priorities. Our tantalum capacitors are suitable for high-temperature
applications in automotive electronics. Using polymer rather than manganese oxide as a cathodic layer  as we do in our polymer capacitors  enables us to offer lowest equivalent series resistance capacitors, which offer
advantages especially in laptop applications and dc/dc converters. We have decided to sell our tantalum capacitors business unit. For more information, see above under  Description of Business.

Our ultra capacitors can store energy in a very high density compared with other types of capacitors. Ultra capacitors are storage devices that possess
extremely high capacitance values combined with relatively low internal resistances. Thus, they are able to store and deliver much higher electrical energy than aluminum electrolytic capacitors of the same size with a power output significantly
higher than batteries. Ultra capacitors are therefore able to fill the performance gap in terms of energy density and power density between capacitors and rechargeable batteries. They have applications in power supplies, automotive electronics, and
industrial applications. We believe that this technology will create many new applications requiring high-energy density with short charge and discharge cycles in the future.

Inductors and Ferrites

Our inductors and ferrites segment offers a broad range of
standardized and custom-made soft ferrite cores for inductors, transformers and other finished inductors made by winding ferrite cores with wire (e.g., copper-wire) as well as EMC components. Ferrite is a versatile magnetic material made from
iron oxide and other metallic oxides. Ferrite cores concentrate electromagnetic energy and thereby improve efficiency and reduce weight in transformers and other electrical devices using inductors. In contrast to hard ferrites, which are permanent
magnets, soft ferrites are magnetic only when exposed to an alternating electric current. In fiscal year 2005, we streamlined and realigned our portfolio of ferrite products, exiting the low-end mass market for consumer electronic applications. We
are now focusing on customer and application-specific solutions, in particular for industrial electronics and telecommunication applications in our European market. Additionally, we closed our ferrites plant in Bordeaux, France in March 2005 and
relocated the production equipment to our subsidiaries in the Czech Republic and India.

EMC components consist of specialized inductors
and capacitors or filters combining inductors and capacitors. EMC components are generally used to enhance the performance of electronic equipment, to reduce electromagnetic interference generated by electronic equipment and to protect electronic
equipment and electrical circuits from interference.



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We believe that in terms of technology, we are one of the leading manufacturers of ferrite cores
worldwide and, in terms of sales and technology, the leader in our European home market. We emphasize high-performance products that make use of our traditional strengths in materials design. Our high-performance products include cores for
telecommunications applications.

The following list provides some examples of the principal industries and applications that use our
ferrite cores and inductive ferrite components:



|               |  |                                                    |  |                                                                  
|-------------- |  | -------------------------------------------------- |  | -----------------------------------------------------------------
|Product family |  | Industries                                         |  | Applications                                                     
|EMC components |  | Automotive electronics                             |  | Engine management, airbags, and antilock braking systems.        
|               |  | Industrial and consumer electronics and appliances |  | Switch-mode power supplies, EMC protection, and lighting systems.
|               |  | Telecommunications                                 |  | Base stations, and xDSL.                                         
|               |  |                                                   
|Ferrites       |  | Telecommunications                                 |  | Advanced digital transmission technologies.                      
|               |  | Industrial electronics                             |  | Switch-mode power supplies.                                      
|               |  | Lighting equipment                                 |  | Transformers for electronic ballasts.                            
|               |  | Automotive electronics                             |  | Theft protection systems.                                        

Our EMC components cover a wide range of sizes, ranging from surface-mounted inductors to large
models for high-current applications. They can be used to suppress high-frequency radiation in electrical systems of automobiles, in starters for fluorescent lights, color televisions, disk drives, elevators, lasers, telecommunications, electronic
data processing equipment and many other systems and devices. EMC components are frequently used to bring electronic equipment into compliance with regulations that limit radio frequency emissions. In November 2005, we entered into a joint venture
agreement with Beijing Jones Co., Ltd to manufacture EMC filters that protect electronic equipment and systems against both mutual and external electromagnetic interference. EPCOS currently holds a 55% stake in this joint venture.

Given their versatility, ferrite materials have a large number of industrial and consumer applications. Their efficiency at very high signal frequencies
makes inductors with ferrite cores ideal for applications such as digital signal processing in mobile phones. High-frequency applications include advanced digital transmission technologies including asymmetric digital subscriber lines (ADSL), a
digital telecommunications standard for voice and data that complements and enhances the integrated services digital network (ISDN). Ferrites are also widely used in transformer cores, power supplies for home and office electronics products, noise
filters and many other circuit components, and can be used in inductors for suppressing electromagnetic interference in electronic devices.

For signal, filtering and power applications, we are working to reduce the size of our ferrite products while maintaining their performance by improving the shapes of the ferrite cores and the performance of our ferrite materials. This size
reduction allows our ADSL-customers, for example, to increase the number of transmission lines per line card.

Sales and Marketing

We sell our products through our own sales network in Austria, Czech Republic, Germany, Hungary, Scandinavia, the United Kingdom, France, Turkey, North
America, the ASEAN region, Japan, India, China, Taiwan and Brazil. In other countries in Europe and around the world (e.g., Belgium, Italy, Spain, Poland, the states of the former Soviet Union, and Egypt), we rely on the Siemens group sales
network. The portion of our sales handled by Siemens sales companies has,



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however, been decreasing in recent years. Sales to Siemens sales companies for resale accounted for 1.0% of our net sales
in fiscal year 2005. In addition, sales made directly to third-party customers but through the agency of Siemens sales agents accounted for 12.1% of our net sales in fiscal year 2005. The majority of Siemens sales personnel responsible for selling
our products are dedicated exclusively to this activity.

The majority of our sales force are qualified engineers and have the expertise to
understand both our products and processes and those of our customers. Typically, a substantial portion of their compensation is performance-based. We also sell our products to smaller customers and in regions where business volume is limited
through independent distributors, agents and representatives. Sales through distributors other than Siemens represent less than 15% of our net sales. Each of our segments has its own marketing organization, which is responsible for pricing and
strategy and identification of trends and innovations. Our headquarters in Munich coordinates all our sales operations, and we provide key account coordination for multinational customers.

We strive to develop and strengthen long-term relationships with our customers by providing strong technical support and responding quickly to their
needs. Our sales to major customers are typically covered by annual contracts establishing a framework for determining volumes and prices. Many of our customers regularly provide us with forecasts so that we can better plan our production schedule
and better accommodate their volume and timing needs. In many cases, we offer customers consignment stocks or just-in-time delivery.

Our
worldwide sales and marketing network enables our customers to save time and money by consolidating their passive components purchases. Using a single sales network for all our products helps us to identify cross-selling opportunities and develop
close customer relationships that help us stay informed of customers needs and design products to their specifications. We believe that our reputation for quality service and technical support are important factors for our customers in
selecting our products.

For additional information on our segments and the sales allocable to them, see Note 21 to the Consolidated
Financial Statements.

Customers and Markets

We sell our products globally to a broad range of industries including telecommunications and automotive, consumer and industrial electronics. In recent years, we have diversified our customer base and expanded the range of and applications
for our products. Our segments share many of the same customers and markets, although market conditions and our market shares vary to some extent from segment to segment. Most of our customers are manufacturers of electronic equipment.

Our ten largest customers account for about 45% of our net sales. Purchases by the Siemens group for use in its own products accounted for 14.0% of
our net sales for fiscal year 2005. As noted above under Sales and Marketing, sales to Siemens sales companies for resale accounted for an additional 1.0% of our net sales in fiscal year 2005. In addition, sales made directly to
third-party customers but through the agency of Siemens sales agents accounted for 12.1% of our net sales in fiscal year 2005. No other customer accounted for more than 10% of our net sales in fiscal year 2005. The following table shows the most
significant customers for each segment. However, they may vary considerably from product family to product family within the segments.



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|                       |  |                                                                                                                                                                                                        
|---------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Segment                |  | Principal customers (in alphabetical order)                                                                                                                                                            
|SAW components         |  | Elcoteq (Finland), Ericsson (Sweden), Flextronics (Singapore), LG (Korea), Motorola (U.S.), Murata (Japan), Nokia (Finland), Philips (Netherlands), Samsung (Korea), Sony (Japan), and Vestel
(Turkey).
|Ceramic components     |  | Arrow (U.S.), Behr (Germany), Bosch (Germany), David & Baader (Germany), Delphi (U.S.), Nokia (Finland), Siemens (Germany), and Valeo (France).                                                        
|Capacitors             |  | Bosch (Germany), Ericsson (Sweden), Nokia (Finland), Osram (Germany), Philips (Netherlands), Siemens (Germany), Toshiba (Japan), and Valeo (France).                                                   
|Inductors and ferrites |  | Arrow (U.S.), Bosch (Germany), Ericsson (Sweden), Hella (Germany), Pulse (U.S.), Osram (Germany), and Siemens (Germany).                                                                               

SAW components.We design and manufacture a wide variety of technologically advanced,
competitively priced filters for use at every level in the mobile communications market. Our consumer electronics customers primarily produce goods for the mass market, mainly television sets. SAW filters are a key component in these products and
directly affect the picture and sound quality of their products. We believe that, based on sales in SAW filters, we are the world market leader in surface acoustic wave technology.

Ceramic components.This market is particularly diverse, reflecting the many different types of ceramic components we produce and their wide
variety of applications. During the last four years, we have experienced a decrease in the demand for fixed-line telecommunications. Demand from the automotive sector, however, rose at the same time, due to the increasing use of electronic systems
in automobiles. Technological improvements as well as increased sales in home electronics, office electronics and domestic appliances have also contributed to the rise in demand for ceramic components. We believe we are the world market leader in
the design and production of thermistors, varistors, piezo actuators and surge voltage arresters.

Capacitors.In this segment, we
have our highest market shares in Europe, where industrial electronics and telecommunications markets have traditionally been strong. We expect much of our future growth in the capacitors segment to come from automotive electronics applications.

Inductors and ferrites.Finished products incorporating our ferrite cores are used predominantly in the telecommunications and
industrial electronics industries. While our market shares vary by region and product family, we are strongest in Europe. To expand our market share in Asia, we are increasing our production at our facilities in India and China.

Competition

We face intense competition in our
markets from many companies based throughout the world, most specializing in certain technologies, regions or product lines and applications. Competition is particularly dispersed for ceramic components, which encompasses a wide variety of product
families and applications. Very few of our competitors are global in scope or offer as broad a line of components as we do. We are one of the few companies in the industry to offer one-stop shopping opportunities. Our current and potential
competitors also include some customers who use our components in the manufacture of their products and who have or may develop the ability to produce passive components internally.



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While the weighting of the relevant factors affecting competition varies by product family and
application, we believe that competition in our markets is driven primarily by the ability to design and deliver a broad range of price-competitive, high quality, innovative, high-performance products in sufficient quantities and in a timely manner.
Other factors affecting competition include the quality of customer service and technical support and the ability to design products rapidly to customer specifications. Innovation in product design is an important competitive factor in most of our
product families. Film, tantalum and multilayer ceramic capacitors and products in some of our other product families tend to be more standardized, making cost and speed of delivery the most significant competitive factors. As for the remaining
standard products in our portfolio after the sale of the tantalum business, EPCOS intends to focus more on specific markets and application-specific products, for example, for automotive electronics customers. Since many of our competitors are based
in Japan, the United States and Asia (especially China), the value of the Japanese yen and of the U.S. dollar versus the euro has a significant impact on our competitiveness. In this context, the persistent weakness of the U.S. dollar plays an
important role since the market for passive components is essentially dollar-based around the world, even within the euro zone which has had a negative impact on market prices.

Many of our current and potential competitors have entrenched market positions, established patents and intellectual property rights and substantial
technological capabilities. Increased competition could reduce our revenues and profitability by reducing demand for our products or forcing us to lower prices. We contend with competition from companies promoting alternative technologies that may
render some of our products or product applications obsolete.

The intense competition of Asian (in particular, Chinese) manufacturers
offering aggressive pricing in our European home-market continued in 2005. Some of these manufacturers offered their products at extremely low cost and caused a drastic price erosion. This trend may continue in the following years.

Our principal competitors vary by segment, by product family and application within the segments. The following table shows our key competitors for each
segment.



|                       |  |                                                                                                                                                                      
|---------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Segment                |  | Competitors                                                                                                                                                          
|Capacitors             |  | Arcotronics (Italy), AVX (U.S.), KEMET (U.S.), Nichicon (Japan), NEC - Tokin (Japan), Nippon Chemicon (Japan), Panasonic (Japan), Rubycon (Japan), and Vishay (U.S.).
|SAW components         |  | Fujitsu (Japan), Murata (Japan), Panasonic (Japan), and Triquint (U.S).                                                                                              
|Ceramic components     |  | AVX (U.S.), Murata (Japan), Panasonic (Japan), Taiyo Yuden (Japan), and TDK (Japan).                                                                                 
|Inductors and ferrites |  | Schaffner (Switzerland), Taiyo Yuden (Japan), and TDK (Japan) in EMC components; Ferroxcube (Netherlands), TDG (China), and TDK (Japan) in ferrites.                 

Research and Development

We believe that innovation is the foundation for our companys success. Our customers will, we believe, continue to demand improved product performance, products designed to their specifications, and lower
product costs. We believe that our success depends on our ability to identify new markets and applications and to implement the necessary technologies and processes quickly. Our research and development departments cooperate closely with many
renowned research institutions and universities around the world.

Our research and development efforts are based on the following
principles:



| |  |  | close cooperation with customers that are the technological leaders in their own field;
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | focus on specific applications for sophisticated key markets with high growth potential; and
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | development of new technologies for new business areas.
| | - |  | -------------------------------------------------------



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In fiscal year 2005, research and development expenditures decreased by 5 million to an amount
of 70 million. This level of expenditure reflects our alignment of our research and development expenditures to our lower sales, but without abandoning our commitment to new innovative projects. At 5.7% of net sales, research and
development expenditures remained close to our long-term average between 4% and 5%. With this, we believe that we continue to spend more for research and development in terms of percentage of net sales than the average in our industry segment. In
addition to our own research and development efforts, we work closely together with the research and development facilities of our former parent companies Siemens and Matsushita, as well as with research institutions and universities around the
world. We stepped up our research and development partnership with Matsushita in June 2004, when our cooperation agreements with Matsushita were renewed. In 2005, we extended our cooperation agreement on our research and development partnership with
Matsushita regarding SAW components.

We endeavor to align our research and development efforts to the specific needs of our customers and
to take into consideration the current trends towards miniaturization, integration, increased complexity and the use of components at increasingly higher temperatures and frequencies. We continue to focus our research and development efforts on
reduction of costs, miniaturization and increased performance of our products, as well as on more efficient manufacturing techniques and high performance raw materials with reduced environmental impact. In fiscal year 2005, we continued to
concentrate on the following research and development areas:



| |  |  | PhaseMod is a self-contained turn-key module for power factor correction. PhaseMod modules are used, among other things, to minimize reactive power in electric drive
systems in industrial plants, allowing plant operators to lower their energy costs. Ultimately, it also helps to reduce harmful emissions that pollute the environment. For EPCOS, the new PhaseMod module marks a step toward becoming a systems
provider for energy applications.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Bulk acoustic wave (BAW) resonators based on thin-film technology supplement our SAW and microwave ceramic filter components for high frequency applications in mobile phones.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our multilayer ceramic technology has enabled us to develop a whole series of new multilayer ceramic components. In the event of a bending crack, for example, the structure of our
new multi-layer serial ceramic capacitors reduces the risk of a short circuit  and hence of a power failure  by a factor of between 100 and 500 compared to conventional ceramic capacitors. Minimizing risk in this way is
especially important in automotive electronics applications.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Mobile phones and portable entertainment electronics products use increasing amounts of electronic components. The resulting applications boast ever greater functionality but still
remain as small as ever. However, as electronic components become ever more densely packed on the printed circuit board, greater protection is needed against electromagnetic interference and electrostatic discharge. We have developed new products
that combine a variety of individual components. Our CeraDiodes and ESD/EMI modules  both of which were developed on the basis of multilayer ceramic capacitors and varistors  are much smaller than conventional solutions.
CeraDiodes can also replace the more expensive semiconductor solutions used to date.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | Our piezo-ceramic technology was developed for stacks applicable in high-speed injection valves for diesel and gasoline engines; we have further improved and adapted the technology
to the needs of new customers and applications and have ramped up our mass production of new types and designs.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Ultra capacitors have the potential to become key components in future energy-saving, and lower emissions for automobiles.
| | - |  | --------------------------------------------------------------------------------------------------------------------------



| |  |  | Our helical power inductors store energy and smooth the DC voltage in power supplies.
| | - |  | -------------------------------------------------------------------------------------

The European Unions directive on the restriction of the use of certain hazardous substances in electrical and electronic equipment bans lead in electronic products from July 1, 2006 onward. We provide more
information on the directive under Item 8. Financial Information  Legal Proceedings  Environment. With a few exceptions, all of our products are already being offered lead-free and in a form suitable for
lead-free soldering processes. For certain lines of our passive components, where we still use lead-based solder in the production, we have developed alternatives enabling us to comply with the EU directive.

Raw Materials and Sources of Supply

Throughout the
company, we generally try to maintain alternative sources for our principal raw materials to reduce the risk of supply interruptions or price increases unless our customers prescribe a certain supplier for a raw material. We also maintain long-term
relationships with our key suppliers through master supply agreements and consignment arrangements. We typically re-negotiate our contracts for the purchase of raw materials on an annual basis and whenever market conditions change. These
relationships and the availability of alternative sources also provide us with some protection against price increases. We also seek to reduce our needs for raw materials that are expensive or subject to shortages through technical innovations in
product design and manufacturing. Below we mention some of the most important raw materials for each segment.

SAW components.We
use mainly two kinds of raw materials in manufacturing SAW components, wafers made of lithium niobate, lithium tantalate or quartz crystals and ceramic materials used for packaging. We also use some plastics and metals for mounting and packaging.
Prices for ceramics have steadily decreased during the last four years. Our Palo Alto, California, subsidiary Crystal Technology, Inc. manufactures our entire supply of lithium niobate crystals for SAW devices and also sells a portion of its output
to third parties. We believe that our Palo Alto site is the technological leader for the manufacture of lithium niobate crystals.

Ceramic components. Our ceramic powder manufacturing facility has helped us to counter continuous price erosion as benchmarking has demonstrated its cost effectiveness. The focus is now shifting towards the introduction of more
advanced materials allowing the implementation of miniaturized products.

Capacitors. Although most of the raw materials for
capacitors are available from a number of sources, tantalum powder and wire and a few other materials are available only from a relatively limited number of suppliers. Tantalum is currently mined in Australia, China, Central and Southern Africa, and
Canada. Currently, there are only three major suppliers that process tantalum ore into capacitor grade tantalum powder. During the last four years, we experienced a decrease in the price of tantalum ore.

Inductors and ferrites.Our main raw materials for ferrite cores are high-purity iron oxide, standard iron oxide, manganese oxide and zinc oxide.
In order to improve our cost structure and to secure the volumes needed, we have developed alternative sources for raw materials. Currently, we purchase our raw materials for ferrite cores from European and Asian suppliers depending on the price and
quality offered. We have successfully achieved price reductions for iron oxide, while increasing demand for manganese oxide worldwide, especially from the steel industry, has led to price increases.



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Intellectual Property

The development and production of passive components requires innovation in product design and the use of advanced technologies in production. Our success depends in large part on our ability to obtain patents, to
maintain trade secret protection and to operate our business without infringing on the intellectual property rights of other parties. As of September 30, 2005, our portfolio contained approximately 1650 patents and patent applications,
comprising about 630 patent families. In the course of fiscal year 2005, we again improved the quality of our portfolio by adding 300 new patents and patent applications while about 200 older patents and patent applications with low levels
of relevance for our current and future business were dropped or expired. In addition to our own portfolio, we also hold licenses to use product designs and production processes developed or patented by third parties.

We have obtained, or are in the process of obtaining, patents for many of our material innovations in product design and production. Some of our patents
covering older technologies are due to expire in coming years. Our patents generally expire 20 years after the date they are registered. Because of the rapid advances in technology and design that characterize our business, our most important
technologies are covered by patents that we have acquired recently, most of which are not due to lapse for at least ten years. We do not expect the lapse of patents that protect the older technology to materially affect our current revenues. We
experience difficulties from time to time in enforcing patent rights with respect to certain of our products. However, we do not believe that these difficulties in enforcement have materially impaired the value of our intellectual property
portfolio, materially affected our sales, or are likely to have a material adverse effect on our future sales.

We are not aware of any
pending lawsuits alleging that we infringe on anyones intellectual property rights that could materially harm our business. We have not experienced significant problems with allegations of infringement of the intellectual property rights of
third parties in the past. As is the case with most companies in our industry, we from time to time receive notices from third parties claiming breach of their intellectual property rights. We investigate these claims as and when they occur and
where appropriate, attempt to resolve the claim with the third party. In certain cases, resolution of the claim may require us to pay the third party a license fee or make other payments to the third party. We do not believe that any such payment
would materially adversely affect our financial condition or results of operations.

In addition to patent protection, we also rely
extensively on trade secrets, technological know-how and other unpatented proprietary information relating to our product development and manufacturing activities. We cannot be sure that our trade secrets and proprietary know-how will not become
known or be independently discovered by others.

Description of Property

Our facilities consist of manufacturing plants, research and design centers, sales offices and other properties throughout the world. We generally locate
our manufacturing facilities to serve our principal markets and to provide accessibility to labor resources. The following table provides key information about corporate headquarters and our manufacturing facilities as of September 30, 2005:



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|                          |  |           |  |                 |  |                                               
|------------------------- |  | --------- |  | --------------- |  | ----------------------------------------------
|Location                  |  | Area      |  | Owned or leased |  | Principal activities                          
|Germany                   |  |           |  |                 |  |                                               
|Munich                    |  | 43,390 m2 |  | Leased          |  | Headquarters, SAW Components                  
|Heidenheim                |  | 51,106 m2 |  | Owned/Leased    |  | Capacitors, EMC Components                    
|Berlin                    |  | 3,047 m2  |  | Leased          |  | Surge voltage arresters                       
|Berlin (Herrmann)         |  | 2,274 m2  |  | Leased          |  | Ceramic Components                            
|                          |  |           | 
|Other Europe              |  |           |  |                 |  |                                               
|Deutschlandsberg, Austria |  | 68,375 m2 |  | Owned/Leased    |  | Ceramic Components, SAW Components            
|Málaga, Spain             |  | 11,184 m2 |  | Owned           |  | Film Capacitors                               
|Szombathely, Hungary      |  | 32,800 m2 |  | Owned/Leased    |  | EMC Components, Capacitors                    
|Évora, Portugal           |  | 20,319 m2 |  | Owned           |  | Tantalum Capacitors                           
|Sumperk, Czech Republic   |  | 42,046 m2 |  | Owned/Leased    |  | Ferrites                                      
|                          |  |           | 
|Asia                      |  |           |  |                 |  |                                               
|Singapore                 |  | 16,451 m2 |  | Leased          |  | SAW Components                                
|Malaysia                  |  | 8,040 m2  |  | Leased          |  | Surge voltage arresters                       
|Nashik, India             |  | 15,604 m2 |  | Owned/Leased    |  | Film Capacitors                               
|Kalyani, India            |  | 36,047 m2 |  | Owned           |  | Ferrites                                      
|Wuxi, China               |  | 4,729 m2  |  | Leased          |  | SAW Components                                
|Zhuhai, China             |  | 39,937 m2 |  | Owned/Leased    |  | Ceramic Components, Film Capacitors, Inductors
|Xiaogan, China            |  | 3,856 m2  |  | Owned/Leased    |  | Surge voltage arresters                       
|                          |  |           | 
|Americas Gravataí, Brazil |  | 39,530 m2 |  | Owned/Leased    |  | Film and aluminum electrolytic Capacitors     
|Palo Alto, CA, USA        |  | 5,295 m2  |  | Owned/Leased    |  | Lithium niobate for SAW Components            

We lease a number of properties from Siemens subsidiaries, including our corporate headquarters
building in Munich and the Berlin surge voltage arrester facility. One of our Chinese subsidiaries leases the Xiaogan facility from our Chinese joint venture partner Hanguang Electron Device Factory. We also lease our Singapore facility from a
regional authority.

In addition to manufacturing products at our own facilities, we also subcontract some fine tuning, attachment of
leads, coating, packaging, testing and other back-end finishing processes to manufacturers in China, Croatia, Hungary, Indonesia, Malaysia and Slovenia. We subcontracted the manual winding and soldering of inductors for EMC components to
manufacturers in China and Romania. Taking into account our planned measures to relocate certain production activities, we believe that our facilities will meet our foreseeable design and production needs. Our manufacturing capacity has historically
been sufficient to meet our needs. We also own or in some cases lease technologically sophisticated design and manufacturing equipment, materials handling and data processing equipment, warehouses and vehicles. We lease office space in Munich for
our headquarters and other administrative and sales staff from a Siemens subsidiary. We describe the terms of our leases with Siemens companies under Item 10. Additional Information  Material Contracts  Agreements
with Siemens.

In March 2005, we closed our ferrites plant in Bordeaux. In connection with the final closure, we incurred expenses
that were higher than initially planned. For more information, see Item 4. Information on the Company  Description of Business.

Organizational Structure

Our principal subsidiaries and associated companies are listed in the table below. The most
significant subsidiaries are in Deutschlandsberg, Austria, in Évora, Portugal, and in Singapore. The



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following table provides key information about our principal subsidiaries and associated companies as of, and for the
fiscal year ended, September 30, 2005:



|                                                             |  |                    |   |  |          |   |  |                 
|------------------------------------------------------------ |  | ------------------ | - |  | -------- | - |  | ----------------
|                                                             |  | Equity             |   |  | Earnings |   |  | % Equityinterest
|                                                             |  | (euro in millions) |   |  |         
|Germany                                                      |  |                    |   |  |          |   |  |                 
|Ernst Herrmann Ingenieur AG & Co. KG, Berlin                 |  | 3.700              |   |  | 2.509    |   |  | 100             
|                                                             |  |                    |  
|Other Europe                                                 |  |                    |   |  |          |   |  |                 
|EPCOS oHG, Deutschlandsberg, Austria                         |  | 82.330             |   |  | (46.782  | ) |  | 100             
|EPCOS-Peças e Componentes Electrônicos S.A., Évora, Portugal |  | 51.428             |   |  | (5.807   | ) |  | 100             
|EPCOS Electronic Components S.A., Málaga, Spain              |  | 0.787              |   |  | (3.384   | ) |  | 100             
|EPCOS s.r.o., Sumperk, Czech Republic                        |  | 8.198              |   |  | (2.459   | ) |  | 100             
|EPCOS SAS, Saint Denis, France                               |  | 1.153              |   |  | 9.433    |   |  | 100             
|EPCOS Elektronikai Alkatrész Kft., Szombathely, Hungary      |  | 19.747             |   |  | 3.396    |   |  | 100             
|EPCOS UK Ltd., Bracknell, United Kingdom                     |  | 1.900              |   |  | 0.161    |   |  | 100             
|EPCOS Nordic AB, Kista, Sweden                               |  | 1.079              |   |  | 0.434    |   |  | 100             
|EPCOS Nordic OY, Espoo (Helsinki), Finland                   |  | 0.382              |   |  | 0.261    |   |  | 100             
|EPCOS Finance B.V., Amsterdam, Netherlands                   |  | 2.154              |   |  | 0.080    |   |  | 100             
|                                                             |  |                    |  
|Asia                                                         |  |                    |   |  |          |   |  |                 
|EPCOS PTE LTD, Singapore                                     |  | 114.760            |   |  | 9.527    |   |  | 100             
|EPCOS (China) Investment Ltd., Shanghai, China               |  | 45.283             |   |  | 8.377    |   |  | 100             
|EPCOS India Private Ltd., Nashik, India                      |  | 7.063              |   |  | 1.022    |   |  | 100             
|EPCOS (Zhuhai FTZ) Co., Ltd., Zhuhai, China                  |  | 9.649              |   |  | 1.059    |   |  | 100             
|EPCOS (Wuxi) Co., Ltd., Wuxi, China                          |  | 13.095             |   |  | (1.273   | ) |  | 100             
|EPCOS (Xiaogan) Co., Ltd., Xiaogan, China                    |  | 3.200              |   |  | 0.973    |   |  | 76              
|EPCOS Ferrites Private Ltd., Calcutta, India                 |  | (10.836            | ) |  | (3.828   | ) |  | 100             
|EPCOS KK, Yokohama, Japan                                    |  | 1.667              |   |  | 0.169    |   |  | 100             
|EPCOS (Zhuhai) Co., Ltd., Zhuhai, China                      |  | 4.590              |   |  | 0.607    |   |  | 100             
|EPCOS SDN. BHD., Johore Bahru, Malaysia                      |  | 16.085             |   |  | 7.660    |   |  | 100             
|EPCOS (Shanghai), Ltd., Shanghai, China                      |  | 0.182              |   |  | (0.488   | ) |  | 100             
|EPCOS Ltd., Hong Kong, China                                 |  | 3.672              |   |  |         |   |  | 100             
|                                                             |  |                    |  
|Americas                                                     |  |                    |   |  |          |   |  |                 
|EPCOS do Brasil Ltda., Gravataí, Brazil                      |  | 43.219             |   |  | 4.894    |   |  | 100             
|EPCOS Inc., Iselin, New Jersey, U.S.                         |  | 12.434             |   |  | (0.892   | ) |  | 100             
|Crystal Technology Inc., Palo Alto, California, U.S.         |  | 12.296             |   |  | 1.036    |   |  | 100             

Item 4A. Unresolved Staff Comments

Not applicable.

Item 5. Operating and Financial Review and Prospects

The following discussion of our financial
condition and results of operations should be read in conjunction with our Consolidated Financial Statements and the related notes, and the other financial information included elsewhere in this Form 20-F. This discussion includes forward-looking
statements based on assumptions about our future business. Our actual results could differ materially from those contained in the forward-looking statements.

Overview

Following exceptional growth in the year 2000, succeeding years have seen difficult conditions in the passive
component markets due to a prolonged downturn in the global economy. After a slow recovery in the first half of fiscal year 2004, the market for passive components slowed down again in the second half of fiscal year 2004 and the first half of fiscal
year 2005, burdened by



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inventory adjustments among our customers as a result of the recovery in the first half of fiscal year 2004. Because weak
demand lasted unexpectedly long, we, along with other passive component manufacturers, were not able to utilize production capacity as planned. This led to ongoing price erosion that was intensified by the unfavorable dollar/euro exchange rate. In
the second half of fiscal year 2005, demand for passive components stabilized somewhat as the global economy began to recover.

In general,
the passive components market is subject to price erosion. In our segments, we strive to compensate for the adverse impact of falling unit prices on our net sales through higher sales volumes as a result of market growth and our efforts to improve
our market share. In recent years, we have also been able to reduce the impact of lower unit prices for existing products on our profit margins through productivity improvements, the introduction of many new products and cost reductions. Once they
are fully ramped up, new products designed to customer specifications are typically more profitable for us on a per-unit basis than older products and commodity-type products. We have also increased our production capacity in countries where labor
costs are lower and have more systematically exploited our purchasing power to obtain better terms from our suppliers through global coordination of our materials procurement. To reduce our manufacturing costs further and to increase our flexibility
to react to market cycles, we subcontract selected manufacturing processes to other manufacturers. However, in fiscal year 2005 we were not able to compensate for the negative impact of falling unit prices, posting a decrease in net sales. Our
earnings were also burdened by ramp-up costs for new products, lower sales volume, and a less favorable product mix.

Responding to the
dramatic changes in the passive components market and the economic climate over the past years, we continue to focus on the fastest-growing and technologically most demanding markets, customer orientation, innovation, and, more than ever before,
rigorous cost management. Our cost management efforts include cost-cutting programs, including a purchasing offensive in conjunction with streamlining processes and procedures throughout the Company, as well as a restructuring involving the
relocation of production facilities to low-cost countries.

Cost-cutting program.In 2001 and 2002, we launched two cost-cutting
programs that were combined in fiscal year 2003 into the company-wide COMPETE program. This program provides for restrictions on capital expenditure, further reductions in procurement costs and the accelerated transfer of workforce from high to
low-labor-cost countries. Other key items on the cost-cutting agenda are rationalization, continuous improvement of processes, increased productivity and higher yields in manufacturing.

In fiscal year 2005, we realized savings through these cost-cutting programs in the amount of approximately 110 million.

Restructuring charges.In fiscal years 2005, 2004 and 2003, we recorded restructuring charges in the amount of 5.6 million,
4.4 million and 13.8 million, respectively, in connection with our reduction of staff levels, disposal of equipment and acceleration of the shift of production to countries with lower labor costs. These total restructuring
costs were incurred by our business segments as follows:



|                       |  |                                 |   |  |      |   |  |     
|---------------------- |  | ------------------------------- | - |  | ---- | - |  | ----
|                       |  | Fiscal year ended September 30,
|                       |  | 2005                            |   |  | 2004 |   |  | 2003
|                       |  | (euro in millions)             
|SAW components         |  | (1.0                            | ) |  | 3.5  |   |  | 6.5 
|Ceramic components     |  | 1.1                             |   |  | (0.1 | ) |  | 0.3 
|Capacitors             |  | 0.9                             |   |  | (0.9 | ) |  | 2.9 
|Inductors and Ferrites |  | 4.6                             |   |  | 2.0  |   |  | 3.8 
|Other                  |  |                                |   |  |     |   |  | 0.3 
|                       |  |                                 |   |  |      |   |  |     
|Total                  |  | 5.6                             |   |  | 4.4  |   |  | 13.8

The net restructuring costs of 5.6 million for fiscal year 2005 included gross
restructuring costs of 6.5 million, of which personnel costs accounted for 5.7 million. This gross figure was partly offset by 0.9 million of reversals, which resulted from a revision of previous years
estimates.



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The net restructuring costs of 4.4 million for fiscal year 2004 included restructuring costs
of 5.7 million, of which personnel costs accounted for 2.1 million. This gross figure was partly offset by 1.3 million of reversals, including previously charged restructuring costs in the amount of
0.9 million for the capacitors segment and 0.1 million for the ceramic components segment. These reversals resulted from a revision of previous years estimates.

In fiscal year 2003, the net restructuring costs of 13.8 million included fourth-quarter restructuring costs of 15.1 million for a
further reduction of workforce in high-labor-cost countries. This gross figure was partly offset by 1.3 million, which resulted from a revision of the previous years estimate when we had recorded net restructuring costs of
27.0 million.

Currency Exposure.The persistent weakness of the U.S. dollar vis-à-vis the euro has had a negative
effect on our results in recent fiscal years since the market prices for our products are essentially dollar-based around the world, even within the euro zone. Through the relocation of our production facilities and purchasing activities to
low-labor-cost countries with currencies that are linked more to the U.S. dollar than to the euro, we have been able to reduce (but not eliminate) our exposure to the exchange rate risk resulting from the U.S. dollar.

Related parties.Historically, we have made sales to Siemens AG and its subsidiaries for their own internal usage and have relied on Siemens
regional sales representation for resale to other customers. Total sales to the Siemens group for both internal usage and resale to other customers represented 15.0% of our net sales in fiscal year 2005, 16.0% in fiscal year 2004 and 17.3% in fiscal
year 2003. Of our total consolidated sales, 14.0% of our net sales in fiscal year 2005, 13.4% in fiscal year 2004 and 14.5% in fiscal year 2003 were sales directly to Siemens for internal usage. In addition, sales made directly to third-party
customers but through the agency of Siemens sales agents accounted for 12.1% of our net sales in fiscal year 2005, 9.8% in fiscal year 2004 and 10.5% in fiscal year 2003. The portion of our net sales to the Siemens group for resale to other
customers has declined to 1.0% since our initial public offering in October 1999, mainly because we no longer use the Siemens sales network for resale to other customers in Germany and as a result of switching our sales activities from Siemens sales
companies in Austria, China, Czech Republic, Finland, France, Hungary, India, Japan, Sweden and the United Kingdom to our own sales companies. We expect, however, that a significant portion of our net sales will continue to be to the Siemens group
for their internal usage.

In connection with our initial public offering, Siemens, Matsushita and EPCOS AG entered into agreements
providing for the separation of our business from Siemens and Matsushita, including agency and distributorship agreements, lease agreements and research and development agreements with Siemens and cross license and other technology agreements with
Matsushita. In June 2004, we extended our technical cooperation with Matsushita. See Item 10. Additional Information  Material Contracts. Before the reorganization of the group, the Siemens group also provided us with a
variety of services and functions including professional and administrative assistance such as legal advice, administration of intellectual property, treasury and cash management, human resources management, data processing and purchasing and
logistics planning. The Siemens group provided us with some of these services at cost and charged us a management fee to cover the other services. We have replaced some of these services and functions with services from third parties or by
establishing these functions internally. The Siemens group continues to provide us with some of these services under new contracts. The overall cost to us of these services and functions that Siemens used to provide has not increased to any
significant extent as a result of our separation from the Siemens group.

Critical Accounting Policies

Our Consolidated Financial Statements and related public financial information are based on the application of generally accepted accounting principles in
the United States of America (U.S. GAAP). U.S. GAAP require the use of estimates, assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenue and



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expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures
including information regarding contingencies, risk and our financial condition. We believe our use of estimates and underlying accounting assumptions adhere to generally accepted accounting principles and are consistently applied. Valuations based
on estimates are reviewed for reasonableness on a consistent basis throughout the Company.

Critical accounting policies are defined as
those that are reflective of significant judgments and uncertainties, and potentially result in materially different results under different assumptions and conditions. We believe that our accounting policies requiring significant management
judgment are limited to those described below. For a detailed discussion on the application of these and other accounting policies, see Note 2 to the Consolidated Financial Statements. We have identified the following as our accounting policies
requiring significant management judgment:



| |  |  | estimating the valuation allowances against inventories;
| | - |  | --------------------------------------------------------



| |  |  | estimating the accruals for product warranties;
| | - |  | -----------------------------------------------



| |  |  | valuation of pension obligations;
| | - |  | ---------------------------------



| |  |  | accounting for income taxes;
| | - |  | ----------------------------



| |  |  | valuation of long-lived and intangible assets; and
| | - |  | --------------------------------------------------



| |  |  | valuation of goodwill.
| | - |  | ----------------------

Valuation allowances against inventories

Management needs to make estimates regarding the valuation of inventories. In order to maintain an adequate supply of our products
for our customers, we must carry a certain level of inventory. This inventory level may vary based principally upon either orders received from customers or our forecast of demand for these products. Also, we consider possible supply shortages of
raw materials to ensure our continuous ability to manufacture our products.

Our inventories are valued at the lower of cost or market. We
apply various assumptions, estimates and methods to address this subjective, difficult and complex topic and to arrive at the net inventory amount. As part of these procedures, which collectively comprise a critical accounting policy, we first
examine the inventory items that may have some form of obsolescence due to non-conformance with industry and customer standards as identified by our quality assurance departments. Second, we consider market prices of raw materials and finished goods
in view of competitive situations in the marketplace driving the outlook for the future price levels of our products. Third, the inventory is compared to an assessment of product history and forecasted demand. Finally, we compare the result of this
methodology against the prospects for the consumption of the inventory and the appropriateness of the resulting inventory levels. As of September 30, 2005, we had inventory balances of 226.8 million, net of valuation allowances of
32.8 million, resulting from the application of this policy.

Accruals for product warranties

The management needs to make estimates regarding the outcome of warranty claims resulting from defective products. Warranty claims are brought to our
attention by customers either during warranty periods specified by law in the countries in which we operate, or if they claim that our products led to defects in our customers products that incorporate our products. Managements estimates
include warranty claims against us including potential liability for damages caused by such defects to our customers or to the customers of our customers and potential liability for consequential damages.



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Assumptions are required both for determining the likelihood of unfavorable outcomes of warranty disputes
and the cost incurred when replacing defective products and compensating our customers for damages caused by our products. First, we collect all information available regarding potential warranty claims. Second, we evaluate the probability of the
Company being required to replace products or make payments. Third, we estimate the cost of products to be replaced and the amount of payments to be made based on information from our sales and technical departments as well as inhouse and outside
counsel. We have recorded warranty accruals of 5.1 million at September 30, 2005. In the event that actual results differ from these estimates or we adjust these estimates in future periods, we may need to establish additional
accruals for product warranties which could materially impact our financial position and results of operations.

Valuation of pension obligations

The valuation of our pension plans requires the use of assumptions and estimates that are used to develop actuarial valuations of
expenses and assets/liabilities. These assumptions include discount rates, investment returns, projected salary increases and benefits and mortality rates. The actuarial assumptions used in our pension reporting are reviewed annually and compared
with external benchmarks to assure that they accurately account for our future pension obligations. The major part of our pension accruals are not funded, and we had a net unfunded status of our pension plans in the amount of
190.6 million on September 30, 2005. Accordingly, changes in assumptions for future investment returns do not have a material impact on our pension expenses and related funding requirements.

Accounting for income taxes

As part of the
process of preparing our Consolidated Financial Statements we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves us estimating our actual current tax exposure together with assessing
temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences and net operating loss carryforwards result in deferred tax assets and liabilities, which are included within our consolidated
balance sheet. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we believe that recovery is not likely, we must establish a valuation allowance. To the extent we establish
a valuation allowance or increase this allowance in a period, we must include an expense within the tax provision in the statement of operations.

Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. We have recorded a valuation
allowance of 52.1 million on gross deferred tax assets of 185.3 million (net deferred tax assets: 56.7 million) as of September 30, 2005. 84.7 million of these gross deferred tax assets and
50.0 million of the valuation allowance related to our net operating loss and tax credit carryforwards. The valuation allowance is based on our estimates of taxable income by jurisdiction in which we operate and the period over which our
deferred tax assets will be recoverable. We also consider expiration dates and other restrictions regarding the utilization of net operating loss carryforwards. In the event that actual results differ from these estimates or we adjust these
estimates in future periods, we may need to establish an additional valuation allowance which could materially impact our financial position and results of operations.

Valuation of long-lived and intangible assets

We assess the impairment of identifiable
intangibles and long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors we consider important which could trigger an impairment review include the following:



| |  |  | significant underperformance relative to historical or projected future operating results;
| | - |  | ------------------------------------------------------------------------------------------



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| |  |  | significant changes in the manner of our use of the acquired assets, the technology required by our customers or the strategy for our overall business;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | plans to dispose of a business unit; and
| | - |  | ----------------------------------------



| |  |  | significant negative industry or economic trends.
| | - |  | -------------------------------------------------

When
we determine that the carrying value of intangibles and long-lived assets or group of assets may not be recoverable based upon the existence of one or more of the above indicators of impairment, we use an estimate of the future undiscounted net cash
flows associated with the asset over the remaining life of the asset in measuring whether the asset is recoverable. If this evaluation indicates a potential impairment, we use discounted cash flows to measure fair value in determining the amount of
these assets that should be written off. In the inductors and ferrites segment we recorded an impairment of goodwill in the amount of 12 million and an impairment of fixed assets in the amount of 0.1 million in fiscal year
2005. For the year ended September 30, 2004, we recorded an impairment of fixed assets in the inductors and ferrites segment in the amount of 0.9 million. In fiscal year 2005, we also recorded an impairment of fixed assets of
46 million in the capacitors segment. The main triggering event was the planned disposal of the tantalum business. For the years ended September 30, 2004 and 2003, we recorded impairment charges of 2.7 million and
1.7 million, respectively, which related to production equipment no longer needed in the SAW components segment.

The accuracy
of our recoverability assessment and the measurement of fair value is based on our ability to accurately predict certain key variables such as sales volumes, prices, raw material costs and other economic factors. Predicting these key variables
involves uncertainty about future events; however, the assumptions used are consistent with our internal planning. The assumptions and conditions reflect our best assumptions and estimates, but these items involve inherent uncertainties which may or
may not be controllable by management. As a result, the accounting for such items could result in different amounts if management used different assumptions or if different conditions occur in future periods. In our opinion, the identifiable
intangible assets and long-lived assets are appropriately valued as of September 30, 2005.

Valuation of goodwill

We review our goodwill for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of these assets
may not be recoverable. At September 30, 2005, we had no other intangible assets with indefinite lives.

The goodwill impairment test
is performed at the reporting unit level. A reporting unit is the same as, or one level below, an operating segment as defined by SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information. We compare the fair
value of each reporting unit with its carrying value, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered impaired. If the carrying amount of a reporting unit
exceeds its fair value, the second step of the goodwill impairment test would be performed to measure the amount of impairment charge, if any. The second step compares the implied fair value of the reporting unit goodwill with the carrying amount of
that goodwill, and any excess of the carrying amount over the implied fair value is recognized as an impairment charge. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business
combination is determined, by allocating the fair value of a reporting unit to individual assets and liabilities. The excess of the fair value of a reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of
goodwill.

The results of our goodwill impairment tests did not indicate any impairment in 2003 and 2004. In fiscal year 2005, we have
recorded an impairment charge of 11.8 million relating to our ferrites unit resulting from a significant adverse change of expected ferrite core sales volumes,



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combined with higher than originally estimated expenses associated with the final closure of the ferrite manufacturing
facility in Bordeaux, France. As of September 30, 2005 and 2004 we had total goodwill of 8.3 million and 20.1 million, respectively. For additional information on this impairment charge, please refer to Note 19 of the Consolidated
Financial Statements.



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Results of Operations

The following table sets forth consolidated statement of operations data of EPCOS for each of the past three fiscal years both in absolute terms and as a percentage of net sales in the relevant year:



|                                     |  |                                 |   |  |       |   |  |                   |   |  |        |   |  |                   |   |  |       |  
|------------------------------------ |  | ------------------------------- | - |  | ----- | - |  | ----------------- | - |  | ------ | - |  | ----------------- | - |  | ----- | -
|                                     |  | Fiscal year ended September 30, |  
|                                     |  | 2005                            |   |  | 2004  |   |  | 2003              |  
|                                     |  | (euro inmillions)               |   |  | (%)   |   |  | (euro inmillions) |   |  | (%)    |   |  | (euro inmillions) |   |  | (%)   |  
|                                     |  |                                 |   |  |       |  
|Net sales                            |  | 1,237.5                         |   |  | 100.0 |   |  | 1,362.2           |   |  | 100.00 |   |  | 1,271.6           |   |  | 100.0 |  
|Cost of goods sold                   |  | (1,116.5                        | ) |  | (90.2 | ) |  | (1,091.7          | ) |  | (80.1  | ) |  | (1,059.2          | ) |  | (83.3 | )
|                                     |  |                                 |   |  |       |   |  |                   |   |  |        |   |  |                   |   |  |       |  
|Gross profit                         |  | 121.0                           |   |  | 9.8   |   |  | 270.5             |   |  | 19.9   |   |  | 212.4             |   |  | 16.7  |  
|Research and development expenses    |  | (70.3                           | ) |  | (5.7  | ) |  | (74.6             | ) |  | (5.5   | ) |  | (69.4             | ) |  | (5.5  | )
|Marketing and selling expenses       |  | (116.3                          | ) |  | (9.4  | ) |  | (122.1            | ) |  | (9.0   | ) |  | (120.9            | ) |  | (9.5  | )
|General and administrative expenses  |  | (13.3                           | ) |  | (1.1  | ) |  | (14.8             | ) |  | (1.1   | ) |  | (14.0             | ) |  | (1.1  | )
|                                     |  |                                 |   |  |       |   |  |                   |   |  |        |   |  |                   |   |  |       |  
|Operating income (loss)              |  | (78.9                           | ) |  | (6.4  | ) |  | 59.0              |   |  | 4.3    |   |  | 8.0               |   |  | 0.6   |  
|Interest income (expense), net       |  | (8.7                            | ) |  | (0.7  | ) |  | (5.9              | ) |  | (0.4   | ) |  | (8.8              | ) |  | (0.7  | )
|Impairment of goodwill               |  | (11.8                           | ) |  | (1.0  | ) |  |                  |   |  |       |   |  |                  |   |  |      |  
|Other income (loss)(1)               |  | 2.3                             |   |  | (0.2  | ) |  | 5.9               |   |  | 0.4    |   |  | (2.5              | ) |  | (0.2  | )
|Benefit (Provision) for income taxes |  | (22.0                           | ) |  | (1.8  | ) |  | (9.6              | ) |  | (0.7   | ) |  | 10.2              |   |  | 0.8   |  
|Minority interest                    |  | (0.2                            | ) |  | (0.0  | ) |  | (0.2              | ) |  | (0.0   | ) |  | (0.2              | ) |  | (0.0  | )
|                                     |  |                                 |   |  |       |   |  |                   |   |  |        |   |  |                   |   |  |       |  
|Net income (loss)                    |  | (119.3                          | ) |  | (9.6  | ) |  | 49.2              |   |  | 3.6    |   |  | 6.7               |   |  | 0.5   |  

---

|(1) | Includes foreign exchange gains (losses), net, other income (expenses), net, and share of net gains (losses) of unconsolidated affiliates.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------

Net sales

The following table shows net sales
and change in net sales for each of our four segments for the periods shown.



|                        |  |                                 |  |          |  |         |  |           |   |  |          
|----------------------- |  | ------------------------------- |  | -------- |  | ------- |  | --------- | - |  | ---------
|                        |  | Fiscal year ended September 30, |  | % Change
|                        |  | 2005                            |  | 2004     |  | 2003    |  | 2004/2005 |   |  | 2003/2004
|                        |  | (euro in millions)              |  |          |  |         | 
|SAW components          |  | 369.5                           |  | 449.7    |  | 403.8   |  | (17.8     | ) |  | 11.4     
|Ceramic components      |  | 361.3                           |  | 374.3    |  | 355.8   |  | (3.5      | ) |  | 5.2      
|Capacitors              |  | 336.2                           |  | 353.7    |  | 350.4   |  | (4.9      | ) |  | 0.9      
|Inductors and Ferrites  |  | 170.5                           |  | 184.5    |  | 161.6   |  | (7.6      | ) |  | 14.2     
|Less intersegment sales |  |                                |  |         |  |        |  |          |   |  |         
|                        |  |                                 |  |          |  |         |  |           |   |  |          
|Total                   |  | 1,237.5                         |  | 1,362.2  |  | 1,271.6 |  | (9.2      | ) |  | 7.1      

In fiscal year 2005, an unexpectedly long period of weak demand resulting from inventory
adjustments among our customers and the general weakness in the economy weighed on the business development of the passive electronic components in the first half. This in turn was a result of the recovery of demand for passive electronic components
in the first half of fiscal year 2004. However, we, along with other passive electronic component manufacturers, were not able to utilize production capacity as planned, which had a negative effect on prices. Price erosion in the first half of
fiscal year 2005 was also intensified by the unfavorable dollar/euro exchange rate. In the second half of the year, demand stabilized somewhat and we were able to increase our sales. On a quarterly basis, sales rose continually over each quarter in
fiscal year 2005, albeit at a lower rate in the first half due to the weak demand for passive electronic components.



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The following table shows the development in net sales for each of our four segments on a quarterly basis
in fiscal year 2005:



|                       |  |                                       |  |       |  |       |  |       |  |        
|---------------------- |  | ------------------------------------- |  | ----- |  | ----- |  | ----- |  | -------
|                       |  | 2005 net sales by quarter (unaudited)
|                       |  | Q1                                    |  | Q2    |  | Q3    |  | Q4    |  | Total  
|SAW components         |  | 95.7                                  |  | 85.6  |  | 87.1  |  | 101.1 |  | 369.5  
|Ceramic components     |  | 75.1                                  |  | 86.6  |  | 91.8  |  | 107.8 |  | 361.3  
|Capacitors             |  | 80.4                                  |  | 80.6  |  | 87.4  |  | 87.8  |  | 336.2  
|Inductors and Ferrites |  | 37.5                                  |  | 44.7  |  | 43.7  |  | 44.6  |  | 170.5  
|                       |  |                                       |  |       |  |       |  |       |  |        
|Total                  |  | 288.7                                 |  | 297.5 |  | 310.0 |  | 341.3 |  | 1,237.5

In fiscal year 2004, the upturn in the global economy was accompanied by a generally positive
trend in demand for passive electronic components from all industries and regions. As a result of the improved capacity utilization in our industry, product prices stabilized as the year unfolded. However, for the year as a whole, price erosion was
as severe as in the previous year. Against this generally positive economic background, sales rose in all four segments after two years of declining sales. On a quarterly basis, sales rose continually in the first three quarters of the fiscal year.
In the fourth quarter, however, sales decreased as a result of declining orders beginning in the early summer due to the recurred slow down of the global economy.

SAW components. In fiscal year 2005, sales in the SAW components segment decreased sharply, mainly due to the reduced demand in the first half of fiscal year 2005, especially by manufacturers of mobile phones
and consumer electronics products. In this adverse business climate, sales in the first three quarters of fiscal year 2005 were well below the previous years figures. Toward the end of the fourth quarter, however, demand for SAW filters for
mobile phones in particular increased significantly.

In fiscal year 2004, sales in the SAW components segment increased in particular due
to the positive trend in business in radio-frequency modules for mobile phones. Sales of filters for multimedia applications and automotive electronics also increased, while sales of filters for mobile phones remained stable against previous year
despite severe price erosion. On a quarterly basis, net sales in this segment were relatively stable throughout fiscal year 2004, with a peak in the first quarter due to Christmas business.

Ceramic components. In fiscal year 2005, sales in the ceramic components segment decreased, primarily due to the weak business with multilayer
ceramic capacitors. Demand for these products was much weaker in the consumer electronics and mobile communications industries in particular. Realignment of our portfolio of multilayer ceramic capacitors was a further factor that caused sales to
decrease. Sales of thermistors and varistors also declined as a result of the weak demand from household electronics manufacturers. Sales of piezo actuators for diesel injection systems nearly doubled in 2005, whereas demand for sensors and sensor
systems remained stable, as did demand for surge arresters.

In fiscal year 2004, sales in the ceramic components segment increased
primarily due to strong demand for sensors and sensor systems, which are used, among other things, to measure the temperature of operating fluids in appliances and motor vehicles. Sales of piezo actuators for diesel injection systems also picked up
sharply, as did business with surge voltage arresters. Thermistors and varistors also experienced strong demand. In multilayer ceramic capacitors, however, disproportionately severe price erosion led to decreased revenues in fiscal year 2004. Net
sales in this segment as a whole increased slightly over the four quarters of fiscal year 2004, with a peak of 97.2 million in the third quarter.

Capacitors. In fiscal year 2005, sales in the capacitors segment decreased mainly due to declining sales of tantalum capacitors. Business with these products was again burdened by overcapacity in the components
industry and persistent severe price erosion. Sales of aluminum electrolytic capacitors remained stable overall, whereas higher sales to automotive electronics



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customers and distributors made up for declining business with manufacturers of consumer electronics products. Lower
demand for film capacitors was to some extent offset by stronger demand for power capacitors.

In fiscal year 2004, sales in the capacitors
segment increased primarily in the area of aluminum electrolytic capacitors for automotive and industrial electronics. Demand also increased in capacitors for power factor correction, which can, among other things, significantly reduce power
consumption in high-output industrial drives. In contrast, sales of tantalum capacitors declined despite rising volumes. This line of business was characterized by overcapacity in the industry and persistent severe price erosion. On a quarterly
basis, net sales in this segment were relatively stable throughout fiscal year 2004.

Inductors and Ferrites. In fiscal year 2005,
sales dropped as all product groups in this segment were affected by weak demand, with inductive components for telecommunications and consumer electronics applications suffering the most. Sales of ferrites were down primarily due to the realignment
of the product portfolio. Business with EMC components remained fairly stable despite a generally weak market.

In fiscal year 2004, the
inductors and ferrites segment posted the sharpest rise in sales. Inductors for industrial electronics and digital service line applications for high-speed Internet access experienced strong demand. Sales of inductive components for automotive
electronics also revived. Business in inductors and ferrites supplied to distributors likewise picked up. Net sales in this segment as a whole increased over the first three quarters of fiscal year 2004, while remaining relatively stable over the
fourth quarter.

Cost of goods sold

The following table shows our cost of goods sold and change in our cost of goods sold, as well as cost of goods sold as a percentage of our net sales, for the periods shown:



|                            |  |                                        |   |  |          |   |  |         |   |  |           |  |          
|--------------------------- |  | -------------------------------------- | - |  | -------- | - |  | ------- | - |  | --------- |  | ---------
|                            |  | Cost of goods sold                    
|                            |  | Fiscal year ended September 30,        |   |  | % Change
|                            |  | 2005                                   |   |  | 2004     |   |  | 2003    |   |  | 2004/2005 |  | 2003/2004
|                            |  | (euro in millions, except percentages) |   |  |          |   | 
|Cost of goods sold          |  | 1,116.5                                |   |  | 1,091.7  |   |  | 1,059.2 |   |  | 2.3       |  | 3.1      
|(as a percent of net sales) |  | 90.2                                   | % |  | 80.1     | % |  | 83.3    | % |  |           |  |          

In fiscal year 2005, cost of goods sold increased despite a reduction of net sales on a
year-on-year basis, with the cost of goods sold expressed as a percentage of net sales increasing to 90.2%. This increase was primarily due to the sale of our tantalum activities. In the course of negotiating the sale, our tantalum business was
valued below the book value of the assets applied to this business. This necessitated the recording of an impairment charge of 46 million. Additionally, ramp-up costs for new products of 33 million and inventory write-downs at
our ceramic capacitors segment of 6 million also burdened our cost of goods sold. These negative effects as well as the negative price erosion could not be compensated by the positive effects of our cost savings in the amount of about
110 million. Cost of goods sold included restructuring charges of 5.6 million taken mainly in respect for the closure of our ferrites plant in Bordeaux, France of 5 million in the inductors and ferrites segment and,
to a lesser extent, in the ceramic components segment and the capacitors segment.

In fiscal year 2004, cost of goods sold increased less
than net sales on a year-on-year basis, with the cost of goods sold expressed as a percentage of net sales decreasing to 80.1%. This decrease was due to cost savings of about 150 million and certain economies of scale following from
higher production volumes. These effects more than offset the negative impact of price erosion in fiscal year 2004. Cost of goods sold included restructuring charges of 4.4 million taken in respect of the SAW components and, to a lesser
extent, the inductors and ferrites segment.



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SAW components. In fiscal year 2005, cost of goods sold in the SAW components segment decreased by
39.7 million, to 272.3 million, primarily due to the lower volumes and cost savings resulting from process optimization and purchasing savings.

In fiscal year 2004, cost of goods sold in the SAW components segment decreased slightly by 10.1 million, to 312.0 million, due to cost savings resulting from process optimization and purchasing
savings as well as certain economies of scale following from higher production volumes. In addition, restructuring charges were reduced from 6.5 million in fiscal year 2003 to 3.5 million in fiscal year 2004. These effects more
than offset the negative impact of price erosion in fiscal year 2004.

Ceramic components. In fiscal year 2005, cost of goods sold
in the ceramic components segment increased by 34.4 million to 330.4 million, largely due to high ramp-up costs for new products, inventory write-downs at our multilayer ceramic capacitors and price adjusted volume. Cost
savings resulting from process optimization and purchasing savings could not offset these effects.

In fiscal year 2004, cost of goods sold
in the ceramic components segment increased by 18.5 million to 296.0 million, while cost of goods sold as a percentage of net sales remained stable. On a percentage basis, savings resulting from process optimization and
purchasing savings as well as certain economies of scale following from higher production volumes balanced out the negative impact of price erosion in fiscal year 2004.

Capacitors. In fiscal year 2005, cost of goods sold in the capacitors segment increased by 40.1 million to 358.7 million, mainly due to high ramp-up costs for our tantalum polymer
capacitors. In addition, an impairment of 46 million for assets employed in our tantalum business was necessary. These negative effects could not be compensated by cost savings resulting from process optimization and purchasing savings in
fiscal year 2005.

In fiscal year 2004, cost of goods sold in the capacitors segment increased by 13.5 million to
318.6 million, largely due to higher production volumes. The increase of cost of good sold expressed as a percentage of net sales to 90.1% was due to higher price erosion, which could not be offset by cost savings resulting from process
optimization and purchasing savings.

Inductors and Ferrites. In fiscal year 2005, cost of goods sold in the inductors and ferrites
segment decreased by 9.9 million to 155.2 million, while cost of goods sold as a percentage of net sales remained stable. The decrease of cost of goods sold is mainly due to the lower sales volume decreasing proportionately to
the volume reduction. Cost of goods sold for this segment was also affected by the unexpected expenditures of 5 million for the final closure of the ferrites plant in Bordeaux, France.

In fiscal year 2004, cost of goods sold in the inductors and ferrites segment increased by 10.6 million to 165.1 million. However,
cost of goods sold as a percentage of net sales decreased from 95.7% in fiscal year 2003 to 89.5% in fiscal year 2004. This relative reduction was due to cost savings resulting from process optimization and purchasing savings, lower restructuring
charges as well as certain economies of scale following from higher production volumes. Price erosion in fiscal year 2004 remained at about the same level compared with fiscal year 2003.



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Operating expenses

The following table shows our operating expenses and change in operating expenses for the periods shown:



|                                  |  |                                                    |  |          |  |       |  |           |   |  |          
|--------------------------------- |  | -------------------------------------------------- |  | -------- |  | ----- |  | --------- | - |  | ---------
|                                  |  | Operating expenses Fiscal year ended September 30, |  | % Change
|                                  |  | 2005                                               |  | 2004     |  | 2003  |  | 2004/2005 |   |  | 2003/2004
|                                  |  | (euro in millions)                                 |  |          |  |       | 
|Research and development expenses |  | 70.3                                               |  | 74.6     |  | 69.4  |  | (5.7      | ) |  | 7.5      
|Marketing and selling expenses    |  | 116.3                                              |  | 122.1    |  | 120.9 |  | (4.7      | ) |  | 1.0      
|General administrative expenses   |  | 13.3                                               |  | 14.8     |  | 14.0  |  | (10.1     | ) |  | 5.7      
|                                  |  |                                                    |  |          |  |       |  |           |   |  |          
|Total                             |  | 199.9                                              |  | 211.5    |  | 204.3 |  | (5.5      | ) |  | 3.5      

Research and development expenses. In fiscal year 2005, research and development expenses
decreased by 4.3 million to 70.3 million, mainly in response to lower sales in fiscal year 2005. We nevertheless stepped up our work on key innovation projects such as modules for power factor correction for electric drive
systems in industrial plants, bulk acoustic wave filters for mobile phones and multilayer serial ceramic capacitors for automotive electronics applications. In fiscal year 2005, research and development expenses accounted for 5.7% of net sales,
remaining at about the previous years level.

In fiscal 2004, research and development expenses increased by 5.2 million
to 74.6 million, due to startup costs for new products such as piezo actuators for fuel injection systems, modules for mobile phones and automotive applications, and tantalum polymer capacitors for computers. With research and development
expenditures at 5.5% of net sales, EPCOS believes to be well positioned to hold and extend its leading market position. The main focus of these expenses was on the SAW components segment, the ceramic components segment, as well as on the capacitors
segment.

SAW components. In fiscal year 2005, research and development expenses in the SAW segment decreased by
3.6 million to 27.5 million, comprising the major share of our total research and development expenses. Amounting to 7.5% of net sales for the SAW components segment, spending was concentrated on film bulk acoustic wave
resonators, CeraDiodes and ESD/EMI modules.

Research and development expenses in the SAW components segment increased by
2.3 million to 31.1 million in fiscal year 2004, amounting to 6.9% of net sales for the segment. The SAW components segment thus accounted for the major share of our total research and development expenses. Spending focused on
multilayer modules based on low-temperature co-fired ceramic technology for mobile phones and automotive applications and film bulk acoustic wave resonators.

Ceramic components. In fiscal year 2005, research and development expenses in the ceramic components segment decreased by 3.8 million to 19.2 million, amounting to 5.3% of net sales for
the ceramic components segment. The main focus of these expenses was on piezo actuators for diesel injection systems and multilayer serial ceramic capacitors for automotive electronics applications, as well as on multilayer ceramic modules for
mobile communication applications.

Research and development expenses in the ceramic components segment increased by
2.9 million, to 23.0 million, in fiscal year 2004, amounting to 6.2% of net sales in the ceramic components segment. Spending was concentrated on piezo actuators for fuel injection systems.

Capacitors. Research and development expenses in the capacitors segment increased by 3.6 million to 16.2 million, amounting
to 4.8% of net sales in the capacitors segment. Expenditures focused on tantalum polymer capacitors, modules for power factor correction used in electric drive systems in industrial plants and ultra-capacitors for automotive applications.



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In fiscal year 2004, research and development expenses decreased slightly by 0.4 million to
12.6 million, amounting to 3.6% of net sales for the capacitors segment. These expenditures were focused on the further development of tantalum polymer capacitors. Offering the advantage of maximum volumetric capacitance with low internal
resistance, tantalum polymer capacitors can be used for buffering in the power supplies of personal computers and notebooks with fast processors of the latest generation.

Inductors and Ferrites. In fiscal year 2005, research and development expenses for this segment decreased by 0.6 million to 7.3 million, amounting to 4.3% of net sales in the inductors and
ferrites segment. Spending was concentrated on transponders for keyless entry systems and immobilizers as well as on helical power inductors used in power supplies.

Research and development expenses in the inductors and ferrites segment increased slightly by 0.5 million, to 7.9 million, in fiscal year 2004, amounting to 4.3% of net sales in the inductors and
ferrites segment. Expenditures focused on power inductors, inductors for high-temperature applications and high permeability materials for EMC applications at elevated temperatures mainly used for automotive applications.

Marketing and selling expenses.

In
fiscal year 2005, marketing and selling expenses decreased by 5.8 million to 116.3 million compared with fiscal year 2004. As these expenses decreased proportionally less than net sales, marketing and selling expenses as a
percentage of net sales increased from 9.0% in fiscal year 2004 to 9.4% in fiscal year 2005. In fiscal year 2004, marketing and selling expenses increased slightly by 1.2 million to 122.1 million compared with fiscal year 2003.
The increase in these expenses therefore remained significantly below the rise in net sales, with the result that marketing and selling expenses as a percentage of net sales fell from 9.5% in fiscal year 2003 to 9.0% in fiscal year 2004.

General administrative expenses. In fiscal year 2005, general and administrative expenses decreased by 1.5 million to
13.3 million, compared with fiscal year 2004. This decrease mainly reflects the lower variable cash components of the compensation paid to senior management and members of the management board compared with fiscal year 2004.

In fiscal year 2004, general and administrative expenses increased by 0.8 million, to 14.8 million, compared with fiscal year
2003. This increase reflects the higher variable cash components of the compensation paid to senior management and members of the management board compared with fiscal year 2003.

Earnings before interest, taxes and minority interest (EBIT)

We use EBIT as a measure because that is the basis on which our management evaluates the operating performance for each of our segments and for the Company as a whole, and on which it establishes budgets and
operational goals. We believe that EBIT is a better measure of operating performance of our segments than net income since the latter includes interest income (expenses) and benefit (provision) for income taxes, whereas EBIT permits investors to
examine the performance of each business segment and the Company as a whole between years with a higher degree of comparability. We calculate EBIT as net income (loss) plus (minus) minority interest minus (plus) benefit (provision) for income taxes
minus interest income plus interest expense. Other companies that use EBIT may calculate it differently, and their figures may not be comparable to ours. The EBIT of our segments differs from our net income and you should not consider them to be the
same. Note 21 to our Consolidated Financial Statements shows a reconciliation of segment EBIT to segment income before income taxes and minority interest. For a reconciliation of EBIT to net income, see Item 3. Key Information 
Selected Consolidated Financial and Statistical Data.



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The following table sets forth EBIT as well as EBIT as a percentage of net sales for each of our segments
for the periods shown:

Earnings before interest, taxes and minority interest



|                            |  |                                        |    |  |       |    |  |       |   
|--------------------------- |  | -------------------------------------- | -- |  | ----- | -- |  | ----- | --
|                            |  | Fiscal year ended September 30,        |   
|                            |  | 2005                                   |    |  | 2004  |    |  | 2003  |   
|                            |  | (euro in millions, except percentages) |   
|SAW components              |  | 28.7                                   |    |  | 57.2  |    |  | 16.7  |   
|(as a percent of net sales) |  | 7.8                                    | %  |  | 12.7  | %  |  | 4.1   | % 
|Ceramic components          |  | (24.3                                  | )  |  | 19.4  |    |  | 15.9  |   
|(as a percent of net sales) |  | (6.7                                   | )% |  | 5.2   | %  |  | 4.5   | % 
|Capacitors                  |  | (74.2                                  | )  |  | (11.3 | )  |  | (10.8 | ) 
|(as a percent of net sales) |  | (22.1                                  | )% |  | (3.2  | )% |  | (3.1  | )%
|Inductors and ferrites      |  | (18.6                                  | )  |  | (0.4  | )  |  | (16.3 | ) 
|(as a percent of net sales) |  | (10.9                                  | )% |  | (0.2  | )% |  | (10.1 | )%

In fiscal year 2005, our EBIT fell by 153.3 million, to minus 88.4 million
in fiscal year 2005. This reduction was primarily due to an impairment for our tantalum activities in the amount of 46 million and an impairment on goodwill on our ferrites business in the amount of 12 million. EBIT was also
burdened by high ramp-up costs for new products in the amount of 33 million, as well as by an inventory write-down at our ceramic capacitors segment in the amount of 6 million and additional costs for the final closure of our
ferrites plant in Bordeaux, France in the amount of 5 million. Our EBIT was further negatively impacted by the lower sales volumes and a less favorable product mix than in the previous year. Cost savings resulting from process
optimization and purchasing savings were able to more than offset the negative impact of price erosion in fiscal year 2005.

In fiscal year
2004, we increased our EBIT by 59.4 million to 64.9 million compared with 5.5 million in fiscal year 2003. This increase was due to cost savings resulting from process optimization and purchasing savings as well as
certain economies of scale following from higher production volumes. These effects more than offset the negative impact of price erosion in fiscal year 2004. Our EBIT was burdened by 4.4 million restructuring charges in fiscal year 2004
and by 15.1 million restructuring charges in 2003.

The following table shows the development of EBIT for each quarter of fiscal
year 2005:



|                                     |  |                                                         |   |  |       |   |  |      |   |  |       |   |  |        |  
|------------------------------------ |  | ------------------------------------------------------- | - |  | ----- | - |  | ---- | - |  | ----- | - |  | ------ | -
|                                     |  | EBIT by quarter, and reconciliation2005 EBIT by quarter |  
|                                     |  | Q1                                                      |   |  | Q2    |   |  | Q3   |   |  | Q4    |   |  | Total  |  
|                                     |  | (unaudited, euro in millions)                           |  
|Net income                           |  | (0.4                                                    | ) |  | (48.7 | ) |  | (7.6 | ) |  | (62.6 | ) |  | (119.3 | )
|Minority interest                    |  | 0.0                                                     |   |  | 0.1   |   |  | 0.1  |   |  | 0.1   |   |  | 0.2    |  
|Provision (benefit) for income taxes |  | (0.2                                                    | ) |  | 20.1  |   |  | 4.2  |   |  | (2.1  | ) |  | 22.0   |  
|Interest income                      |  | (0.4                                                    | ) |  | (0.9  | ) |  | (0.5 | ) |  | (1.4  | ) |  | (3.2   | )
|Interest expense                     |  | 2.4                                                     |   |  | 2.5   |   |  | 2.9  |   |  | 4.0   |   |  | 11.8   |  
|EBIT                                 |  | 1.4                                                     |   |  | (26.9 | ) |  | (0.9 | ) |  | (62.0 | ) |  | (88.4  | )
|Thereof:                             |  |                                                         |   |  |       |   |  |      |   |  |       |   |  |        |  
|SAW components                       |  | 10.4                                                    |   |  | 3.9   |   |  | 5.9  |   |  | 8.5   |   |  | 28.7   |  
|Ceramic components                   |  | (3.0                                                    | ) |  | (4.4  | ) |  | (2.2 | ) |  | (14.7 | ) |  | (24.3  | )
|Capacitors                           |  | (3.8                                                    | ) |  | (8.7  | ) |  | (5.0 | ) |  | (56.7 | ) |  | (74.2  | )
|Inductors and ferrites               |  | (2.2                                                    | ) |  | (17.7 | ) |  | 0.4  |   |  | 0.9   |   |  | (18.6  | )

SAW components. In fiscal year 2005, EBIT in the SAW components segment decreased by
28.5 million, to 28.7 million, compared to fiscal year 2004. This reduction was mainly due to the lower sales volume and persistent price erosion, whereas the latter was only partly offset by cost savings resulting from process
optimization and purchasing savings.

In fiscal year 2004, we managed to increase EBIT in the SAW components segment by
40.5 million to 57.2 million, on a year-on-year basis. The persistent severe price erosion in SAW filters for mobile phones was more than offset by cost savings resulting from process optimization and purchasing savings, as
well as by certain



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economies of scale following from higher production volumes. EBIT in the SAW components segment in fiscal year 2003 was
burdened by restructuring costs of 6.6 million and the adverse consequences of the SARS epidemic on the key mobile phone market.

Ceramic components. In fiscal year 2005, EBIT in the ceramic components segment decreased by 43.7 million, to minus 24.3 million, on a year-on-year basis. The segments EBIT was burdened primarily by high
ramp-up costs for new products, the lower sales volume and inventory write-downs at our multilayer ceramic capacitors.

In fiscal year
2004, EBIT in the ceramic components segment increased by 3.5 million, to 19.4 million, compared with fiscal year 2003. Despite persistent severe price erosion, efforts to cut costs and improve process and product quality for
multilayer ceramic capacitors in particular had a positive effect on EBIT.

Capacitors. In fiscal year 2005, EBIT in the capacitors
segment decreased by 62.9 million to minus 74.2 million compared with fiscal year 2004. High ramp-up costs for our tantalum polymer capacitors and the persistent erosion in the price of manganese oxide capacitors burdened the
segments EBIT. These negative effects could not be offset by cost savings resulting from process optimization and purchasing savings in fiscal year 2005. Additionally, in the course of negotiating the sale of our tantalum capacitors unit, our
tantalum business was valued below the book value of the assets applied to this business. This necessitated the recording of an impairment charge for long-lived assets relating to the tantalum business of 46 million.

In fiscal year 2004, EBIT of the capacitors segment fell by 0.5 million to minus 11.3 million, compared with minus
10.8 million in fiscal year 2003. This segments EBIT was still burdened by adverse market conditions for our tantalum capacitors business, which continues to be characterized by overcapacity and persistent severe price erosion. This
was made even worse by the weak U.S. dollar. To improve EBIT in the capacitors segment, we are stepping up efforts to improve yields and ramping up production of our new tantalum polymer capacitors.

Inductors and Ferrites. In fiscal year 2005, EBIT in the inductors and ferrites segment decreased by 18.2 million, to minus
18.6 million, compared with minus 0.4 in fiscal year 2004. The reduction in the segments EBIT was mainly due to the additional expenditures of 5 million for the final closure of the ferrites plant in Bordeaux,
France and an impairment of goodwill of 12 million. Lower sales volume and persistent price erosion also burdened the EBIT of the inductors and ferrites segment. These negative effects could not be compensated by cost savings resulting
from process optimization and purchasing savings in fiscal year 2005.

In fiscal year 2004, EBIT in the inductors and ferrites segment
improved by 15.9 million to minus 0.4 million, mainly as a result of our restructuring measures undertaken in recent years. In addition, the streamlining and realigning of our portfolio for ferrite products also had a positive
effect on EBIT.

Interest, other income (expense) and foreign exchange

Our net interest expense amounted to 8.6 million in fiscal year 2005, 5.9 million in fiscal year 2004, and 8.8 million in
fiscal year 2003. The increase in net interest expense in fiscal year 2005 reflects the increase in the level of our financial debt as well as the decrease in the level of our cash and cash equivalents. In fiscal year 2005, net other income of
7.0 million mainly consisted of grants for research and further education in Austria in the amount of 4.9 million and investment grants in Czech Republic in the amount of 1.3 million. Our net foreign exchange losses
were mainly due to hedging costs for foreign exchange financing activities in the amount of 4.7 million, as well as currency losses.



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The decrease in net interest expense in fiscal year 2004 reflected increased interest income attributable
to the increase in the level of our cash and cash equivalents. In fiscal year 2004, net other income of 12.2 million mainly consisted of Portuguese government grants in the amount of 7.6 million and of grants for research in
the amount of 3.9 million for our Austrian affiliate. Our net foreign exchange losses are mainly due to hedging costs for foreign exchange financing activities in the amount of 5.7 million, as well as currency losses.

Income taxes

Tax calculations
reflect the current legal structure and the applicable tax laws of the respective countries in which we have operations. The following table shows income taxes as well as income taxes as a percentage of income before income taxes and minority
interests for the periods shown:



|                                                                                        |  |                                 |    |  |      |   |  |       |  
|--------------------------------------------------------------------------------------- |  | ------------------------------- | -- |  | ---- | - |  | ----- | -
|                                                                                        |  | Fiscal year ended September 30, |   
|                                                                                        |  | 2005                            |    |  | 2004 |   |  | 2003  |  
|Benefit/(Provision) for income taxes (euro in millions)                                 |  | (22.0                           | )  |  | (9.6 | ) |  | 10.2  |  
|Income taxes (as a percent of (loss) income before income taxes and minority interests) |  | (22.6                           | )% |  | 16.3 | % |  | 309.7 | %

In fiscal year 2005, profits were recorded in legal entities benefiting from tax incentives, such
as our subsidiary in Singapore. The Singapore tax incentive contributed to our net income in the amounts of 0.8 million in fiscal year 2005, 9.9 million in fiscal year 2004, and 9.4 million in fiscal year 2003. The
negative tax rate in fiscal year 2005 was mainly caused by valuation allowances on tax assets. The decrease of our tax rate in fiscal year 2004 is based on the higher amount of our group income before taxes in the amount of 59.1 million
compared with fiscal year 2003 where we had a relatively small amount of minus 3.3 million group income before taxes. Benefit for income taxes in fiscal year 2003 mainly comprised deferred tax benefits. The third table in Note 15 to our
Consolidated Financial Statement reconciles our expected and actual provision for income taxes.

At September 30, 2005, EPCOS had
consolidated net operating loss (NOL) carry forwards of 258.8 million. The NOL relates mainly to the German, Austrian, French, Indian and Spanish operations. Additionally, the subsidiary in Spain has a tax credit in the amount of
2.7 million at its disposal.

EPCOS AG changed its pension scheme in fiscal year 2003. Liabilities were transferred to and
payments will be made by a so-called relief fund named Unterstützungskasse der EPCOS AG (UK EPCOS) e.V.. Taxable income of 7.0 million in fiscal year 2005, 3.4 million in fiscal year 2004 and of
95.6 million in fiscal year 2003 was generated from the conversion at EPCOS AG, because indirect pension obligations can not be considered for tax purposes. A temporary difference has thus arisen between the book value and the tax basis,
which led to a deferred tax asset of 42.4 million at September 30, 2005, 39.6 million at September 30, 2004, and of 38.2 million at September 30, 2003.

Deferred tax assets (net) amounted to 56.7 million at September 30, 2005 and to 63.2 million at September 30, 2004. Valuation
allowances were the main reason for the decrease of the tax assets in fiscal year 2005. As a result of a tax reform enacted in Austria in fiscal year 2004, we had to revalue the deferred tax items, which has led to a tax expense of 5.1 million
in fiscal year 2004.

The Companys valuation allowance increased from fiscal year 2004 to fiscal year 2005
by 34.7 million, in fiscal year 2003 to fiscal year 2004 by 3.5 million and from fiscal year 2002 to fiscal year 2003 by 9.5 million. The valuation allowances reduced the deferred tax assets to a net amount that
will more likely than not be realized based on our estimate of future earnings and the expected timing of temporary difference reversals.



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Net income

In fiscal year 2005, we recorded a net loss of 119.3, following net income of 49.2 million in fiscal year 2004 and of 6.7 million in fiscal year 2003.

Under the German Stock Corporation Act, the amount of income available for distribution to shareholders is based upon the equity of the Company as
reported in its financial statements drawn up on a stand-alone basis in accordance with the German Commercial Code (Handelsgesetzbuch). Accordingly, the Annual General Meeting decides only on the dividends payable from the retained earnings
(after deduction of certain reserves) as shown in the Companys annual German statutory accounts. This amount differs from the total retained earnings as shown in the accompanying financial statements prepared in accordance with US GAAP. As of
September 30, 2005, this amount was 49.2 million.

Liquidity and Capital Resources

Liquidity

We finance our operations from a
combination of our cash flows from operating activities, loans from banks and funding from the capital markets. We believe that our working capital is sufficient for our current requirements. As with many companies in our business, we are subject to
risks to our operating cash flows. We describe these risks under Item 3. Key Information  Risk Factors. We do not expect any circumstances to occur that could materially impair our ability to engage in our ordinary
activities.

In fiscal year 2005, we had cross currency and interest rate swaps with a nominal value of 32 million allocated to
transactions with an average size of 2.9 million. The swaps have various maturities up to October 5, 2007. At March 1, 2006, we had cross currency and interest rate swaps with a nominal volume of 32 million allocated
to transactions with an average size of 2.9 million. The swaps have various maturities up to October 5, 2007.

Our short-
and long-term borrowing arrangements are described in more detail below under Capital Resources.

Working capital.Our
working capital (current assets (including cash and cash equivalents) less current liabilities) amounted to 288.5 million at September 30, 2005, 314.0 million at September 30, 2004 and 228.3 million at
September 30, 2003. The decrease in fiscal year 2005 was mainly due to a decrease of cash and cash equivalents of 44.9 million reflecting the negative cash flow. Additionally, as a result of the deteriorating business development in
the passive electronics component industry, especially in the first half of fiscal year 2005, accounts receivable, net, decreased by 10.1 million. Furthermore, inventories, net, decreased by 14.2 million mainly due to a
physical reduction of inventories of about 20 million, which was partly offset by an increase of inventory value of approximately 7 million due to foreign exchange influences. Prepaid expenses and other current assets decreased
slightly by 1.0 million. These effects were partly offset by a decrease of accounts payable of 26.0 million, a decrease of accrued expenses and other current liabilities of 21.8 million as well as a decrease of
deferred income tax of 2.2 million. The current portion of long-term debt remained fairly stable on a year-on-year basis.

Cash flows from operating activities.Net cash provided by operating activities amounted to 88.1 million in fiscal year 2005, 155.5 million in fiscal year 2004 and 135.8 million in fiscal year 2003.
The decrease in fiscal year 2005 mainly reflects the significant decrease in net income during the period, a decrease in accounts payable as well as a decrease in accrued expenses and other current liabilities, which was partly offset by a decrease
in inventories, net, and a decrease in accounts receivable, net, reflecting the weak demand for passive electronic components as well as a higher depreciation and amortization than in the previous year including the impairment charge for the
long-lived assets in the tantalum business.



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Cash flows used in investing activities.Net cash used in investing activities consists mainly of
capital expenditures. Net cash used in investing activities amounted to 153.4 million in fiscal year 2005, 107.9 million in fiscal year 2004 and 91.0 million in fiscal year 2003. The increase of net cash used in
investing activities in fiscal year 2005 was mainly due to a higher level of funds channeled into production capacity for new products, including piezo actuators and tantalum polymer capacitors, as well as for SAW filters in CSSP technology and for
multilayer modules.

Cash flows from financing activities.In fiscal year 2005, net cash provided by financing activities amounted
to 18.2 million, compared with net cash used in financing activities of 2.9 million in fiscal year 2004 and net cash provided by financing activities of 122.5 million, which was mainly a result of the issuance of a
convertible bond in July 2003. In fiscal year 2004, short-term borrowings increased by 9.3 million, while long-term debt decreased by a net 12.1 million during the year. In fiscal year 2005, short-term borrowings decreased by
1.6 million, while long-term debt increased by a net 19.9 million during the year.

Contractual obligations

The following table gives you an overview of our contractual cash obligations for the periods shown:



|                                   |  |                                              |  |         |  |           |  |           |  |         
|---------------------------------- |  | -------------------------------------------- |  | ------- |  | --------- |  | --------- |  | --------
|                                   |  | Payments due by period at September 30, 2005
|Contractual cash obligations       |  | Total                                        |  | <1 year |  | 1-3 years |  | 4-5 years |  | >5 years
|                                   |  | (euro in thousands)                         
|Long-term debt                     |  | 231,071                                      |  | 24,944  |  | 47,251    |  | 153,101   |  | 5,775   
|Capital lease obligations          |  | 16                                           |  | 16      |  |          |  |          |  |        
|Operating lease obligations        |  | 61,344                                       |  | 15,886  |  | 22,758    |  | 9,944     |  | 12,756  
|                                   |  |                                              |  |         |  |           |  |           |  |         
|Total contractual cash obligations |  | 292,431                                      |  | 40,846  |  | 70,009    |  | 163,045   |  | 18,531  

We did not have a material amount of other financial commitments during the periods shown.

Capital resources

As of
September 30, 2005, we had cash and cash equivalents of 193.4 million and short-term financial debt (including the current portion of long-term debt) of 132.4 million. This amount included short-term borrowings of
107.5 million and 24.9 million of the current portion of long-term debt. The short-term borrowings consisted principally of unsecured bank loans and export financing. The export financing amounted to 52.0 million at
the end of fiscal year 2005 and bore interest at a rate of 1.85% in fiscal year 2005. Other short-term borrowings consisted of various working capital loans with various banks in currencies of the countries where we operate and had a weighted
average interest rate of 8.18% in fiscal year 2005.



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As of September 30, 2005, we had long-term debt in the amount of 231.1 million, which
bore interest at a weighted average rate of 2.895% in fiscal year 2005. This debt (including current installments) consisted of:



|                 |                    |                 |       |               |               |          |                   |        |                                                       
|---------------- | ------------------ | --------------- | ----- | ------------- | ------------- | -------- | ----------------- | ------ | ------------------------------------------------------
|Principal amount |                    | Euro equivalent |       | Interest rate |               | Maturity |                   | Lender
|(in millions)    |                    | (in millions)   |       |               |               |          |                   |       
|                 |           124.6   |                 | 124.6 |               | 2.5%          |          | 2010              |        | Convertible Bond                                      
|                 |             32.0  |                 | 32.0  |               | 4.2375%       |          | 2006 through 2009 |        | KfW                                                   
|                 |             54.2  |                 | 54.2  |               | 0.669-4.00%   |          | 2005 through 2011 |        | Austrian banking syndicate and government institutions
|                 |               2.7 |                 | 2.7   |               | 0%            |          | 2005 through 2010 |        | Agência Portuguesa para o Investimento                
|                 | INR         0.4    |                 | 0.0   |               | 0%            |          | 2006 through 2007 |        | ICICI Bank                                            
|                 | BRL       20.0     |                 | 7.5   |               | 14.75%-18.75% |          | 2005 through 2009 |        | Banco Nacional de Desenvolvimento Econômico e Social  
|                 | HUF 2,500.0        |                 | 10.0  |               | 6.61%         |          | 2008              |        | HVB Bank                                              

On July 16, 2003, the Company (as guarantor), through its subsidiary EPCOS Finance B.V. (as
issuer), issued a convertible bond due 2010 with a nominal amount of 126.425 million at an interest rate of 2.5%. At September 30, 2005, deferred debt issuance costs were 1.805 million. The bond is convertible, at the
option of the holders of the notes, into a maximum of 6,500,000 ordinary shares of the Company, at a conversion price of 19.45 per share. Upon conversion, the Company may pay a cash amount in lieu of delivery of all or a part of the shares.
The bond is unsecured and ranks pari passu with all present and future unsecured subordinated obligations of the issuer. The conversion right may be exercised by the bondholder during the period commencing on September 1, 2003 and ending on
July 1, 2010. The bond holders have an early redemption option in the event of a change of control, in which case each bondholder may demand from the issuer redemption of any or all of its bonds at the principal amount plus interest accrued
thereon. Beginning July 17, 2008, the Company may redeem the convertible bond at the principal amount plus interest accrued thereon if the Companys share price exceeds 150% of the conversion price on ten trading days during a period of 20
days. If the aggregate principal amount of bonds outstanding falls below 20.000 million the Company may redeem the remaining parts of the convertible bond.

On April 1, 2003, EPCOS AG entered into a loan of 40.0 million with KfW, carrying an interest rate of 4.2375%. The loan matures on September 30, 2009 and is repaid since March 31, 2005, in
equal semi-annual installments. For further information on our long-term debt arrangements, see Note 9 to our Consolidated Financial Statements.

We have arranged approximately 444.45 million in lines of credit as of September 30, 2005. These lines of credit include a syndicated facility for 250 million led by Bayerische Hypo- und
Vereinsbank, The Royal Bank of Scotland and HSBC. This credit facility was unused as of September 30, 2005 and carries an interest rate of either EURIBOR or LIBOR plus 0.30%. For the unused part of the borrowing arrangement a commitment fee is
paid to the syndicate of 0.105% per year. The new facility will expire in November 2009. In addition, we have negotiated a series of bilateral credit facilities with international and national banks for an aggregate of
194.45 million, of which 51.46 million were used at September 30, 2005. These facilities bear floating rates of interest based on interbank rates of interest plus margins ranging from 0.25% to 0.75%. We believe these
facilities will enable us to meet our obligations as they come due.

Our existing syndicated credit facility contains various financial
covenants, which require us to maintain a specified minimum equity ratio and to not exceed a specified financial debt-to-EBITDA ratio. We are in compliance with each of these covenants. We do not believe that our current borrowing arrangements
contain covenants that are likely to restrict our access to funding or would require us to repay any amount that is outstanding.



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Capital Expenditures

The following table sets forth our capital expenditures by segment for fiscal years 2005, 2004 and 2003:



|                       |  |                                 |  |      |  |     
|---------------------- |  | ------------------------------- |  | ---- |  | ----
|                       |  | Fiscal year ended September 30,
|                       |  | 2005                            |  | 2004 |  | 2003
|                       |  | (euro in millions)             
|SAW components         |  | 30.4                            |  | 41.5 |  | 37.0
|Ceramic components     |  | 71.0                            |  | 30.6 |  | 25.9
|Capacitors             |  | 35.8                            |  | 26.3 |  | 18.8
|Inductors and ferrites |  | 12.7                            |  | 10.0 |  | 12.2

SAW components. In fiscal year 2005, capital expenditures for the SAW components segment
were reduced by 11.1 million to 30.4 million and were primarily used to expand production capacity for multilayer modules and SAW filters in CSSP technology.

Capital expenditures for the SAW components segment amounted to 41.5 million in fiscal year 2004 and were primarily channeled into the
expansion of production capacity for SAW filters in CSSP technology and for radio-frequency modules. In fiscal year 2003, capital expenditures for the SAW components segment amounted to 37.0 million. These funds were largely spent on new
filter technologies and integrated radio frequency modules.

Ceramic components. Capital expenditures for the ceramic components
segment amounted to 71.0 million in fiscal year 2005, an increase of 40.4 million compared to fiscal year 2004. These funds were mainly channeled to ramp up production of piezo actuators.

In fiscal year 2004, the major share of capital expenditures for the ceramic components in the amount of 30.6 million was used to purchase
production machinery and expand production capacity for piezo actuators. Capital expenditures for the ceramic components segment increased to 25.9 million in fiscal year 2003. The major part of this amount was used for production of new
piezo actuators and high-capacitance ceramic capacitors.

Capacitors. In fiscal year 2005, capital expenditures for the capacitors
segment increased by 9.5 million to 35.8 million and were largely channeled into launching the production of tantalum polymer capacitors. We also invested in modernizing the production of film capacitors and expanding our
production of aluminum electrolytic capacitors.

Capital expenditures for the capacitors segment increased to 26.3 million in
fiscal year 2004. These funds were mainly invested into machinery for new products, such as tantalum polymer capacitors, and expansion of production capacity for aluminum electrolytic capacitors at our plant in Gravataí, Brazil. In fiscal
year 2003, capital expenditures amounted to 18.8 million and were mainly channeled into the development of new capacitor technologies.

Inductors and Ferrites. In fiscal year 2005, capital expenditures for the inductors and ferrites segment amounted to 12.7 million, a slight increase over the previous year. The major part of this amount was mainly used to
expand production capacity at our plants in China and Hungary.

In the inductors and ferrites segment, capital expenditures amounted to
10.0 million in fiscal year 2004. These funds were mainly channeled into building up production capacity at locations in Asia and Eastern Europe. Capital expenditures in the inductors and ferrites segment were scaled back to
12.2 million in fiscal year 2003, compared with 21.3 million in fiscal year 2002. This amount was mainly devoted to the ongoing expansion of our plant in the Czech Republic.



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Our budgeted capital expenditures are expected to be below depreciation in fiscal year 2006. In the
coming years, we are planning further capital expenditures to develop our production capacity for aluminum electrolytic capacitors in the capacitors segment. In ceramic components, we will emphasize capital expenditures for multilayer ceramics and
piezo actuators. In the SAW components segment, we intend to invest in innovative filtering solutions such as film bulk acoustic wave resonators and multilayer ceramic module technologies. In the inductors and ferrites segment, the most important
capital expenditures are planned for expanding production capacity at our production facilities in Asia and Eastern Europe.

Our planned
capital expenditures include capital expenditures for environmental compliance. Environmental considerations, including energy and materials consumption and satisfying emissions standards, contribute to the cost of improvements and expansions of our
production facilities. We do not budget separately for capital expenditures relating to environmental compliance, and few of our capital expenditures are made solely for this purpose. New or more stringent environmental regulations, including any
relating to the European Unions directives on waste electrical and electronic equipment and on the restriction of the use of certain hazardous substances in electrical and electronic equipment described under Item 8. Financial
Information  Legal matters  Environment, could require us to increase our capital expenditures budget or reallocate resources.

We intend to finance our capital expenditures program from operating cash flow.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements except for our operating leases, under which we lease manufacturing, sales and
administrative facilities and various types of equipment. Rental expenses for operating leases amounted to 23.5 million in fiscal year 2005, 23.6 million in fiscal year 2004 and 24.4 million in fiscal year 2003. Our
operating leases include mainly the following items:



| |  |  | The lease for our German premises in the amount of 9.7 million, which mainly includes lease payments for our production and sales facilities as well as the lease of our
headquarters in the amount of 8.0 million,
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the lease of a facility in Austria from Siemens for the ceramic components segment. The lease has a term of 10 years and provides for annual lease payments of
1.2 million,
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the lease by our Austrian subsidiary of a factory building. This lease has a term of 15 years and provides for annual lease payments of 2.2 million,
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the lease of our production and sales facilities, and of production equipment, in France in the amount of 1.3 million, including 0.7 million in payments under
leases for buildings leased from Siemens,
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the lease of our production and sales facilities in the U.S. amounting to 1.3 million, and
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | the lease for our facility in Singapore in the amount of 2.1 million, mainly comprising lease payments for our buildings.
| | - |  | --------------------------------------------------------------------------------------------------------------------------

We have not issued any guarantees or other substantial commitments to third parties.



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Effect of New Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123 (revised 2004), Share-Based Payment (SFAS
No. 123R), which replaces SFAS No. 123, Accounting for Stock-Based Compensation, and supersedes Accounting Principals Board Opinion (APB) No. 25, Accounting for Stock Issued to Employees, and related Interpretations.
SFAS No. 123R requires companies to recognize the cost resulting from all share-based payment transactions in the financial statements. With certain limited exceptions, the new standard establishes a grant-date fair-value based measurement
method in accounting for share-based payment transactions. Liability-classified awards are to be remeasured to fair value at each reporting date until the award is settled. Equity-classified awards are measured at grant-date fair value whereas
related compensation cost is recognized based on the estimated number of instruments for which the requisite service is expected to be rendered. SFAS No. 123R is effective as of the beginning of the first interim reporting period that begins
after June 15, 2005 and EPCOS adopted SFAS No. 123R in the first quarter of fiscal year 2006. For its equity-classified awards, the Company applied the modified prospective transition method. Under this method, unvested equity-classified
awards granted prior to the effective date of the new statement are accounted for under SFAS No. 123R and related costs are recognized in the income statement. The adoption of SFAS No. 123R did not have a material impact on the
Companys consolidated financial statements.

In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error
Corrections  a replacement of APB No. 20 and FASF Statement No. 3. This statement changes the requirements for the accounting for and reporting of a change in accounting principles. It applies to all voluntary changes in
accounting principles, error corrections and required changes due to new accounting pronouncements that do not specify a certain transition method. The Statement generally requires retrospective application to prior periods financial
statements for changes in accounting principles, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. In addition, this Statement requires that retrospective application of a change in
accounting principles 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. The adoption of SFAS
No. 154 is not expected to have material impact on the Companys consolidated financial statements.

In June 2005, the FASB
ratified EITF Issue 05-5, Accounting for Early Retirement or Postemployment Programs with Specific Features (such as Terms specified in Altersteilzeit Early Retirement Arrangements). Altersteilzeit (ATZ) in Germany is an incentive
and benefit program towards early retirement. Companies are required to recognize the salary ratably over the employees active service period. Accruals for Company granted bonuses are to be recorded ratably from the date the individual
employee enrolls in the ATZ arrangement until the end of the active service period. Related government subsidies are accounted for separately from the ATZ benefits at the time the criteria to receive them are met. EITF 05-5 is effective for fiscal
years beginning after December 15, 2005. The adoption of EITF 05-5 is not expected to have material impact on the Companys consolidated financial statements.

First Quarter Results of Fiscal Year 2006 and Recent Developments

First quarter results (unaudited)

The following table provides key information about the results for the first quarter of fiscal year 2006 (October 1, 2005 to
December 31, 2005) and for the first quarter of fiscal year 2005. Effective as of the first quarter of fiscal year 2006, the sale of EPCOSs tantalum capacitors business to KEMET has necessitated the following changes to our financial
reporting practices:



| |  |  | although the sale will not close until Spring 2006, EPCOS will report income from its tantalum capacitor activities as discontinued operations; in accordance with U.S. GAAP, the
tantalum capacitor activities for comparable periods will be reported in a comparable manner;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | the capacitors segment has been combined with the inductors and ferrites segment to form the new reportable segment capacitors and inductors.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------

As a result, the following data regarding the first quarter of fiscal year 2006 is presented on a basis that is different from the annual financial data presented
elsewhere in this annual report.



|                                                                                        |  |                                                               |    |  |            |   
|--------------------------------------------------------------------------------------- |  | ------------------------------------------------------------- | -- |  | ---------- | --
|                                                                                        |  | Three months ended December 31,                               |   
|                                                                                        |  | 2005                                                          |    |  | 2004       |   
|                                                                                        |  | (euro in millions, except share andper share data, unaudited) |   
|Consolidated statement of income data:                                                  |  |                                                               |    |  |            |   
|Net sales                                                                               |  | 304.8                                                         |    |  | 267.3      |   
|Gross profit                                                                            |  | 49.7                                                          |    |  | 47.8       |   
|Operating income                                                                        |  | 1.9                                                           |    |  | 5.3        |   
|Income before income taxes and minority interest                                        |  | 0.5                                                           |    |  | 1.2        |   
|Net income of continuing operations                                                     |  | 0.8                                                           |    |  | 0.8        |   
|Net loss of discontinued operations, net of income taxes                                |  | (4.0                                                          | )  |  | (1.3       | ) 
|Net loss                                                                                |  | (3.2                                                          | )  |  | (0.4       | ) 
|Basic and diluted earnings per share of continuing operations                           |  | 0.01                                                          |    |  | 0.01       |   
|of discontinued operations                                                              |  | (0.06                                                         | )  |  | (0.02      | ) 
|Basic and diluted weighted average number of shares                                     |  | 65,300,000                                                    |    |  | 65,300,000 |   
|                                                                                        |  |                                                              
|Net sales by segment:                                                                   |  |                                                               |    |  |            |   
|Capacitors and inductors                                                                |  | 109.3                                                         |    |  | 96.5       |   
|SAW components                                                                          |  | 98.4                                                          |    |  | 95.7       |   
|Ceramic components                                                                      |  | 97.1                                                          |    |  | 75.1       |   
|Less inter-segment sales                                                                |  |                                                              |    |  |           |   
|                                                                                        |  |                                                               |    |  |            |   
|Total                                                                                   |  | 304.8                                                         |    |  | 267.3      |   
|                                                                                        |  |                                                              
|Earnings (loss) before interest and taxes by segment (reconciled to net income (loss)): |  |                                                               |    |  |            |   
|Net loss                                                                                |  | (3.2                                                          | )  |  | (0.4       | ) 
|Net loss of discontinued operations, net of income taxes                                |  | (4.0                                                          | )  |  | (1.3       | ) 
|Net income of continuing operations                                                     |  | 0.8                                                           |    |  | 0.8        |   
|Minority interest                                                                       |  | 0.1                                                           |    |  | 0.0        |   
|Provision (benefit) for income taxes                                                    |  | (0.4                                                          | )  |  | 0.4        |   
|Interest income                                                                         |  | (0.7                                                          | )  |  | (0.4       | ) 
|Interest expenses                                                                       |  | 3.5                                                           |    |  | 2.2        |   
|EBIT (continuing operations)                                                            |  | 3.3                                                           |    |  | 3.0        |   
|(as a percent of net sales)                                                             |  | 1.1                                                           | %  |  | 1.1        | % 
|thereof:                                                                                |  |                                                               |    |  |            |   
|Capacitors and inductors                                                                |  | (6.4                                                          | )  |  | (4.4       | ) 
|(as a percent of net sales)                                                             |  | (5.9                                                          | )% |  | (4.6       | )%
|SAW components                                                                          |  | 12.4                                                          |    |  | 10.4       |   
|(as a percent of net sales)                                                             |  | 12.6                                                          | %  |  | 10.9       | % 
|Ceramic components                                                                      |  | (2.7                                                          | )  |  | (3.0       | ) 
|(as a percent of net sales)                                                             |  | (2.8                                                          | )% |  | (4.0       | )%
|                                                                                        |  |                                                              
|Capital expenditures by segment:                                                        |  |                                                               |    |  |            |   
|Capacitors and inductors                                                                |  | 2.8                                                           |    |  | 11.8       |   
|SAW components                                                                          |  | 7.6                                                           |    |  | 7.8        |   
|Ceramic components                                                                      |  | 7.7                                                           |    |  | 16.8       |   
|Eliminations                                                                            |  | 0.5                                                           |    |  | 0.2        |   
|                                                                                        |  |                                                               |    |  |            |   
|Total                                                                                   |  | 18.6                                                          |    |  | 36.6       |   

Our net sales increased by 14.0%, from 267.3 million in the three months ended
December 31, 2004 to 304.8 million in the three months ended December 31, 2005. Net sales of products to the automotive electronics industry and to component distributors increased significantly, reflecting the strong demand in these
areas. Net sales to the consumer electronics and to industrial electronics



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customers also grew substantially, although net sales of telecom products decreased slightly due to price erosion.
Despite the increase in net sales on a year-to-year basis, EBIT increased only slightly, to 3.3 million in the first quarter of fiscal year 2006 compared with 3.0 million in the first quarter of fiscal year 2005, due to ramp-up costs for
new products and the strength of the Brazilian real. Net income from continuing operations was 0.8 million in the three months ended December 31, 2005, remaining at the same level as in the previous year for the reasons described above.
As a result, earnings per share (basic and diluted) from continuing operations was 0.01 for the three months ended December 31, 2005, also remaining at the same level as in the first quarter of fiscal year 2005.

Capacitors and inductors. Net sales in the capacitors and inductors segment increased by 13.3% to 109.3 million in first quarter of fiscal
year 2006 compared with 96.5 million in the first quarter of fiscal year 2005 due to the strong demand for power capacitors, which are mostly used in industrial electronics. In particular, demand for aluminum electrolytic capacitors rose among
component distributors. Net sales of inductors increased in nearly all target industries, although growth was strongest in products for automotive electronics applications. Segment EBIT decreased to minus 6.4 million in the first quarter of
fiscal year 2006, compared with minus 4.4 million in the first quarter of fiscal year 2005 due to the negative impact of the strong Brazilian real, which appreciated by approximately 35% compared to the same period in the previous year. This
currency effect caused the cost situation of our heavily export-oriented capacitor plant in Brazil to decline appreciably. Residual costs associated with the tantalum activities we have agreed to sell continue to burden earnings in the capacitors
and inductors segment. Substantial up-front investments for the development of ultracapacitors also negatively affected earnings.

SAW
components. Net sales in the SAW components segment increased by 2.8%, to 98.4 million in the three months ended December 31, 2005, compared with 95.7 million in the three months ended December 31, 2004. The trend in net
sales of SAW products for use in consumer electronics equipment was positive. Net sales of multilayer modules for mobile communications applications also increased. Segment EBIT increased to 12.4 million in the first quarter of fiscal year
2006, compared with 10.4 million in the previous year.

Ceramic components. Net sales in the ceramic components segment
increased by 29.3%, from 75.1 million in the first quarter of fiscal year 2005 to 97.1 million in the first quarter of fiscal year 2006. Piezo actuators accounted for the largest share of this growth. At the same time, business with
thermistors and varistors developed well in all target industries, as did net sales of sensors and sensor systems. EBIT in this segment increased slightly from minus 3.0 million in the first quarter of fiscal year 2005 to minus 2.7
million in the first quarter of fiscal year 2006. Due to high startup costs for new products, earnings did not improve despite the growth in net sales for piezo actuators against the same quarter in fiscal year 2005.

Recent developments

The business development
for the first three months ended December 31, 2005 was mixed. Although new orders increased throughout the first quarter of fiscal year 2006, net sales did not, decreasing instead by 4.2%, from 318.2 million in the last quarter of fiscal
year 2005 to 304.8 million. This decline was influenced by factors such as the Christmas holiday season and the end of the fiscal year for many customers. Net sales to customers in automotive electronics and industrial electronics as well as
sales through component distribution channels were most affected by these factors.

The market for passive electronic components has always
been characterized by cyclical demand patterns and volatility, and we expect these factors to continue to affect our business in the future. Additionally, global competition has become even fiercer. We are responding to these market challenges with
strict cost and cash flow management. In fiscal year 2006, capital expenditures are expected to be significantly lower than in the previous year and are expected to be below depreciation.



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Item 6. Directors, Senior Management and Employees

Board Practices

In accordance with the German Stock Corporation Act, EPCOS has a supervisory board and a management board. The two boards are separate and no individual
may simultaneously be a member of both boards (except for a period of twelve months by delegation of a supervisory board member into the management board). The management board is responsible for managing our business in accordance with applicable
laws, our Articles of Association and the rules of procedure of the management board. It represents us in our dealings with third parties. The supervisory board appoints and removes the members of the management board and oversees the management of
EPCOS but is not permitted to make management decisions. The supervisory board has determined a catalogue of major business decisions, which shall be implemented by the management board only upon the approval by the supervisory board.

In carrying out their duties, members of both the management board and supervisory board must exercise the standard of care of a prudent and diligent
businessman, and they are liable to EPCOS for damages if they fail to do so. Both boards are required to take into account a broad range of considerations in their decisions, including the interests of EPCOS and our shareholders, employees and
creditors. The management board is required to respect the shareholders rights to equal treatment and equal information.

The
supervisory board has comprehensive monitoring functions, including oversight over accounting and external auditing. To ensure that these functions are carried out properly, the management board 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 management board is required to ensure appropriate risk management within
EPCOS and must establish an internal monitoring system.

Further principles of good corporate governance are included in the German
Corporate Governance Code, which came into force with the Transparency and Disclosure Act (Transparenz- und Publizitätsgesetz) in July 2002 and was last updated in June 2005 by a commission established by the German government. It
includes recommendations and suggestions for the organization and functioning of the management and supervisory boards and for the cooperation between the two boards. German stock corporations are obliged to issue once a year a declaration regarding
their compliance with the recommendations of the German Corporate Governance Code. For further information on the German Corporate Governance Code and our Declaration of Conformity dated December 13, 2005, see Item 10. Additional
Information  Articles of Association and Relevant Provisions of German Law.

Under German law, any person who exerts
influence on EPCOS to cause a member of the management board, the supervisory board or holders of special proxies to act in a way that is harmful to EPCOS is liable to EPCOS for damages. A controlling enterprise may not cause EPCOS to take measures
that are unfavorable to us unless any resulting disadvantage is compensated. Board members who have neglected their duties in dealing with a controlling enterprise or other persons exerting influence on EPCOS are jointly and severally liable to
EPCOS for damages together with any controlling shareholder and any other person exerting influence.

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



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Supervisory Board

Our supervisory board consists of twelve members. Six were elected by our employees, including one by our management staff and six were elected or appointed by our shareholders. Until September 2, 2004, each of
Siemens and Matsushita had the right under our Articles of Association to appoint one of the members who come up for appointment by our shareholders, provided Siemens and Matsushita held at least 10% of our shares at the time of such appointment.
This right of each of Siemens and Matsushita expired on September 2, 2004. The member appointed by Matsushita withdrew from the supervisory board with effect from the end of the annual general meeting for fiscal year 2004. The term of the
member appointed by Siemens is scheduled to expire at the end of the annual general meeting for fiscal year 2006. Except for the member appointed by Siemens, all other five shareholder representatives on the supervisory board were elected by the
shareholders at our general meeting.

The shareholders may remove any member of the supervisory board they have elected in a general
meeting by a vote of a majority of the votes cast by the shareholders in a general meeting. The employees may remove any member they have elected by a vote of three-quarters of the votes. The supervisory board elects a chairman and two deputy
chairmen from among its members. The election of the chairman and the first deputy chairman requires a two-thirds majority vote. If either the chairman or the first deputy chairman fails to attain a vote of two thirds of the members of the
supervisory board, the shareholder representatives elect the chairman and the employee representatives elect the first deputy chairman. The board elects a second deputy chairman by simple majority vote. The supervisory board normally acts by simple
majority vote with the chairman having a deciding vote in the event of a deadlock.

The supervisory board meets at least once during each
quarter. In fiscal year 2005, the supervisory board met 5 times. Its main functions are:



| |  |  | to monitor the management of the Company;
| | - |  | -----------------------------------------



| |  |  | to appoint our management board;
| | - |  | --------------------------------



| |  |  | to represent the Company in dealing with the management board;
| | - |  | --------------------------------------------------------------



| |  |  | to enter into contracts with independent auditors on behalf of the Company;
| | - |  | ---------------------------------------------------------------------------



| |  |  | to approve matters in areas that the supervisory board has made generally subject to its approval; and
| | - |  | ------------------------------------------------------------------------------------------------------



| |  |  | to approve matters that the supervisory board decides on a case by case basis to make subject to its approval.
| | - |  | --------------------------------------------------------------------------------------------------------------

The members of the supervisory board are each elected for a maximum term of about five years. The term expires at the end of the shareholders general
meeting in which the shareholders discharge the supervisory board member for the fourth fiscal year following the fiscal year in which he or she was elected. Our Articles of Association establish the compensation of the supervisory board members.

The following table sets forth, as of September 30, 2005, the names of the members of our supervisory board, their ages and principal
occupations. The terms of office of all members of our supervisory board expired at the end of the annual general meeting for fiscal year 2004, which was held on February 16, 2005, except for Mr. Ischler, whose term will expire at the end
of the annual



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general meeting for fiscal year 2006 if not removed earlier by Siemens according to its respective delegation right
described above. The annual general meeting for fiscal year 2004 reelected Mr. Klaus Ziegler, Dr. Jürgen Heraeus and Prof. Dr. Anton Kathrein for an additional term of five years. Our employees reelected Mr. Peter Hoffmann,
Mr. Francis Oppenauer and Mr. Andreas Strobel for the same term. In addition, our shareholders and our employees elected five new members. The new supervisory board reelected Klaus Ziegler as chairman and Peter Hoffmann and
Prof. Dr. Anton Kathrein as deputy chairmen of the supervisory board.

The members of our supervisory board, their ages and
positions were as follows as of September 30, 2005:



|                                           |  |     |  |                                                                                                                                                                                                                                                                              
|------------------------------------------ |  | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Name                                       |  | Age |  | Principal occupation and other business activities                                                                                                                                                                                                                           
|Klaus Ziegler (Chairman)                   |  | 70  |  | Member of the Advisory Council of EPCOS do Brasil Ltda., Gravataí, Brazil                                                                                                                                                                                                    
|                                           |  |    
|Dr. Wolf-Dieter Bopst                      |  | 66  |  | Member of the Supervisory Board of OSRAM GmbH                                                                                                                                                                                                                                
|                                           |  |    
|Peter Geschka*                             |  | 56  |  | Full-time Councillor of EPCOS AG Works Council, Munich facility                                                                                                                                                                                                              
|                                           |  |    
|Dr. Jürgen Heraeus                         |  | 69  |  | Chairman of the Supervisory Boards of Heraeus Holding GmbH, GEA Group AG and Messer Group GmbH; Chairman of the Board of Directors of Argor-Heraeus S.A., Mendrisio, Switzerland; Member of the
Supervisory Boards of Heidelberger Druckmaschinen AG and Lafarge Roofing GmbH
|                                           |  |    
|Peter Hoffmann* (Deputy Chairman)          |  | 43  |  | Deputy Chairman of EPCOS AG Works Council, Heidenheim facility                                                                                                                                                                                                               
|                                           |  |    
|Burkhard Ischler                           |  | 43  |  | Managing Director, Corporate Finance Mergers & Acquisition, Siemens AG, Non-Executive Member of the Board of Directors of Demag Holding S.à.r.l., Luxembourg                                                                                                                 
|                                           |  |    
|Prof. Dr. Anton Kathrein (Deputy Chairman) |  | 54  |  | Managing Director and General Partner, KATHREIN-Werke KG; Chairman of the Supervisory Board of Erste Rosenheimer Privatbank AG                                                                                                                                               
|                                           |  |    
|Francis Oppenauer*                         |  | 57  |  | General Counsel of IG Metall, Munich; Member of the Representatives Assembly, BG Feinmechanik and Elektrotechnik; Member of the Management Committee, Labor Agency,
Munich                                                                                                  
|                                           |  |    
|Joachim Reinhart                           |  | 59  |  | President and Chief Operating Officer, Panasonic Europe Ltd., UK; Executive Officer of Matsushita Electric Industrial Co., Ltd., Japan; Member of the Supervisory Board of EquityGate
AG                                                                                     
|                                           |  |    
|Claus Ryschawy*                            |  | 46  |  | Chairman of EPCOS AG Central Works Council and EPCOS AG Works Council, Munich facility; Member of the European Employee Council of the EPCOS Group                                                                                                                           
|                                           |  |    
|Andreas Strobel*                           |  | 52  |  | First Authorized Representative, IG Metall, Heidenheim; Member of the Supervisory Board of Voith AG, Voith Paper Verwaltungs GmbH and Voith Turbo Beteiligungs GmbH                                                                                                          
|                                           |  |    
|Winfried Wolff*                            |  | 55  |  | Corporate Director of RF Chokes Business Unit, EPCOS AG                                                                                                                                                                                                                      

---

|* | Elected by employees.
|- | ---------------------

The supervisory board has formed
an executive committee and a mediation committee, the latter of which is required by German law. In September 2002, the supervisory board formed an audit committee.



| |  |  | The executive committee is entitled to take urgent decisions on behalf of the supervisory board. Further, the executive committee assumes some of the responsibilities of the
supervisory board, such as the conclusion of the employment agreements between the members of the management board and our corporation. It consists of the chairman, the first deputy chairman and the second deputy chairman of the supervisory board.
The executive committee met three times in fiscal year 2005.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The sole function of the mediation committee is to act as a mediator between the shareholder representatives and the employee representatives on the supervisory board in
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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finding a suitable candidate for the management board, in case a first candidate failed to get the
necessary majority of votes on the supervisory board. The mediation committee consists of the chairman, the first deputy chairman and two further members of the supervisory board (Mr. Francis Oppenauer and Prof. Dr. Anton Kathrein) elected for
the mediation committee. The mediation committee did not have to be convened in the fiscal year 2005.



| |  |  | The audit committee assumes some of the responsibilities of the supervisory board with respect to, among other things, the auditing of our books and financial statements. In
particular, it has direct responsibility for the compensation and oversight of our auditors. The audit committee consists of the chairman of the supervisory board and two further members of the supervisory board (Mr. Oppenauer and Dr. Heraeus).
The audit committee met five times in fiscal year 2005.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Management Board

Our management board currently consists of four members. Under our Articles of Association, our supervisory board determines the management boards
size, although it must have at least two members.

Under our Articles of Association, the management board adopts rules of procedure for
the conduct of its affairs, and may amend them at any time. The adoption and amendment of these rules require the unanimous vote of the management board and the consent of the supervisory board. The supervisory board may, however, decide to adopt
rules of procedure for the management board instead. The management board members are jointly responsible for all management matters and pursuant to the current rules of procedure must jointly decide on a number of issues, including:



| |  |  | the annual financial statements;
| | - |  | --------------------------------



| |  |  | the calling of the shareholders meeting;
| | - |  | -----------------------------------------



| |  |  | matters for which the supervisory boards consent must be obtained;
| | - |  | -------------------------------------------------------------------



| |  |  | matters involving basic organizational, business policy and corporate planning questions for our company;
| | - |  | ---------------------------------------------------------------------------------------------------------



| |  |  | matters involving major real estate or intellectual property contracts; and
| | - |  | ---------------------------------------------------------------------------



| |  |  | other important matters.
| | - |  | ------------------------

The chairman of the management
board must propose a plan that allocates responsibilities among the management board members and notify the supervisory board without delay once the management board has adopted the plan.

The supervisory board appoints the members of the management board for a maximum term of five years. They may be reappointed or have their term extended
for one or more terms of up to five years each. The supervisory board may remove a member of the management board prior to expiration of his term if he commits a serious breach of duty or is incapable of carrying out his duties or if there is a bona
fide vote of no confidence by the shareholders meeting.

The rules of procedure provide that the management board shall take action by a
simple majority vote unless the law requires a larger majority. In the case of a tie, the chairman has the deciding vote when the board has more than two members. In practice, the board reaches its decisions by consensus.



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The members of our management board, their ages, positions and terms of appointment were as follows as of
September 30, 2005:



|                    |  |     |  |                         |  |                   
|------------------- |  | --- |  | ----------------------- |  | ------------------
|Name                |  | Age |  | Position                |  | Term expires      
|Gerhard Pegam       |  | 44  |  | Chief Executive Officer |  | July 30, 2009     
|Dr. Wilfried Backes |  | 62  |  | Chief Financial Officer |  | September 30, 2006
|Josef Unterlass     |  | 56  |  | Chief Operating Officer |  | March 31, 2006    

Mr. Pegam was appointed August 4, 1999, Mr. Unterlass effective April 1, 2001
and Dr. Backes effective April 1, 2002. Effective March 31, 2003, Dr. Backes took the position as CFO.

Effective
November 1, 2005, Dr. Werner Faber was appointed as Chief Technology Officer. Mr. Faber is 57 years old. His term will expire on October 31, 2008.

On March 31, 2006, Mr. Unterlass will leave the board.

Effective April 1, 2006,
Mr. Helmut König was appointed as Chief Financial Officer beginning July 1, 2006, thus succeeding Dr. Backes. He is 45 years old. Dr. Backes will be responsible for special projects from July 1, 2006 until
September 30, 2006, when he will retire.

Gerhard Pegam served from 1999 to 2001 as Chief Operating Officer before becoming our
CEO on April 1, 2001. From 1995 to 1999, he was President of the Capacitors Division of Siemens Matsushita Components. From 1985 to 1995, he held various sales and marketing positions within Siemens. Prior to 1985, Mr. Pegam worked for
Österreichische Philips Industrie as a capacitors research and development engineer.

Dr. Wilfried Backes has served on
the board from April 1, 2002 on. From 1992 to 2002, he was Executive Vice President, Chief Financial Officer and Treasurer of Osram Sylvania, Inc., USA. From 1982 to 1992, he held various management positions in the former Siemens Components
Group and Siemens Components, Inc. Prior to that, he worked for the Business Administration and Corporate Planning Division of Siemens AG.

Josef Unterlass served from 1996 to 2001 as Chief Executive Officer of EPCOS oHG, Deutschlandsberg, Austria. Prior to 1996, he was head of our business division for film capacitors in Málaga, Spain.

Dr. Werner Faber has been president of our business division for surface acoustic wave components since 2001. Since 2004, he has also been
responsible for our capacitors business division, as he was from 1999 to 2001. From 1996 to 1999 he served as head of our business division for film capacitors in Málaga, Spain. Prior to 1996, Dr. Faber held various positions in the
surface acoustic wave filter operations of Siemens Matsushita Components.

Mr. Helmut König has held a number of leading
positions at Panasonic AVC Networks Germany GmbH since 1988. From 2002 on, he was sole managing director, having overall responsibility for both the Panasonic production facility in Peine, Germany, and its wholly owned subsidiary in Slovakia.

Compensation of Officers and Directors

The members of our supervisory board receive reimbursement of their actual out-of-pocket expenses and an annual payment. Pursuant to the Articles of Association, the members of the supervisory board receive fixed compensation plus an
attendance fee for every meeting of the supervisory board or of a supervisory board committee attended during the period under review. Each member of the supervisory board was entitled to receive 20,000 as fixed compensation for fiscal year
2005, with the chairman to receive 40,000 and each deputy chairman 30,000. Individual fixed compensation is calculated according to the period served as a member, chairman or deputy chairman



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of the supervisory board during the fiscal year. Total compensation, including reimbursement of expenses, paid to the
members of our supervisory board amounted to 376,000 in fiscal year 2005 compared with 391,000 in fiscal year 2004. The following table shows an individualized breakdown of the compensation paid to members of our supervisory board in
fiscal year 2005:



|                                                |  |              |  |                 |  |       
|----------------------------------------------- |  | ------------ |  | --------------- |  | ------
|                                                |  | Compensation
|in                                             |  | Fixed        |  | Attendance fees |  | Total 
|Klaus Ziegler (chairman)                        |  | 40,000       |  | 26,000          |  | 66,000
|Dr. Wolf-Dieter Bopst (since February 16, 2005) |  | 12,384       |  | 3,000           |  | 15,384
|Peter Geschka (since February 16, 2005)         |  | 12,384       |  | 3,000           |  | 15,384
|Dr. Jürgen Heraeus                              |  | 20,000       |  | 8,000           |  | 28,000
|Peter Hoffmann (deputy chairman)                |  | 30,000       |  | 10,500          |  | 40,500
|Konrad Hollerieth (until February 16, 2005)     |  | 7,616        |  | 1,000           |  | 8,616 
|Burkhard Ischler                                |  | 20,000       |  | 5,000           |  | 25,000
|Prof. Dr. Anton Kathrein (deputy chairman)      |  | 30,000       |  | 9,500           |  | 39,500
|Hans Lux (until February 16, 2005)              |  | 7,616        |  | 2,000           |  | 9,616 
|Francis Oppenauer                               |  | 20,000       |  | 10,000          |  | 30,000
|Werner Pietsch (until February 16, 2005)        |  | 7,616        |  | 2,000           |  | 9,616 
|Joachim Reinhart (since February 16, 2005)      |  | 12,384       |  | 2,000           |  | 14,384
|Claus Ryschawy (since February 16, 2005)        |  | 12,384       |  | 3,000           |  | 15,384
|Andreas Strobel                                 |  | 20,000       |  | 5,000           |  | 25,000
|Andreas Strohmayr (until February 16, 2005)     |  | 7,616        |  | 2,000           |  | 9,616 
|Kunihisa Tachiiri (until February 16, 2005)     |  | 7,616        |  | 1,000           |  | 8,616 
|Winfried Wolff (since February 16, 2005)        |  | 12,384       |  | 3,000           |  | 15,384

Compensation paid to the members of our management board comprises fixed and variable components.
The fixed cash compensation makes up about 40% of annual target compensation and consists of monthly salary payments, plus social security contributions.

Variable cash compensation is linked to business performance and makes up about 60% of the annual target compensation. Half of this variable cash compensation is calculated by multiplying a contractually stipulated
basic amount by a corporate factor determined annually by the supervisory board in the light of business development. The other half is linked to reaching a target based on the economic value added in the EPCOS Group.

The management board members are also granted options for shares of EPCOS AG under the EPCOS stock option plans as a variable component with a long-term
incentive effect and risk elements. For further information, see  Options to Purchase Securities from Registrant or Subsidiaries below and Note 12 to our Consolidated Financial Statements.

The compensation package also includes a company pension and transitional payments, a company car, which may also be used privately, and business and
personal liability, accident, disability and term life insurance cover. Total cash compensation paid to the management board amounted to 1,473,000 in fiscal year 2005, (2,632,000 in fiscal year 2004). This amount was composed of fixed
components (including social security contributions, leasing payments for company cars and the cash value of insurance cover) totaling 1,011,000 in fiscal year 2005, (987,000 in fiscal year 2004) and variable components totaling
462,000 in fiscal year 2005, (1,645,000 in fiscal year 2004). In addition, a total of 115,000 stock options were granted (39,000 stock options in fiscal year 2004). The weighted average fair value on the date of issue amounted to
3.90 per option.



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An individualized breakdown of management board compensation for the last fiscal year is given in the
following table (rounded to thousands of euros):



|                     |  |                   |  |               |  |         |  |        |  |               
|-------------------- |  | ----------------- |  | ------------- |  | ------- |  | ------ |  | --------------
|                     |  | Cash compensation |  | Stock options
|in                  |  | Fixed             |  | Variable      |  | Total   |  | Number |  | Exercise price
|Gerhard Pegam        |  | 382,000           |  | 180,000       |  | 562,000 |  | 50,000 |  | 13.74         
|Wilfried Backes, Dr. |  | 341,000           |  | 150,000       |  | 491,000 |  | 25,000 |  | 13.74         
|Josef Unterlass      |  | 288,000           |  | 132,000       |  | 420,000 |  | 40,000 |  | 13.74         

Pensions for our former members of the management board and their surviving dependents are being
paid by Siemens AG or have already been settled. Our accruals for pensions and transitional payments for the active members of the management board amounted to approximately 4.6 million as of September 30, 2005.

Options to Purchase Securities from Registrant or Subsidiaries

As part of a stock option plan adopted on September 28, 1999 (the 1999 SOP) for members of our management board, directors of subsidiaries and affiliates and other eligible employees, the Company
was authorized to distribute non-transferable options exercisable for up to 2,480,000 shares over a five-year period. In connection with the 1999 SOP, our shareholders approved a capital increase in the form of conditional capital (Bedingte
Kapitalerhöhung) in an amount not to exceed 2,480,000. With the consent of the supervisory board, management may authorize the use of existing shares instead of conditional capital to satisfy option exercises.

According to the 1999 SOP, decisions about the grant of options had to be taken within a period of three months after the annual results had been
published. The supervisory board decided how many options to grant to the management board and the management board decided how many options to grant to other eligible employees of EPCOS AG. The bodies responsible for establishing the remuneration
for directors of our subsidiaries and affiliates decided how many options were granted to these directors, and the directors decided how many options were granted to other eligible employees of the subsidiary or affiliate. The exercise price for
options distributed pursuant to the option plan was 115% of the average closing market price of our shares on the German Xetra system during the five-day trading period immediately before the option issuance date. For a description of the Xetra
system, see Item 9. The Offer and Listing  Nature of Trading Market. Holders of options may exercise them during the five-year period starting two years after the options are issued. Holders may exercise options only
within fixed time periods following publication of our quarterly or annual results.

The first option grant under the 1999 SOP was made in
October 1999 in connection with our initial public offering; additional option grants have been made since then. The following table sets forth the terms of our currently outstanding options under the 1999 SOP:



|                     |  |                |  |                     |  |                                |  |                                |  |                  
|-------------------- |  | -------------- |  | ------------------- |  | ------------------------------ |  | ------------------------------ |  | -----------------
|Date of option grant |  | Optionsgranted |  | Optionsoutstanding* |  | Exercise price pershare (in ) |  | Earliest possibleexercise date |  | Expiration date  
|October 1999         |  | 158,000        |  | 147,250             |  | 35.65                          |  | October 15, 2001               |  | October 16, 2006 
|November 2000        |  | 394,500        |  | 368,000             |  | 105.04                         |  | November 30, 2002              |  | November 29, 2007
|February 2001        |  | 60,000         |  | 60,000              |  | 90.90                          |  | February 23, 2003              |  | February 22, 2008
|November 2001        |  | 463,500        |  | 420,000             |  | 64.11                          |  | November 28, 2003              |  | November 27, 2008
|November 2002        |  | 698,500        |  | 637,500             |  | 15.23                          |  | November 22, 2004              |  | November 23, 2009
|December 2003        |  | 495,000        |  | 449,000             |  | 21.76                          |  | December 12, 2005              |  | December 13, 2010

---

|* | Neither expired nor exercised.
|- | ------------------------------

As of March 1, 2006,
members of our management board together held options to purchase a total of 347,000 shares under the 1999 SOP, while members of our supervisory board held options to purchase a total of 113,750 shares under the 1999 SOP.



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To date, a total of 2,269,500 options have been granted under the 1999 SOP. On February 11,
2004, the 1999 SOP was terminated pursuant to a resolution adopted by the Annual General Meeting of EPCOS AG. No further options will be issued under this plan.

At the same Annual General Meeting, a new stock option plan (the 2004 SOP) was adopted, which basically has the same key terms as the 1999 SOP: Under the 2004 SOP, the Company is authorized to
distribute non-transferable options exercisable for up to 2,480,000 shares to members of our management board, directors of subsidiaries and affiliates and other eligible employees over a three-year period. In connection with the 2004 SOP, our
shareholders approved an additional capital increase in the form of conditional capital 2004 II in an amount not to exceed 2,480,000. Instead of shares issued from this conditional capital 2004 II, holders of options may, at the discretion of
the Company, also be granted treasury shares or paid cash settlements.

During the three-year duration period of the 2004 SOP, decisions
about the grant of options may be taken within a period of three months after the annual results for each fiscal year have been published. The supervisory board may decide how many options to grant to the management board and the management board
may decide how many options to grant to other eligible employees of the EPCOS Group. The exercise price for options distributed pursuant to the 2004 SOP is 115% of the average opening market price of our shares on the German Xetra system during the
five-day trading period immediately before the option issuance date. Holders of options may exercise them during the five-year period starting after the expiration of a vesting period but only within fixed time periods following publication of our
quarterly or annual results. The vesting period begins one week after the grant date and runs for at least two years. In the event of extraordinary, unforeseen developments, the supervisory board and management board are authorized to introduce a
cap on possible gains from stock options.

The first option grant under the 2004 SOP was made in December 2004. The following table sets
forth the terms of our currently outstanding options under the 2004 SOP:



|                     |  |                |  |                     |  |                                |  |                                |  |                  
|-------------------- |  | -------------- |  | ------------------- |  | ------------------------------ |  | ------------------------------ |  | -----------------
|Date of option grant |  | Optionsgranted |  | Optionsoutstanding* |  | Exercise price pershare (in ) |  | Earliest possibleexercise date |  | Expiration date  
|December 2004        |  | 340,000        |  | 316,000             |  | 13.74                          |  | December 21, 2006              |  | December 20, 2011
|December 2005        |  | 339,000        |  | 339,000             |  | 13.05                          |  | December 21, 2007              |  | December 20, 2012

---

|* | Neither expired nor exercised.
|- | ------------------------------

As of March 1, 2006,
members of our management board together held options to purchase a total of 210,000 shares under the 2004 SOP, while members of our supervisory board held no options under the 2004 SOP.

For further information on our stock option plans, see Note 12 to our Consolidated Financial Statements.

Employees

As of September 30, 2005, we had
16,085 employees worldwide (compared with 15,587 as of September 30, 2004 and 13,283 as of September 30, 2003). The increase in fiscal year 2005 was attributable to headcount rise in low-labor-cost countries, which was partially offset by
headcount reductions in high-labor-cost countries made in response to market conditions, mainly in Germany. Approximately 13% of our employees work in Germany.

The following table shows a breakdown of our employees by business segments and region as of the dates indicated. It does not include employees in our Munich headquarters or sales offices at our business segments.



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|                              |  |                     |  |       |  |      
|----------------------------- |  | ------------------- |  | ----- |  | -----
|                              |  | As of September 30,
|                              |  | 2005                |  | 2004  |  | 2003 
|Employees by business segment |  |                     |  |       |  |      
|                              |  |                     | 
|SAW components                |  | 2,119               |  | 2,204 |  | 2,231
|Ceramic components            |  | 3,215               |  | 2,828 |  | 2,701
|Capacitors                    |  | 4,075               |  | 4,143 |  | 3,594
|Inductors and ferrites        |  | 5,963               |  | 5,699 |  | 4,036
|                              | 
|                              |  | As of September 30,
|                              |  | 2005                |  | 2004  |  | 2003 
|Employees by regions          |  |                     |  |       |  |      
|                              |  |                     | 
|Asia                          |  | 7,673               |  | 7,206 |  | 5,333
|Europe without Germany        |  | 4,562               |  | 4,504 |  | 4,222
|Germany                       |  | 2,064               |  | 2,188 |  | 2,295
|Americas                      |  | 1,786               |  | 1,689 |  | 1,433

We believe that a significant portion of our employees belong to an organized labor union. We have
experienced no significant work stoppages in recent years, and we consider our employee relations to be very good.

Share Ownership

No member of our management board or our supervisory board individually holds shares or options representing 1% or more of our shares outstanding. As of
March 1, 2006, as a group, members of our management board held 1,328 shares and 557,000 options for shares, representing 0.855% of our nominal share capital, and members of our supervisory board, as a group, held 13,613 shares and 113,750
options for shares, representing 0.195% of our nominal share capital.

Item 7. Major Shareholders and Related Party Transactions

Major Shareholders

The following table shows the current beneficial ownership of our companys share capital by the principal shareholders (each person or entity who
owns beneficially 5% or more of our shares):



|                                               |  |                                                  |  |              |    |  |               |   
|---------------------------------------------- |  | ------------------------------------------------ |  | ------------ | -- |  | ------------- | --
|Identity of person or group                    |  | Title of class                                   |  | Amount owned |    |  | Percent owned |   
|Siemens AG                                     |  | Ordinary shares, no par value, notional value 1 |  | 8,162,501    |    |  | 12.5          | % 
|Matsushita Electronic Components (Europe) GmbH |  | Ordinary shares, no par value, notional value 1 |  | 8,162,501    |    |  | 12.5          | % 
|AXA S.A.                                       |  | Ordinary shares, no par value, notional value 1 |  | 3,291,120    | ** |  | 5.04          | %*

---

|* | According to notification sent by AXA S.A. to us and to the German Federal Financial Services Authority (Bundesanstalt für Finanzdienstleistungsaufsicht) in October
2004. For details see below under Other Major Shareholders.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|** | Amount calculated from the percentages notified by AXA S.A.
|-- | -----------------------------------------------------------

Shareholders agreement between Siemens and Matsushita

Our shareholders Siemens AG and Matsushita Electronic
Components (Europe) GmbH (in the case of Matsushita Electronic Components (Europe) GmbH, together with its parent companies) were parties to a shareholders agreement dated June 29, 1999 with a term to June 30, 2004. In this
shareholders agreement, the parties had agreed to exercise their voting rights in such a way that they preserve their collective influence and jointly and consistently exercise their rights and obligations under the agreement with respect to
us. They had also agreed to hold a pre-meeting at least once each year and at least three weeks before any ordinary or extraordinary meetings of our shareholders. If Siemens and Matsushita were unable to agree on how they would vote at the
shareholders meeting, they were free to vote as they considered appropriate.



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Under the shareholders agreement, each of Siemens and Matsushita had agreed to maintain its EPCOS
AG shareholdings within a band of 12.5% (plus one share) and 20% of our issued share capital as of the completion of our 1999 initial public offering, including the sale of shares pursuant to the over-allotment option. However, their aim was to keep
their shareholdings closer to 12.5% (plus one share) each than to 20%.

Both Siemens and Matsushita were allowed to sell or acquire our
shares, so long as they continued to hold shares in us within the agreed band pursuant to the shareholders agreement. Under the shareholders agreement, if either of them proposed to make such a sale, however, it had to first offer those
shares to the other. Neither Siemens nor Matsushita were allowed, without the prior written consent of the other, to sell, transfer, grant an option or interest in or otherwise dispose of their shares in such a way that their holdings fell outside
the agreed band. The shareholders agreement also prevented each of them from entering an agreement with respect to the voting interests in their shares without the prior written consent of the other. Siemens or Matsushita was allowed, however,
to:



| |  |  | accept a general public offer for our entire share capital or accept an offer from or sell shares to another shareholder holding more than 50% of our share capital;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | grant an option on or indirect interest in the shares that can only be exercised after the expiration or termination of the shareholders agreement;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | sell or otherwise dispose of its shares without restriction if there is a direct or indirect change in control of the other shareholder;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | take part in an insolvency arrangement; or
| | - |  | ------------------------------------------



| |  |  | pledge or grant a charge or other encumbrance on, or other interest in, the shares.
| | - |  | -----------------------------------------------------------------------------------

If both Siemens and Matsushita were granted rights to subscribe for new shares and one of them decided not to fully exercise its rights, it had to offer the subscription rights it does not intend to exercise to the
other so long as the other intended to fully exercise its own subscription rights.

Siemens and Matsushita had also agreed that the
existing arrangements under which Matsushita Electronic Components Co., Ltd. sells, markets or distributes our products to Matsushita and its group companies and under which we sell, market and distribute Matsushitas products shall remain in
effect, with such amendments as may be necessary and as we and they shall agree upon. Under the shareholders agreement, Siemens and Matsushita had also agreed to transact all business with us on an arms length basis.

Siemens and Matsushita together hold just over 25% of our shares. Should they vote their shares together, they would be in a position to block
shareholder action on a variety of matters including the exclusion of preemptive rights in a capital increase, or any capital decrease, merger, consolidation, spin-off or sale or other transfer of all or substantially all of our assets, a change in
our corporate form or our business purpose or the dissolution of EPCOS.

Other Major Shareholders

AXA S.A. On October 21, 2004, AXA S.A. notified us and the German Federal Financial Services Authority (Bundesanstalt für
Finanzdienstleistungsaufsicht) according to disclosure requirements under the German Securities Act that it holds, as of October 11, 2004, an amount of our ordinary shares representing 5.04% of our share capital. According to the
notification, beneficial ownership over these shares is shared between various AXA group entities including Alliance Capital Management L.P. and other subsidiaries of AXA S.A. In the financial markets, AXA is positioned as a global leader in
Financial Protection and is the worlds second largest insurance company.



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Related Party Transactions

EPCOS consists substantially of a former joint venture between Siemens and Matsushita formed in 1989 in order to create a more competitive worldwide supplier of electronic components and subassemblies to the
electronics industry by making more effective use of their respective resources. The joint venture consisted of a limited partnership and its general partner. Each of Siemens and Matsushita, the latter through a wholly-owned German subsidiary called
Matsushita Electronic Components (Europe) GmbH, owned fifty percent of the general partner and fifty percent of the limited partnership interests in the limited partnership.

To prepare for our initial public offering in October 1999, Siemens and Matsushita converted the limited partnership into a stock corporation in a
two-step process and Siemens contributed to the Company essentially all of its passive components operations that had not been a part of the joint venture. Siemens contributions were recorded at book value for accounting purposes, but the
amount of additional equity it received was based on the relative fair market values of the joint venture and the subsidiaries and operations contributed by Siemens to us on the effective date. As a result, immediately prior to our conversion into a
stock corporation and our initial public offering Siemens owned approximately 54.4% of our predecessor company and Matsushitas interest was reduced to approximately 45.6%. In connection with our pre-IPO reorganization, Siemens also sold us its
51% interest in the Xiaogan, China joint venture and the passive components assets and liabilities of one of its Singapore subsidiaries. For purposes of these transactions, these assets and liabilities were valued at the fair market values of the
subsidiaries and other operations contributed as negotiated between Siemens and Matsushita. When we were converted into a corporation, Siemens equity interest was converted into 33,753,062 shares, and Matsushitas equity interest was
converted into 28,246,938 shares. In our initial public offering, Siemens sold a total of 25,590,561 of our shares and Matsushita sold a total of 20,084,437 of our shares.

We were authorized to use the names and trademarks Siemens and Siemens Matsushita Components for limited purposes for six months
after our initial listing on the New York Stock Exchange.

We are parties to agency and distributorship agreements with 10 Siemens
affiliates in various territories worldwide as of September 30, 2005. Each such Siemens agent or distributor has non-exclusive rights to solicit and mediate sales in its respective assigned territory. We agree separately with most agents and
distributors on sales margins for our products in their territory for sales made for their own accounts. We decide whether commission-based sales may take place. We determine commissions on a case-by-case basis for our agents. These commissions are
based on the agents contribution, the nature and volume of the transaction and the price realized. In fiscal year 2005, we paid sales commissions in the amount of 6.6 million to Siemens. For further information on agreements with
Siemens, see Item 10. Additional Information  Material Contracts and Note 10 to our Consolidated Financial Statements.

We have also entered into a number of intellectual property licensing and development agreements with Matsushita Electronic Components Co., Ltd. These include a license agreement entered into in fiscal year 2000 on certain know-how of
Matsushita relating to tantalum capacitors, for which we have agreed to make specified lump-sum payments and pay specified licensing fees. A license agreement with Matsushita on know-how relating to ultra capacitors made in fiscal year 2001 was
terminated later by common consent. In fiscal year 2002 we entered into a know-how cross-license agreement that grants to us and to Matsushita non-exclusive and non-transferable licenses for reciprocal use of certain know-how relating to the
production of surface acoustic wave components. These mutual licenses are not royalty bearing. As of June 1, 2002 and as of November 20, 2003 we entered into two development agreements with Matsushita regarding certain SAW devices. We do
not believe that any of these agreements are material either to us or to Matsushita. In connection with these agreements, we had total expenses, consisting of license and service fees as well as purchases of inventories and services charged to cost
of goods sold, to Matsushita Electronic Components Co., Ltd.



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in the amount of 2.4 million in fiscal year 2005. For further information on agreements with Matsushita, such
as in particular the patent cross license agreement with Matsushita Electric Industrial Co., Ltd. and the frame agreements on technical cooperation with Matsushita Electronic Components Co., Ltd. as well as with Matsushita Electric Industrial Co.,
Ltd., which were renewed and extended with effect from June 30, 2004, see Item 10. Additional Information  Material Contracts.



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Item 8. Financial Information

Consolidated Statements and Other Financial Information

See Item 3. Key Information as well as Item 18. Financial Statements, pages F-1 through F-47.

Legal Proceedings

Litigation

From time to time we have been, and we expect to continue to be, subject to legal proceedings and claims arising in the ordinary course of our business.
We are not currently aware of any legal proceedings or claims against us or our property that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial position or results of operations. During our
last two fiscal years, neither we nor our property has been subject to any legal proceedings or claims that could have such an effect. For claims of infringement of intellectual property rights, see Item 4. Information on the
Company  Intellectual Property.

We have been subject to legal proceedings based on allegations of environmental
contamination, which we describe in Environment below.

Environment

Some of our manufacturing and operations use hazardous substances, and we are subject to extensive environmental regulations governing air emissions,
wastewater discharges, and the use and storage of hazardous materials and wastes. These requirements will continue to be significant to our future operations. In the past, we have been exposed to liability for the remediation of soil or groundwater
contamination at our facilities. We also may face liability for remediation of our sites and third party waste disposal sites located in the United States under the Comprehensive Environmental Response, Compensation and Liability Act or other
federal, state or local environmental remediation laws.

In the past, we have not incurred any significant penalties for environmental
violations and liability for damage to natural resources, property damage and environmental exposure claims, but we could incur some or all of these types of liabilities in the future. Because some of our facilities are closely located to or shared
with those of other companies, including those of Siemens affiliates, we may need to respond to claims relating to environmental contamination not originating from our own operations.

We are not aware of any significant liabilities for environmental matters. We have, however, incurred significant expenditures to comply with
environmental regulations. Significant financial reserves or additional compliance expenditures could be required in the future due to changes in law, new information on environmental conditions or other events, and those expenditures could
adversely affect our business or financial condition.

In addition, we expect to incur significant environmental capital expenditures over
the next several years. One area of these environmental capital expenditures could involve costs associated with the EUs directives on waste electrical and electronic equipment and on the restriction of the use of certain hazardous substances
in electrical and electronic equipment as well as the related adoption of national legislation. As a component producer, we are not affected by the obligation to collect, recover and dispose of end-of-life equipment imposed by these directives on
electrical and electronic equipment producers. We are affected significantly only by the ban on lead (subject to exceptions for certain applications) required by these directives, which is to be implemented by the member states of the European Union
by July 1, 2006. We still use lead-based solder in the production of certain lines



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of our passive components, but we have developed alternatives enabling us to comply with the EU directives. More than 90%
of our products are already being offered lead-free within the meaning of the relevant EU directives and in a form suitable for lead-free soldering processes. Although environmental considerations such as energy and materials consumption and
reduction of emissions make us spend more on improvements and expansions of our facilities than might otherwise be necessary if regulations were less stringent, only minimal amounts of our investments are solely related to environmental compliance.
However, additional investments for environmental compliance could, either individually or in the aggregate, adversely affect our business or financial condition.

Dividend Policy

We expect to reinvest most of our earnings in the next few years to finance our continued growth. The level
of dividends in each year will depend on general business conditions, our current and expected future financial performance, our funding requirements and other relevant factors. We will pay any dividends on our shares in euro. We have not paid any
dividend in respect of the fiscal years 2001 through 2005.

Under the German Stock Corporation Act, the amount of income available for
distribution to shareholders is based upon the equity of the Company as reported in its financial statements drawn up on a stand-alone basis in accordance with the German Commercial Code (Handelsgesetzbuch). Accordingly, the Annual General
Meeting decides only on the dividends payable from the retained earnings (after deduction of certain reserves) as shown in the Companys annual German statutory accounts. This amount differs from the total retained earnings as shown in the
accompanying financial statements prepared in accordance with US GAAP. As of September 30, 2005, this amount was negative (49,203), and a distribution of dividends was therefore not possible. As of September 30, 2004, the
distributable amount was 46.392 million. As of September 30, 2003, the distributable amount was 6.234 million. As of September 30, 2002, this amount was negative (32.465 million), therefore a distribution
of dividends was not possible in respect of fiscal year 2002.

All of our shares and ADSs have the same dividend rights. Our management and
supervisory boards must jointly propose any distribution of dividends and obtain approval of the shareholders in a general meeting. For information regarding the German withholding tax applicable to dividends and related United States refund
procedures, see Item 10. Additional Information  German Taxation  Dividends and  Refund procedure for eligible U.S. holders.

Item 9. The Offer and Listing

Nature of Trading Market

Prior to our initial public offering in October 1999, there was no public market for our shares or ADSs. Our ADSs, each representing the right to receive
one ordinary share, no par value, notional value 1, are listed on the New York Stock Exchange, and our shares are listed on the Frankfurt Stock Exchange. JP Morgan Chase Bank, as successor of Morgan Guaranty Trust Company of New York, is the
depositary for our ADSs. The Frankfurt Stock Exchange is the principal trading market for our ordinary shares.

The Frankfurt Stock
Exchange is operated by Deutsche Börse AG and is the most significant of the seven German stock exchanges. Listed shares are usually traded according to supply and demand during this time. In addition, these shares may also be traded between
banks, outside the parameters of the stock exchange. The rates of shares with a high turnover and the shares of other designated companies are continuously noted during trading.

Shares can be traded in Germany on three statutory market segments: the official market (Amtlicher Markt), the regulated market (Geregelter
Markt) and the regulated unofficial market (Freiverkehr). Our shares are traded on the official market.



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Since January 1, 2003, both the official market and the regulated market on the Frankfurt Stock
Exchange have consisted of two classes of listings: the so-called General Standard and the Prime Standard. Members of the Prime Standard are required, in addition to the general listing obligations such as the publication of an annual report, to:



| |  |  | Present the consolidated financial statements according to IAS or U.S. GAAP;
| | - |  | ----------------------------------------------------------------------------



| |  |  | Publish the quarterly reports with certain minimum information;
| | - |  | ---------------------------------------------------------------



| |  |  | Publish an annual financial calendar;
| | - |  | -------------------------------------



| |  |  | Hold an annual analyst conference at least once a year;
| | - |  | -------------------------------------------------------



| |  |  | Publish the Ad hoc-releases according to the German Securities Trading Act simultaneously in English.
| | - |  | -----------------------------------------------------------------------------------------------------

Only shares that are included in the Prime Standard are eligible to be admitted in one of the indexes established by Deutsche Börse AG. On
January 31, 2003, the Frankfurt Stock Exchange decided to admit our shares to the Prime Standard.

Our shares are included in the
Tec-DAX established in March 2003 with 30 companies focusing on future technologies, electronics and similar businesses.

Shares are also
traded on the Exchange Electronic Trading System known as Xetra. Xetra is administered by Deutsche Börse AG. The securities that are currently traded through Xetra include nearly all of the stocks listed on the Frankfurt Stock Exchange. Banks
and securities dealers who have been admitted to trading on at least one of Germanys stock exchanges trade within Xetra systems. During regular trading hours, participants have access to an overview of all currently outstanding buy and sell
orders via their computers. Xetra is an integrated part of the Frankfurt Stock Exchange and is bound by its rules and regulations.

Transactions on the Frankfurt Stock Exchange must be settled on the second business day following the trade. Transactions off the Frankfurt Stock Exchange are generally also settled on the second business day following trading. Transactions
off the Frankfurt Stock Exchange may occur where the transactions are larger or where one of the parties to the transaction is foreign. The parties may agree to a different settlement period. A customers orders to buy or sell listed securities
must be executed on a stock exchange unless the customer gives specific instructions to the contrary.

The Frankfurt Stock Exchange can
suspend a quotation if orderly stock exchange trading is temporarily threatened or if a suspension appears necessary in order to protect the public interest. The Hessian Stock Exchange Supervisory Authority, and the Trading Monitors of the Frankfurt
Stock Exchange, which are under the control of the Stock Exchange Supervisory Authority, both monitor trading on the Frankfurt Stock Exchange. The Federal Financial Services Authority, an independent federal authority, is responsible for generally
supervising securities trading pursuant to the provisions of the German Securities Trading Act. Based on a reform that came into effect end of October 2004, its powers under the German Securities Trading Act were significantly enlarged and now also
include the right to suspend a quotation under certain circumstances.



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The table below sets forth, for the periods indicated, reported closing high and low quoted prices for
our ordinary shares on the Frankfurt Stock Exchange:

Frankfurt Stock Exchange*



|                                        |  |           |  |      
|--------------------------------------- |  | --------- |  | -----
|                                        |  | High      |  | Low  
|                                        |  | (in euro)
|Monthly:                                |  |           |  |      
|September 2005                          |  | 10.87     |  | 10.06
|October 2005                            |  | 11.24     |  | 9.99 
|November 2005                           |  | 10.70     |  | 10.01
|December 2005                           |  | 11.44     |  | 10.95
|January 2006                            |  | 12.91     |  | 11.06
|February 2006                           |  | 12.04     |  | 11.40
|                                        |  |          
|Quarterly:                              |  |           |  |      
|                                        |  |          
|October through December 2003           |  | 19.80     |  | 14.32
|January through March 2004              |  | 22.63     |  | 16.82
|April through June 2004                 |  | 19.69     |  | 15.24
|July through September 2004             |  | 17.13     |  | 11.20
|                                        |  |          
|October through December 2004           |  | 13.35     |  | 10.98
|January through March 2005              |  | 11.45     |  | 9.36 
|April through June 2005                 |  | 10.93     |  | 8.78 
|July through September 2005             |  | 12.45     |  | 9.93 
|October through December 2005           |  | 11.44     |  | 9.99 
|                                        |  |          
|Yearly:                                 |  |           |  |      
|Financial year ended September 30, 2001 |  | 117.39    |  | 32.20
|Financial year ended September 30, 2002 |  | 62.98     |  | 7.19 
|Financial year ended September 30, 2003 |  | 17.83     |  | 5.66 
|Financial year ended September 30, 2004 |  | 22.63     |  | 11.20
|Financial year ended September 30, 2005 |  | 13.35     |  | 8.78 

---

|* | Source: Xetra, Deutsche Börse AG
|- | --------------------------------

On March 22, 2006
the closing sales price per ordinary share on the Frankfurt Stock Exchange was 11.20, as reported by Deutsche Börse AG.



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Trading on the New York Stock Exchange

As of March 14, 2006, 302,539 of our American Depositary Receipts (ADRs) were outstanding, evidencing ADSs representing 302,539 of our ordinary shares or
approximately 0.5% of our outstanding share capital, and there were 513 beneficial holders and 25 holders of record of ADRs.

The table
below sets forth, for the periods indicated, the reported high and low quoted prices for the ADRs on the New York Stock Exchange:

New
York Stock Exchange*



|                                        |  |                  |  |      
|--------------------------------------- |  | ---------------- |  | -----
|                                        |  | High             |  | Low  
|                                        |  | (in U.S. dollar)
|Monthly:                                |  |                  |  |      
|September 2005                          |  | 13.51            |  | 12.40
|October 2005                            |  | 13.20            |  | 12.08
|November 2005                           |  | 12.71            |  | 11.94
|December 2005                           |  | 13.67            |  | 12.65
|January 2006                            |  | 15.52            |  | 13.49
|February 2006                           |  | 14.41            |  | 13.63
|                                        |  |                 
|Quarterly:                              |  |                  |  |      
|                                        |  |                 
|October through December 2003           |  | 23.68            |  | 16.70
|January through March 2004              |  | 28.09            |  | 20.45
|April through June 2004                 |  | 23.94            |  | 18.22
|July through September 2004             |  | 20.83            |  | 13.76
|October through December 2004           |  | 16.38            |  | 14.78
|January through March 2005              |  | 15.54            |  | 12.06
|April through June 2005                 |  | 13.83            |  | 11.30
|July through September 2005             |  | 15.21            |  | 12.01
|October through December 2005           |  | 13.67            |  | 11.94
|                                        |  |                 
|Yearly:                                 |  |                  |  |      
|Financial year ended September 30, 2001 |  | 102.50           |  | 29.55
|Financial year ended September 30, 2002 |  | 55.70            |  | 7.80 
|Financial year ended September 30, 2003 |  | 19.02            |  | 5.70 
|Financial year ended September 30, 2004 |  | 28.09            |  | 13.76
|Financial year ended September 30, 2005 |  | 15.54            |  | 11.30

---

|* | Source: Dow Jones & Company, Inc.
|- | ---------------------------------

On March 21,
2006, the closing sales price per ADR on the New York Stock Exchange was $13.49, as reported by Dow Jones & Company, Inc.

Item 10. Additional Information

Articles of Association and Relevant Provisions of German Law

Organization and transfer agent

We are a stock
corporation organized in the Federal Republic of Germany under the Stock Corporation Act (Aktiengesetz). We are registered in the Commercial Register (Handelsregister) maintained by the local courts in Munich, Germany, under the entry
number HRB 127250. Registrar Services GmbH, our transfer agent in Germany, registers record holders of shares in the share register on our behalf pursuant to a transfer agency agreement. Our transfer agent will also maintain the register of our
shareholders on our behalf.



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Objects and purposes

According to Section 2 of our Articles of Association, the object of our company is direct or indirect activity in the area of research, development, manufacture and marketing of electronic components, electronic
systems and software, as well as the performance of services related thereto.

Our Articles of Association authorize us to engage in
business of any kind and to take any and all measures related to or useful in promoting our objects; we may also operate domestic and foreign factories, establish branch offices, found, acquire, consolidate with, or participate in, other companies,
conclude or participate in other management contracts, and enter into joint ventures.

Directors

Under German law, our supervisory board members and management board members owe a duty of loyalty and care to our company. They must exercise the
standard of care of a prudent and diligent businessman and bear the burden of proving they did so if their actions are contested. Both boards must take into account the interests of our company and our shareholders, employees, creditors and, to some
extent, the common interest. Those who violate their duties may be held jointly and severally liable for any resulting damages, unless their actions were validly approved by a resolution adopted at a shareholders meeting. Further, a
supervisory board member or a management board member may not vote on a matter that concerns formal approval of his own acts or in which he has a material interest. See also Item 6. Directors, Senior Management and Employees for
further information about the supervisory board and the management board.

Disclosure requirements

Our Articles of Association do not require our shareholders to advise us when their holdings exceed specified thresholds. The German Securities Trading
Act (Wertpapierhandelsgesetz), however, requires each holder of our voting shares whose holding reaches, exceeds, or falls below either 5%, 10%, 25%, 50% or 75% of our outstanding voting rights to notify us and the German Federal Financial
Services Authority (Bundesanstalt für Finanzdienstleistungsaufsicht) in writing at the latest within seven calendar days after she or he has reached, exceeded or fallen below such a threshold. In this notification, the shareholder must
also state the percentage of the share capital she or he holds. Such holder cannot derive any rights from those shares until this disclosure requirement is satisfied. The German Securities Trading Act also contains various 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, the German Takeover Act (Wertpapiererwerbs- und Übernahmegesetz) sets forth a threshold of 30% or more of the voting rights at which a person is deemed to have gained control of a publicly listed company. In such a
case, this controlling person is required to publish the acquisition of control and to launch a public tender offer for the outstanding shares.

In July 2002, the German Securities Trading Act was amended to require the reporting of certain directors dealings. These requirements were expanded in October 2004 by the Investor Protection Improvement Act
(Gesetz zur Verbesserung des Anlegerschutzes). Persons having regular access to insider information and being entrusted with the direction of an issuer whose securities are admitted to trading on a domestic stock exchange, such as in
particular members of the management and supervisory boards of the issuer, have to notify both the issuer and the German Federal Financial Services Authority of acquisitions and sales of shares of the issuer or of other financial instruments
relating to the issuer or its shares. This obligation also applies to certain relatives of the persons concerned, such as their spouses and dependent children, as well as certain companies and institutions affiliated with them. As a de-minimis
exception, transactions are exempted from the notification obligations if the total value of all relevant transactions of one of these persons and its relatives and affiliates within one calendar year does not exceed 5,000. In addition, the
issuer has to publish on its website all notifications it has received for at least a period of one month. In fiscal year 2005, one management board member notified us of a purchase of 1,000 shares.



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Authorized and contingent capital and issuance of convertible bond

As resolved at the annual general meeting of shareholders on February 11, 2004, our management board is authorized, with the approval of the
supervisory board, to increase, once or in partial amounts, in the period until February 10, 2009, the registered share capital by a total of up to 13,020,000 by issuing new ordinary registered no-par shares against cash or in-kind
contributions (authorized capital 2004). The shareholders are principally entitled to preemptive rights, however, under certain conditions, as determined in the Articles of Association, the Management board is authorized to exclude such preemptive
rights with consent of the supervisory board. The formerly existing authorized capital was cancelled. For a description of our contingent capital increase, see Item 6. Directors, Senior Management and Employees  Options to
Purchase Securities from Registrants or Subsidiaries.

Based on the authorization of the shareholder meeting from March 6, 2002,
we issued a 126,425,000 convertible bond due 2010 with a coupon of 2.5% through our Dutch subsidiary EPCOS Finance B.V. guaranteed by EPCOS AG in June 2003. The convertible bond was placed with institutional investors outside the U.S., Canada
and Japan in reliance on Regulation S and is listed on the Luxemburg Stock Exchange. We issued the convertible bond to benefit from the attractive financing opportunities in the then-current convertible market given the low interest rate and high
volatility environment. The offering has allowed us to increase our financial flexibility.

After the authorization to issue convertible
and/or warrant linked bonds of the year 2002 has been exhausted, our shareholder meeting decided on February 11, 2004 to authorize the management board to issue, with the consent of the supervisory board, once or several times until
February 10, 2009 convertible and/or warrant-linked bonds with an aggregate face value of up to 500 million and a maximum term of fifteen years and to grant holders or creditors of bonds conversion or option rights for our shares
with a proportional interest in the share capital of up to a total of 6.5 million. For this purpose, the shareholder meeting adopted a resolution to conditionally increase our share capital by up to 6.5 million through the
issue of up to 6.5 million new ordinary registered shares of no par value in case the conversion or option rights are exercised (conditional capital 2004).

Repurchase of our own shares

We may not acquire our own shares unless authorized by a
resolution duly adopted at the shareholder meeting or in other limited circumstances set forth in the German Stock Corporation Act, such as for the purpose of offering those treasury shares to employees. The shareholders authorization to
repurchase shares may extend for a period of no more than 18 months. The German Stock Corporation Act generally limits share repurchases to 10% of our nominal share capital. Additional limitations (e.g., regarding the daily volume
repurchased) and certain disclosure requirements (prior to and after the repurchase) resulting from European law must be observed in order to benefit from a safe harbor that ensures that the repurchase cannot constitute market manipulation. Any
resale of repurchased shares must be effected on the stock exchange, in a manner that treats all shareholders equally or in accordance with the rules that apply to preemptive rights relating to a capital increase. Shares that are repurchased may be
reissued without preemptive rights and without shareholder approval as long as they are used for the acquisition of a business or participation in a business.

In fiscal year 2002, we repurchased 51,410 shares at an average purchase price of 40.10 per share and reissued 26,416 shares to our employees. The repurchase took place pursuant to a stock buy back program in
order to offer discounted shares to our employees as described under Item 6. Directors, Senior Management and Employees. As of September 30, 2003, we held 25,000 shares in preparation for such an offer to our employees for
fiscal year 2003, but in October 2003, the



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management board decided to stop the employee share purchase plans so that we do not plan to offer an employee share
purchase plan for fiscal year 2004 and the years thereafter. In accordance with German law, we sold these shares into the market outside the United States in November 2003. We did not repurchase additional shares in fiscal years 2005 and 2004.

The provisions of the Articles of Association relating to the supervisory and management board are partly described under Item 6.
Directors, Senior Management and Employees.

Liquidation rights

In accordance with the German Stock Corporation Act, if we are liquidated, any liquidation proceeds remaining after all our liabilities have been paid off
would be distributed among our shareholder in proportion to their holdings.

Corporate Governance

Overview of the corporate governance system in Germany

In contrast to corporations organized under the laws of the United States, German stock corporations are governed by three separate bodies: the annual general meeting of shareholders, the supervisory board and the management board. Their
roles are defined by German law and by the corporations Articles of Association (Satzung), and may be described generally as follows:

The annual general meeting of shareholdersratifies the actions of the corporations supervisory board and management board. It decides on the amount of the annual dividend, the appointment of an independent auditor, and certain
significant corporate transactions. In addition, it elects the members of the supervisory board. In corporations with more than 2,000 employees such as EPCOS, shareholders and employees elect or appoint an equal number of representatives to the
supervisory board. The annual general meeting elects the shareholder representatives except for those appointed by shareholders entitled to such an appointment by the Articles of Association. The annual general meeting must be held within the first
eight months of each fiscal year.

The supervisory boardappoints and removes the members of the management board and oversees the
management of the corporation. Although prior approval of the supervisory board may be required in connection with certain significant matters, the law prohibits the supervisory board from making management decisions.

The management boardmanages the corporations business and represents it in dealings with third parties. The management board submits
regular reports to the supervisory board about the corporations operations and business strategies, and prepares special reports upon request. A person may not serve simultaneously on the management board and the supervisory board of the same
company.

The German Corporate Governance Code

In February 2002, a Government Commission established by the Ministry of Justice published a German Corporate Governance Code (the CGC), which summarizes the fundamental guidelines of corporate governance
in Germany. The CGC was updated in May 2003 and in June 2005.

The CGC comprises a set of best-practice guidelines for the governance of
German companies listed on a stock exchange. The full text of the CGC, including an English translation thereof, is available on the Internet at http://www.corporate-governance-code.de. In addition to restating various corporate governance-related
provisions of German law, the CGC contains approximately 50 recommendations, which reflect widely recognized and well-established standards of corporate governance, and approximately 25 suggestions, which reflect
additional standards for the sound and responsible management and supervision of a company. Topics covered by the CGC include:



| |  |  | The composition and responsibilities of the management board, the compensation of the management board members, and rules for avoiding and resolving conflicts of interest;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | The composition and responsibilities of the supervisory board and committees of the supervisory board, the compensation of the supervisory board members, and rules for avoiding and
resolving conflicts of interest;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The relationship between the management board and the supervisory board;
| | - |  | ------------------------------------------------------------------------



| |  |  | Transparency and disclosure in periodic reports; and
| | - |  | ----------------------------------------------------



| |  |  | Reporting on, and auditing of, the companys annual financial statements.
| | - |  | -------------------------------------------------------------------------

Although the CGC does not have the force of law and compliance with the recommendations and suggestions set forth in the CGC is voluntary, Section 161 of the German Stock Corporation Act requires that the management board and the
supervisory board of a covered company declare annually either that the company has complied, and will continue to comply, with the recommendations set forth in the CGC or, alternatively, which recommendations the company has not complied, or does
not comply, with (so-called comply or explain system). There is no similar requirement to issue a declaration with respect to the suggestions contained in the CGC. On December 13, 2005, our management board and supervisory board
issued the revised, annual declaration of conformity stating that we have been, since the last declaration of conformity issued on December 13, 2004, and are in compliance with all of the recommendations set forth in the CGC, with the following
exceptions (see Exhibit 15 to this annual report for a copy of this declaration):



| | (i) | The supervisory board made an exception from its decision not to nominate candidates to the supervisory board who would exceed the age of 71 at the end of their term in office given
the unique knowledge and experience of Mr. Klaus Ziegler and Dr. Juergen Heraeus. Based on the supervisory boards proposal, the annual general meeting on February 16, 2005 elected Mr. Klaus Ziegler and Dr. Juergen
Heraeus, who were 70 and 68 years old respectively, to the supervisory board. Furthermore, the supervisory board proposed, and the annual shareholders meeting followed the proposal, to elect Mr. Joachim Reinhart to the supervisory board. Even
though Mr. Reinhart belongs to the executive management of Matsushita, one of our competitors, we believe that his representation on the board will not give rise to issues of conflicts of interest and that the outstanding qualifications of
Mr. Reinhart will be very valuable to us. Should against our expectation any conflict of interest arise with respect to Mr. Reinhart in isolated circumstances, any such conflict can be avoided if he does not take part in the relevant
supervisory board consultations or abstains from voting on relevant decisions.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | While the election of supervisory board members by the annual general meeting on February 16, 2005 was conducted on an individual basis as recommended by the CGC, the November
2005 election of the six supervisory board members who represent the employees had to be carried out in three rounds of elections in accordance with the Third Voting Order under the German Co-Determination Act. One vote was held to elect the
representative of executive employees and one to elect the two representatives of the workforce. Mr. Klaus Ziegler was re-elected as chairman of the supervisory board at the supervisory board meeting on February 16, 2005. His renewed
candidacy for that office had not been formally announced to shareholders as recommended by the CGC, given that this recommendation only became a part of the CGC on June 2, 2005.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | (iii) | Our directors and officers liability insurance policies for the members of our management and supervisory board do not provide for any deductibles. By waiving any
deductibles, we recognize that a deductible is not common outside of Germany and that our senior management below the board level, both in and outside of Germany, is covered by a group insurance policy without deductible, which would mean a
different treatment of management board members and other high-level personnel.
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iv) | Compensation of the members of the supervisory board does not contain any variable component linked to the Companys success. This exception is intended to avoid any conflicts
of interest with the supervisory boards monitoring functions by aligning the compensation to the companys performance.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (v) | The stock option plan approved by the Annual General Meeting on February 11, 2004 is not based on comparative parameters, as for example, performance of stock indices or
achievement of a specified share price since, in our view, it would be impossible for EPCOS to objectively define a relative performance target based on a comparative index given that no index for the passive electronic components industry is
available on the market and an independent attempt to compile an industry index suitable for comparison would not work due to the small number of listed competitors.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In addition, the 1999 SOP did not include a possibility for the limitation (cap) for extraordinary, unforeseen developments in connection with stock
options granted to the management board as provided for in the current CGC. However, the 2004 SOP approved by the annual general meeting on February 11, 2004, expressly authorizes the supervisory board to introduce a cap corresponding to the
CGCs recommendation. The supervisory board made use of this authorization when it issued stock options based on the 2004 SOP to members of the management board.

Summary of significant differences between German corporate governance practices and the NYSEs corporate governance standards

The following paragraphs provide a brief, general summary of significant differences between the corporate governance practices followed by German
companies, such as ourselves, and those required by the listing standards of the New York Stock Exchange (the NYSE) of U.S. companies that have common stock listed on the NYSE. The NYSE listing standards are available on the NYSEs
website at http://www.nyse.com.

Composition of Board of Directors; Independence; Conflicts of Interest

The NYSE listing standards provide that the board of directors of a U.S. listed company must consist of a majority of independent directors and that
certain committees must consist solely of independent directors. A director qualifies as independent only if the board affirmatively determines that the director has no material relationship with the company, either directly or indirectly. In
addition, the listing standards enumerate a number of relationships that preclude independence, including employment of the director by the company, or employment of an immediate family member of the director, as an executive officer by the company.
The listing standards do not specifically deal with the avoidance of conflicts of interest and related party transactions. These matters are typically governed by the laws of the state in which the listed company is incorporated. Moreover, the
absence of such rules reflects the NYSEs belief that the oversight of related party transactions is best left to the companys discretion.

Although German law does not explicitly require that the management or supervisory board members of a German company must be independent, a certain degree of independence of the supervisory board members is assured by
the fact that, subject to a limited exception currently not applicable to us, no person may concurrently serve on the management board and the supervisory board of the same company. See Item 6. Directors, Senior Management and Employees
 Overview



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and Supervisory Board for more information on our practice. In addition, the CGC recommends that the
supervisory board include a sufficient number of board members that the supervisory board considers independent. A supervisory board member is considered independent if he or she has no business or personal relatives within the Company or its
management board that causes a conflict of interest. Under the German rules of co-determination as applicable to us, four out of the six employee representatives on our supervisory board are employees of us or one of our domestic subsidiaries.

Furthermore, German law and the CGC establish a number of principles of general applicability that are designed to strengthen the
independence of board members, to avoid conflicts of interests and to establish procedures and standards for related party transactions. Specifically, German law subjects loans from the company to members of the management board or supervisory board
and their close family members to the supervisory boards approval. In addition, the CGC recommends that:



| |  |  | The members of the management board should not, during the term of their office (1) compete with the company, (2) in connection with their office, demand or accept special
benefits or grant unjustified benefits to third parties, or (3) when making business decisions for the company, pursue personal interests or exploit business opportunities that belong to the company;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The members of the management board and the supervisory board should disclose conflicts of interest;
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | All transactions between the company on the one hand and the members of the management board and persons and companies closely related to them on the other hand should be entered
into on market terms and conditions;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The members of the management board should not engage in side-line activities outside the company, including the assumption of seats on the governing bodies of other companies,
without the supervisory boards approval;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The supervisory board should include no more than two former members of the management board;
| | - |  | ---------------------------------------------------------------------------------------------



| |  |  | No supervisory board member should serve on a governing body of, or provide consulting services to, a major competitor of the company;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------



| |  |  | When making business decisions for the company, the supervisory board members may not pursue personal interests or exploit business opportunities that belong to the company; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Advisory and other service contracts between the company and members of the supervisory board should be entered into only with the supervisory boards approval.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

Committees

Overview.The NYSE listing standards require that a U.S. listed company must have an audit committee, a nominating/corporate governance committee and a compensation committee. Each of these committees must consist solely of independent directors and must
have a written charter that addresses certain matters specified in the listing standards. In addition, the NYSE listing standards contain detailed requirements for the audit committees of U.S. listed companies.

Under German law, the only committee required by law is the mediation committee, which is a supervisory board committee that must be formed in all
companies that are subject to the principle



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of co-determination. The mediation committee consists of the chairman of the supervisory board, the deputy chairman, one
shareholder representative and one employee representative. The committee convenes when the supervisory board as a whole is unable to reach the required supermajority of votes for the appointment or dismissal of members of the management board. For
more information on the mediation committee see Item 6. Directors, Senior Management and Employees  Supervisory Board.

In addition, the CGC recommends that covered companies, such as ourselves, form additional committees at the supervisory board level depending on, among other things, the number of supervisory board members. Specifically, the CGC recommends
that covered companies, such as ourselves, should have an audit committee. In addition, it suggests that specific discussion topics, such as the companys strategy, the remuneration of the members of the management board and investment and
financing questions, should be delegated to committees.

Audit committee.The NYSE listing standards contain detailed requirements
for the audit committees of U.S. listed companies. Starting on July 31, 2005, some, but not all, of these requirements, became applicable also to non-U.S. listed companies such as ourselves.

German law currently does not require that companies have an audit committee. However, the CGC recommends that covered companies form an audit committee
that is responsible for, among other things, questions of accounting and risk management, ensuring the independence of the companys auditor, engaging the auditor for the audit of the companys financial statements, determining the focus
of the audit, and agreeing the audit fees. Although the audit committee related provisions of the CGC are less detailed than those contained in the NYSE listing standards, the NYSE listing standards and the CGC share the goal of establishing a
system for overseeing the companys accounting that is independent from management and of ensuring the auditors independence. As a result, they address similar topics, and there is some overlap.

One structural difference between the legal status of the audit committee of a U.S. listed company and that of a German company concerns the degree of
the committees involvement in managing the relationship between the company and its auditor. While the NYSE listing standards require that the audit committee of a U.S. listed company must have direct responsibility for the appointment,
compensation, retention, and oversight of the work of the auditor, under German law, this responsibility is shared between the shareholders meeting and the supervisory board. The shareholders meeting is responsible for electing the
auditor (in doing so, it may rely on proposals submitted to it by the supervisory board and, if an audit committee exists, the audit committee). The supervisory board, in turn, is responsible for engaging the auditor, setting the terms of the
engagement and administering the engagement on a day-to-day basis. The auditor can be dismissed only through a special court proceeding.

Disclosure
regarding corporate governance

The NYSE listing standards require U.S. listed companies to adopt, and post on their websites, a set of
corporate governance guidelines. The guidelines must address, among other things: director qualification standards, director responsibilities, director access to management and independent advisers, director compensation, director orientation and
continuing education, management succession, and an annual performance evaluation itself. In addition, the CEO of a U.S. listed company must certify to the NYSE annually that he or she is not aware of any violations by the company of the NYSEs
corporate governance listing standards. The certification must be disclosed in the companys annual report to shareholders.

Under
German law, as discussed, the management and supervisory boards of German companies listed on a stock exchange are required to declare annually either that they have complied, and do comply, with the recommendations set forth in the CGC or,
alternatively, which recommendations they have not complied, or do not comply, with.



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Code of Business Conduct and Ethics

The NYSE listing standards require each U.S. listed company to adopt, and post on its website, a code of business conduct and ethics for its directors, officers and employees. There is no similar requirement under
German law or the CGC. However, under the SECs rules and regulations, all companies required to submit periodic reports to the SEC, including ourselves, must disclose in their Annual Reports whether they have adopted a code of ethics for their
senior financial officers. In addition, they must file a copy of the code with the SEC, post the text of the code on their website or undertake to provide a copy upon request to any person without charge. There is significant, though not complete,
overlap between the code of ethics required by the NYSE listing standards and the code of ethics for senior financial officers required by the SECs rules. For information on the code of ethics adopted by EPCOS pursuant to applicable SEC rules,
see Item 16. Code of Ethics.

Material Contracts

Agreements with Siemens

Siemens holds an irrevocable, non-exclusive and unlimited right to
use industrial property rights which Siemens contributed to us in connection with our reorganization and which relate mainly to the surge voltage arrester business that it contributed to us. However, Siemens right only extends to activities we
did not engage in when Siemens made the contributions. Siemens may also use these rights to satisfy potential claims that could be asserted against it in connection with the surge voltage arrester business.

In connection with our transition as an independent company, we were parties to a series of service agreements with Siemens group companies under which
they provided us with a broad range of personnel and administrative services. Under these agreements, various Siemens group companies administered our pension plans and part of our personnel accounting systems and information management systems.
They also provided us with library and information services, personnel training and educational programs, as well as purchasing, procurement, sourcing, transportation, logistics, IT services and travel management and export related services. In
addition, they provided us with public relations related services, as well as expatriate personnel and leased vehicle fleet services. Most of these services were provided under similar terms to those we enjoyed before the reorganization. We have
replaced some of these services and functions with services from third parties or by establishing these functions internally. The Siemens group continues to provide us with some of these services under new contracts. The overall cost to us of these
services and functions that Siemens used to provide has not increased to any significant extent as a result of our separation from the Siemens group.

We lease a number of properties from Siemens subsidiaries, including our corporate headquarters building in Munich, our facility in Berlin, our North American sales division facilities in Iselin, New Jersey and our
Latin American sales force facilities in São Paolo, Brazil. We lease our corporate headquarters in Munich from a Siemens subsidiary. We can terminate our lease with effect from September 30, 2008, on twelve months notice.
Otherwise, the lease will run until December 31, 2010. Either party can terminate the lease for our Berlin facility on twelve months notice after September 30, 2002.

We are party to a framework agreement with Siemens AG that allows us to commission research and development projects from them on a case-by-case basis as
needed. For each project, we and Siemens will negotiate the costs involved, development objectives, areas of responsibility, and other terms. Under the framework agreement, Siemens may prematurely terminate any project if it has abandoned the
particular field of research involved or if it has closed the department responsible for carrying out the project. Siemens must then return to us the payments we have agreed on in connection with the particular project, to the extent that we have
not received research results from the project. We will hold all proprietary rights to any development results that come out of any research



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and development projects with Siemens. We may also register any trademarks or other rights that relate to any such
development rights. Siemens will have a non-exclusive, royalty-free right to use those intellectual property rights in its own business, except that they cannot use them to make products that we produce and sell or make them available to our
competitors without our consent.

Agreements with Matsushita

We are party to a cross license agreement with Matsushita Electric Industrial Co., Ltd. in which we have given each other non-exclusive, non-transferable, world-wide licenses to our respective patents relating to our
major product families. The licenses that we have granted each other under this agreement originally run until 2009 and, based on a renewal of this agreement entered into with effect from June 30, 2004, now run until 2014 and cover both patents
existing at the time of the agreement and any patents under which we or Matsushita gain rights until the expiration of the agreement. We pay Matsushita an annual fee under this agreement. The agreement may be renewed again after it expires in 2014.
If we cannot agree on the terms of a renewal before this date, it will automatically be renewed for one more year.

We have also agreed
with Matsushita Electronic Components Co., Ltd. as well as with Matsushita Electric Industrial Co., Ltd. that we will, to the extent we and Matsushita each think it commercially feasible and beneficial, exchange technology, provide each other with
technical assistance, grant each other technical know-how licenses and jointly develop structures, materials, manufacturing processes, software and applications of certain electronic components and subassemblies. Under these agreements, each of us
may provide the other with technical information. We may then enter into a technical assistance and/or joint development project by negotiating any applicable royalties, license fees and other terms and conditions. We will share ownership of any
intellectual property that we create jointly under these agreements and each have a non-exclusive right to use and to grant non-exclusive licenses to the joint intellectual property. With effect from June 30, 2004, we entered into amended
agreements which provide for an automatic extension of each of these agreements by one year as long as neither party gives due notice.

Pursuant to a know-how license agreement, Matsushita-Kotobuki Electronics Industries, Ltd., a Matsushita subsidiary, has granted us a non-exclusive, non-transferable, royalty-bearing and worldwide license to use their know-how and
information relating to low temperature co-fired multilayer ceramic substrate in our products. Matsushita-Kotobuki has also agreed to provide us with technical advice and instructions relating to the manufacture of products that use this technology.
We are paying an initial fee in installments and an ongoing royalty of a specified percentage of the net sales price of products containing this technology that we use, sell or otherwise dispose. We will make these royalty payments until five years
after the end of the calendar half year which covers the date of the first commercial shipment of licensed products. After that, we may use the technical information and know-how free of charge. During the term of our agreement, each of us has
agreed not to assert our patent rights against the other with respect to low temperature co-fired multilayer ceramic substrate.

Under a
memorandum between us and the Ceramics Division of Matsushita Electronic Components Co. Ltd. (MACO), dated July 7, 1998, MACO has granted us a perpetual, non-exclusive and non-transferable license to use technical information
furnished by it to manufacture multilayer ceramic capacitors with nickel inner electrodes at our plant in Deutschlandsberg, Austria. In return, we pay MACO fees under this agreement. On July 25, 2001, we entered into a technical know-how
agreement with MACO under which it has granted us a perpetual, non-exclusive and non-transferable license to use further know-how relating to the production of the same kind of multilayer ceramic capacitors at our factory in Deutschlandsberg,
Austria. We also pay fees under this technical know-how agreement.



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For further information on our relationship with Matsushita Electronic Components Co., Ltd., see
Note 10 to our Consolidated Financial Statements and Item 7. Major Shareholders and Related Party Transactions  Related Party Transactions.

Exchange Controls and Other Limitations Affecting Security Holders

At present, Germany does not
restrict the movement of capital between Germany and other countries or individuals except certain persons and entities associated with Osama bin Laden, the Al-Qaida network and the Taliban, and certain other countries and individuals subject to
embargoes in accordance with German law and applicable resolutions adopted by the United Nations and the EU.

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 against, or liabilities payable to, a non-resident corporation or individual exceeding an
aggregate of 5 million (or the equivalent in a foreign currency) at the end of any calendar month. Resident corporations and individuals are also required to report annually to the German Central any stakes of 10% or more they hold in the
equity of non-resident corporations with total assets of more than 3 million. Corporations residing in Germany with assets in excess of 3 million must report annually to the German Central Bank any stake of 10% or more in the
company held by an individual or a corporation located outside Germany.

Neither German law nor our Articles of Association restricts the
right of non-resident or foreign owners of the shares to hold or vote their shares.

Taxation

The following discussion is a summary of the material German tax consequences for beneficial owners of shares or ADSs 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 ownership and disposition of shares or ADSs, the eligibility for the benefits of any tax treaty and the procedures to follow for a refund of German taxes withheld from
dividends.

Taxation of the Company in Germany

German corporations are subject to corporate income tax at a rate of 25% plus a solidarity surcharge of 5.5% on the net assessed corporate income tax. In the aggregate, the corporate income tax and the solidarity
surcharge amount to 26.375%.

In addition, German corporations are subject to profit-related trade tax on income. The exact amount of the
trade tax varies with 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.



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Beginning in fiscal year 2004, the deduction for a taxable loss carryforward of an amount exceeding
1.0 million is limited to 60% of the taxable income for the fiscal year. Unused loss carryforwards can be carried forward indefinitely, and subject to the 60%-limitation referred to in the preceding sentence, may offset future taxable
income.

Imposition of withholding tax

German withholding tax is imposed at a rate of 20% for dividend distributions made by EPCOS plus a solidarity surcharge of 5.5% on the withholding tax. The aggregate withholding tax rate with respect to dividends is thus 21.1% of the
declared dividend.

For many Non-German Holders (e.g., U.S. shareholders) the withholding tax rate is reduced under applicable
income tax treaties. Under most income tax treaties to which Germany is a party, the rate of dividend withholding tax is reduced to 15%. To benefit from the reduced rate of withholding tax under an applicable income tax treaty, a Non-German Holder
generally is required to apply for a refund of withholding taxes paid. The application for refund must be filed with the German Federal Tax Office (Bundeszentralamt für Steuern, An der Küppe 1, D-53225 Bonn, Germany; http:
//www.bzst.bund.de). The relevant forms can be obtained from the German Federal Tax Office or from German embassies and consulates.

Refund procedure
for eligible U.S. shareholders

An eligible U.S. holder is a U.S. holder (as defined below in United States Taxation) that
(i) is a resident of the United States for purposes of the Treaty, (ii) does not maintain a permanent establishment or fixed base in Germany to which shares or ADSs of EPCOS are attributable and through which the U.S. holder carries on or
has carried on business (or, in the case of an individual, performs or has performed personal services), and (iii) is otherwise eligible for benefits under the Treaty with respect to income and gain from the shares or ADSs.

For shares and ADSs kept in custody with The Depository Trust Company in New York or one of its participating banks, the German tax authorities have
introduced a collective procedure for the refund of German dividend withholding tax and the solidarity surcharge thereon on a trial basis. Under this procedure, The Depository Trust Company may submit claims for refunds payable to eligible U.S.
holders under the Treaty collectively to the German tax authorities on behalf of these eligible U.S. holders. The German Federal Tax Office will pay the refund amounts on a preliminary basis to The Depository Trust Company, which will redistribute
these amounts to the eligible U.S. holders according to the regulations governing the procedure. The German Federal Tax Office may review whether the refund was made in accordance with the law within four years after making the payment to The
Depository Trust Company. Details of this collective procedure are available from The Depository Trust Company.

Individual claims for
refunds may be made on a special German form which must be filed with the German Federal Tax Office at the address noted above. Copies of this form may be obtained from the German Federal 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. 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 U.S. holder must submit to the German tax authorities the original bank voucher (or a certified copy
thereof) issued by the paying agent 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 filing a request with the Internal Revenue Service
Center in Philadelphia, Pennsylvania, Foreign Certification Request, P.O. Box 16347, Philadelphia, PA 19114-0447. Requests for certification must include the eligible U.S. holders name, taxpayer identification number, tax return form number
and tax period for which the certification is requested. Requests for certifications can include a request to the Internal Revenue



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Service to send the certification directly to the German tax authorities. If no such request is made, the Internal
Revenue Service will send a certification on IRS Form 6166 to the eligible U.S. holder, who then must submit this document with his refund claim.

Capital gains

Under German domestic tax law as currently in effect, capital gains derived by a Non-German Holder from the
sale or other disposition of shares or ADSs are subject to tax in Germany only if the Non-German Holder has held, directly or indirectly, shares or ADSs representing 1% or more of the registered share capital of the company at any time during the
5-year period immediately preceding the disposition. Capital gains from the sale of shares received by a corporation are tax exempted under German domestic law. In general, according to the participation exemption rules, 5% of the capital gain is
considered as nondeductible expenses.

Eligible U.S. holders are exempt from taxation in Germany on capital gains derived from the sale or
disposition of shares of ADSs.

Inheritance and gift tax

Under German law, German gift or inheritance tax will be imposed on transfers of shares or ADSs by a holder at death or by way of gift only if



| |  |  | the decedent or donor, or the heir, donee or other transferee has his residence in Germany at the time of the transfer;
| | - |  | -----------------------------------------------------------------------------------------------------------------------



| |  |  | the shares or ADSs are part of the business property of a permanent establishment in Germany;
| | - |  | ---------------------------------------------------------------------------------------------



| |  |  | the decedent or donor, or the heir, donee or other transferee is a citizen of Germany, is not a resident in Germany, but has not been continuously outside of Germany for a period of
more than five years; or
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the shares or ADSs subject to such transfer form part of a portfolio that represents 10% or more of the registered share capital of the company and has been held, directly or
indirectly, by the decedent or donor, respectively, actually or constructively together with related parties.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The right of
the German government to impose inheritance or gift tax on a Non-German Holder may be further limited by an applicable estate tax treaty (such as the Inheritances and Gifts Tax Treaty between the United States and Germany dated December 3,
1980).

Other taxes

No German
transfer, stamp or similar taxes apply to the purchase, sale or other disposition of shares or ADSs by a Non-German Holder. Currently, net worth tax is not levied in Germany.

United States Taxation

This section describes the material United States federal income tax
consequences of owning our shares or ADSs. It applies to you only if you are a U.S. holder, as described below, that holds its shares or ADSs as capital assets for tax purposes. This section does not address all material tax consequences of owning
shares or ADSs. It does not address special classes of holders, some of which may be subject to special rules, including:



| |  |  | tax-exempt entities,
| | - |  | --------------------



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| |  |  | life insurance companies,
| | - |  | -------------------------



| |  |  | dealers in securities,
| | - |  | ----------------------



| |  |  | traders in securities that elect a 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,
| | - |  | ------------------------------------------------------------------------------



| |  |  | investors that hold shares or ADSs as part of a straddle or a hedging or conversion transaction, or
| | - |  | ---------------------------------------------------------------------------------------------------



| |  |  | U.S. holders whose functional currency is not the U.S. dollar.
| | - |  | --------------------------------------------------------------

This section is based on the Internal Revenue Code of 1986, as amended, its legislative history, existing and proposed regulations, and published rulings and court decisions, all as currently in effect, as well as on the United
StatesGerman Income Tax treaty (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 Morgan Guaranty Trust Company of New York, the
predecessor of JP Morgan Chase Bank, as depositary for the American Depositary Receipt (or ADR) 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 ADSs, 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 ADSs and you are, for U.S. federal
income tax purposes:



| |  |  | a citizen or resident of the United States,
| | - |  | -------------------------------------------



| |  |  | a domestic corporation,
| | - |  | -----------------------



| |  |  | 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.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

This discussion addresses only United States federal income taxation. You should
consult your own tax advisor regarding the United States federal, state, local and other tax consequences of owning and disposing of shares and ADSs in your particular circumstances. In particular, you should confirm that you are eligible for the
benefits under the Treaty with respect to income and gain from the shares or ADSs.

Taxation of dividends

Under the United States federal income tax laws, and subject to the passive foreign investment company rules discussed below, if you are a U.S. holder,
the gross amount of any dividend we pay out of our current or accumulated earnings and profits (as determined for United States federal income tax purposes) is subject to United States federal income taxation. If you are a non-corporate U.S. holder,
dividends paid to you in taxable years beginning before January 1, 2009 that constitute



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qualified dividend income will be taxable to you at a maximum tax rate of 15%, provided that you hold the shares or ADSs
for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date and meet other holding period requirements. Dividends we pay with respect to the shares or ADSs generally will be qualified dividend income.

You must include any German tax withheld from the dividend payment in this gross amount even though you do not in fact receive it. You must include the
dividend in income when you, in the case of shares, or JP Morgan Chase Bank, in the case of ADSs, 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 euro payments made,
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 and will not be eligible for the special tax rate applicable to
qualified dividend income. The gain or loss generally will be income or loss from sources within the United States for foreign tax credit limitation purposes. Distributions in excess of our current or accumulated earnings and profits, as determined
for United States federal income tax purposes, will be treated as a non-taxable return of capital to the extent of your basis in the shares or ADSs and thereafter as capital gain.

Subject to certain limitations, the German tax withheld in accordance with German law or the Treaty and paid over to Germany will be creditable against
your United States federal income tax liability. Special rules apply in determining the foreign tax credit limitation with respect to dividends that are subject to the maximum 15% tax rate. 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  Refund procedure for eligible U.S.
holders above for the procedures for obtaining a tax refund.

Dividends will be income from sources outside the United States.
Dividends paid in taxable years beginning before January 1, 2007 will generally be passive income or financial services income, and dividends paid in taxable years beginning after December 31, 2006 will, depending
on your circumstances, be passive or general income that, in either case, is treated separately from other types of income for purposes of computing the foreign tax credit allowable to you.

Taxation of capital gains

Subject to the
passive foreign investment company rules discussed below, if you are a U.S. holder and sell or otherwise dispose of your shares or ADSs, you will recognize capital gain or loss for United States federal income tax purposes equal to the difference
between the U.S. dollar value of the amount that you realize and your tax basis, determined in U.S. dollars, in your shares or ADSs. Capital gain of a non-corporate U.S. holder that is recognized before January 1, 2009 is generally taxed at a
maximum rate of 15% where the holder has a holding period greater than one year. The gain or loss will generally be income or loss from sources within the United States for foreign tax credit limitation purposes.

Passive foreign investment company rules

EPCOS believes that its shares and ADSs should not be treated as stock of a passive foreign investment company, or PFIC, for United States federal income tax purposes, but this conclusion is a factual determination that is made
annually and thus may be subject to change. If EPCOS were to be treated as a PFIC, unless you are a U.S. holder that elects to be taxed annually on a mark-to-market basis with respect to the shares or ADSs, gain realized on the sale or other
disposition of your shares or ADSs would in general not be treated as capital gain. Instead, if you are a U.S. Holder, you would



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be treated as if you had realized such gain and certain excess distributions ratably over your holding period
for the shares or ADSs and would be taxed at the highest tax rate in effect for each such year to which the gain was allocated, together with an interest charge in respect of the tax attributable to each such year. With certain exceptions, your
shares or ADSs will be treated as stock in a PFIC if we were a PFIC at any time during your holding period in your shares or ADSs. In addition, dividends that you receive from us will not be eligible for the special tax rates applicable to qualified
dividend income if we are a PFIC with respect to you either in the taxable year of the distribution or the preceding taxable year, but instead will be taxable at rates applicable to ordinary income.

Documents on Display

Our company is 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. Since November 4, 2002, foreign private
issuers are required to file on the Electronic Data Gathering, Analysis and Retrieval (EDGAR) system of the SEC and, since then, our filings can be obtained electronically. In addition, these materials, including this annual report and the exhibits
thereto, may be inspected and copies at the Commissions Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of the materials may be obtained from the Public Reference Room of the Commission at 450 Fifth Street, N.W.
Washington D.C. 20549 at prescribed rates. The public may obtain information on the operation of the Commissions Public Reference Room by calling the Commission in the United States at 1-800-SEC-0330. In addition, material filed by us can be
inspected at the offices of the New York Stock Exchange at 20 Broad Street, New York, New York 10005.

Item 11. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risk
through our commercial activities and financial operations. Our market risk consists primarily of exposure to changes in currency exchange rates and interest rates, as well as to changes in the price of some metals that we use as raw materials. We
have implemented a policy of hedging against some of these risks, but we may still incur losses as a result of changes in currency exchange rates, interest rates and prices of commodities. We do not enter into derivatives transactions for trading
purposes. We discuss our metals exposures in Item 4. Information on the Company  Raw Materials and Sources of Supply.

Interest Rate Risks

During fiscal year 2004 and fiscal year 2005, changes in interest rates did not have a material impact
on our results of operations, capital resources or liquidity. The syndicated credit facility of 250 million, provided by twelve international banks, was not used at the end of fiscal year 2005. It is thus available in full and, in any
event, does not provide for an interest rate risk above market standard. The convertible bond we issued in fiscal year 2003 carries a fixed rate and therefore reduces overall interest rate risk. For further information on our liquidity risks, see
Item 5. Operating and Financial Review and Prospects  Liquidity and Capital Resources. Liquid assets available within our group are invested in the money market to ensure our solvency at all times.

In the current fiscal year 2006, we are continuing to invest parts of our liquid assets in certain securities, which do not carry any material price risk
and may be sold any time.

Due to our liquidity situation, our future net interest expenses would not be materially increased by a
substantial increase in interest rates. A sustained increase in interest rates would not increase the cost of financing our capital expenditures and would not require us to reassess some of our planned investments.



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Foreign Exchange Risks

The global nature of our business leads to payment flows in various currencies other than the euro, of which the U.S. dollar, the Japanese yen and the Singapore dollar are most important to EPCOS. Our U.S. dollar
revenues normally exceed our U.S. dollar expenses. Our yen expenses, on the other hand, normally exceed our yen revenues because we purchase a significant amount of materials from Japanese suppliers at yen-denominated prices.

Since this exposes our companies to foreign exchange risks, exchange rate hedging is an essential part of our risk management practice. One further
factor is that exchange rate fluctuations improve the cost position of other passive electronic component manufacturers and can thus affect market prices. In recent years, we have increasingly relocated our value chain and materials sourcing
activities from Central Europe to countries with lower labor costs. The currencies in many of these countries are more or less closely tied to the U.S. dollar. A significant proportion of our value added is now generated in the extended U.S. dollar
area. This has significantly reduced our net risk exposure. Existing foreign exchange risks are constantly recorded in our central foreign exchange management system. Appropriate instruments are then used to hedge net amounts denominated in the
various currencies, usually for a period of three months.

Hedging is executed in permanent consultation with our management board. We have
implemented a value-at-risk model to monitor risks resulting from foreign exchange risks outstanding. The following table indicates the strain that a 15% upward revaluation of the euro in 2006 would impose in connection with foreign exchange
contracts concluded up to January 31, 2006:

Sensitivity to exchange rates in 2006

(euro in million)



|                                       |  |        |   |  |     |   |  |                 |  
|-------------------------------------- |  | ------ | - |  | --- | - |  | --------------- | -
|                                       |  | U.S. $ |   |  | Yen |   |  | Singaporedollar |  
|Net foreign exchange volume at risk    |  | 131    |   |  | (25 | ) |  | (23             | )
|Result of 15% revaluation of the euro* |  | (17    | ) |  | 3   |   |  | 3               |  

---

|* | Impact on net cash flow adjusted for forward foreign exchange contracts.
|- | ------------------------------------------------------------------------

Investments in our foreign subsidiaries are not protected against exchange rate fluctuations. Valuation differences between balance sheet dates directly affect our groups equity capital.

We believe that changes in exchange rates have not generally had a material impact on our results of operations, capital resources or liquidity, in part
due to our foreign currency hedging policy. As we explain under Item 4. Information on the Company  Description of Business  Competition, the value of the Japanese yen and U.S. dollar versus the euro may affect
our competitiveness. A strengthening of the yen could help our competitiveness vis-à-vis Japanese producers, despite the negative financial statement impact resulting from the unhedged portion of the excess of our yen denominated expenses
over revenues. On the other hand, a weakening of the U.S. dollar would benefit our U.S.-based competitors while reducing our operating income since our U.S. dollar denominated revenues exceed our expenses. We do not expect that future changes in
foreign exchange rates would have a material impact on our liquidity or capital resources since most of our funding is denominated in euro.

Item 12. Description of Securities other than Equity Securities

Not applicable.



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##### Table of Contents

PART II

Item 13. Defaults, Dividend Arrearages and Delinquencies

None.

Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds

None.

Item 15. Controls and Procedures

Evaluation of disclosure controls and procedures.EPCOS, under
the participation and supervision of the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), performed an evaluation of the effectiveness of the design and operation of the Companys disclosure controls and procedures as of
September 30, 2005. Based on that evaluation, the CEO and the CFO concluded that, as of September 30, 2005, EPCOS disclosure controls and procedures were effective and designed to provide reasonable assurance that the material
financial and non-financial information required to be disclosed in documents filed or submitted with the Securities and Exchange Commission is recorded, processed, summarized and reported in a timely manner. Although we believe our pre-existing
disclosure controls and procedures were adequate to enable us to comply with these disclosure obligations, we implemented some changes responding to recent legislation and regulations, primarily to formalize and document procedures already in place.
We also established a disclosure committee which consists of certain members of the Companys senior management.

Changes in
Internal Control Over Financial Reporting.There has not been any change in our internal control over financial reporting during fiscal year 2005 that has materially affected, or is reasonably likely to materially affect, our internal control
over financial reporting.

Item 16A. Audit Committee Financial Expert

On February 3, 2003, the supervisory board determined
that Dr. Heraeus qualifies as a financial expert within the meaning of Section 407 of the Sarbanes-Oxley Act of 2002. The supervisory board also determined that Dr. Heraeus is independent within the meaning of the SEC and New York
Stock Exchange Rules.

Item 16B. Code of Ethics

On February 4, 2004, the supervisory board and the management board
adopted a code of ethics that applies to the members of the management board, the heads of the divisions and the heads of the corporate departments accounting, sales, finance, investor relations and corporate communication. You may obtain a copy of
the code of ethics, free of charge, by writing to EPCOS AG, Legal Department, St.-Martin-Strasse 53, 81669 Munich, Germany.



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##### Table of Contents

Item 16C. Principal Accountant Fees and Services

The following table shows, in respect of each of the
last two fiscal years, information concerning the fees billed for professional services rendered by KPMG, EPCOS principal accountant.



|                   |  |                                |  |     
|------------------ |  | ------------------------------ |  | ----
|                   |  | Fiscal year endedSeptember 30,
|                   |  | 2005                           |  | 2004
|                   |  | (euro in millions)            
|Audit Fees         |  | 1.0                            |  | 1.0 
|Audit-Related Fees |  | 0.2                            |  | 0.1 
|Tax Fees           |  | 0.1                            |  | 0.1 
|All Other Fees     |  | 0.0                            |  | 0.0 
|                   |  |                                |  |     
|Total              |  | 1.3                            |  | 1.2 

Audit Fees consisted of fees billed by KPMG for services rendered in connection with
the audit of EPCOS consolidated annual financial statements, review of interim financial statements, and other services usually provided in connection with statutory and regulatory filings. Audit-Related Fees consisted of fees
billed by KPMG for assurance and related services that traditionally are performed by the independent accountant, such as due diligence related to mergers and acquisitions, accounting consultations and audits in connection with acquisitions,
internal control review and attest services. Tax Fees consisted of fees billed by KPMG for tax compliance, tax advice and tax planning services, and other tax services.

The Audit Committee is responsible, among other things, for the pre-approval of permissible non-audit services to be performed by ECPOS independent
auditor. Accordingly, the Audit Committee has adopted a resolution by which it pre-approved designated services in the categories audit-related services and tax services. In addition, the resolution lists all services that EPCOS independent
auditor may not perform under any circumstances. The resolution also sets forth certain procedures and thresholds for each category of services as well as an overall cap for the total amount of fees that may be charged for these services.

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

EPCOS does not currently avail
itself of any exemption from the listing standards for its audit committee.

Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers

In fiscal year
2005, EPCOS AG or any of its affiliates has not purchased any of its equity securities.

PART III

Item 17. Financial Statements

Not applicable.

Item 18. Financial Statements



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##### Table of Contents

Index to Consolidated Financial Statements



|                                                                                                                                       |  |     
|-------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                                                       |  | Page
|Consolidated Financial Statements                                                                                                      |  |     
|                                                                                                                                       | 
|Report of independent registered public accounting firm                                                                                |  | F-2 
|                                                                                                                                       | 
|Consolidated Statements of Operations for the years ended September 30, 2005, 2004, and 2003                                           |  | F-3 
|                                                                                                                                       | 
|Consolidated Balance Sheets as of September 30, 2005 and 2004                                                                          |  | F-4 
|                                                                                                                                       | 
|Consolidated Statements of Shareholders Equity and Comprehensive Income (Loss) for the years ended September 30, 2005, 2004, and 2003 |  | F-5 
|                                                                                                                                       | 
|Consolidated Statements of Cash Flows for the years ended September 30, 2005, 2004, and 2003                                           |  | F-6 
|                                                                                                                                       | 
|Notes to Consolidated Financial Statements                                                                                             |  | F-7 



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##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Supervisory Board and Shareholders of EPCOS AG

We have audited the accompanying consolidated balance sheets of EPCOS AG and subsidiaries as of September 30, 2005 and 2004, and the related
consolidated statements of operations, shareholders equity and comprehensive income (loss), and cash flows for each in the three-year period ended September 30, 2005. These consolidated financial statements are the responsibility of the
Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our
audits 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of EPCOS AG and subsidiaries as of September 30, 2005 and 2004, and the results of their operations and their
cash flows for each in the three-year period ended September 30, 2005 in conformity with U.S. generally accepted accounting principles.

Munich, Germany, November 25, 2005

KPMG Deutsche Treuhand-Gesellschaft

Aktiengesellschaft

Wirtschaftsprüfungsgesellschaft



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##### Table of Contents

EPCOS AG

Consolidated Statements of Operations

For the years ended September 30, 2005, 2004 and 2003

( thousand,
except per share data)



|                                                                                  |  |      |  |           |   |  |           |   |  |           |  
|--------------------------------------------------------------------------------- |  | ---- |  | --------- | - |  | --------- | - |  | --------- | -
|                                                                                  |  | Note |  | 2005      |   |  | 2004      |   |  | 2003      |  
|Net sales                                                                         |  |      |  |           |   |  |           |   |  |           |  
|Third parties                                                                     |  |      |  | 1,045,720 |   |  | 1,137,193 |   |  | 1,043,455 |  
|Related parties                                                                   |  | 10   |  | 191,796   |   |  | 225,026   |   |  | 228,153   |  
|                                                                                  |  |      |  |           |   |  |           |   |  |           |  
|Total net sales                                                                   |  |      |  | 1,237,516 |   |  | 1,362,219 |   |  | 1,271,608 |  
|                                                                                  |  |      |  |           |   |  |           |   |  |           |  
|Cost of goods sold                                                                |  | 10   |  | 1,116,535 |   |  | 1,091,721 |   |  | 1,059,249 |  
|Gross profit                                                                      |  |      |  | 120,981   |   |  | 270,498   |   |  | 212,359   |  
|Research and development expenses                                                 |  | 10   |  | 70,295    |   |  | 74,569    |   |  | 69,423    |  
|Marketing and selling expenses                                                    |  | 10   |  | 116,280   |   |  | 122,067   |   |  | 120,894   |  
|General and administrative expenses                                               |  | 10   |  | 13,262    |   |  | 14,822    |   |  | 14,029    |  
|                                                                                  |  |      |  |           |   |  |           |   |  |           |  
|                                                                                  |  |      |  | 199,837   |   |  | 211,458   |   |  | 204,346   |  
|                                                                                  |  |      |  |           |   |  |           |   |  |           |  
|Operating (loss) income                                                           |  |      |  | (78,856   | ) |  | 59,040    |   |  | 8,013     |  
|Interest income                                                                   |  |      |  | 3,171     |   |  | 4,299     |   |  | 1,879     |  
|Interest expense                                                                  |  | 10   |  | (11,824   | ) |  | (10,179   | ) |  | (10,714   | )
|Foreign exchange losses, net                                                      |  |      |  | (4,702    | ) |  | (6,392    | ) |  | (6,295    | )
|Impairment on goodwill                                                            |  | 7    |  | (11,800   | ) |  |          |   |  |          |  
|Other income, net                                                                 |  | 14   |  | 6,958     |   |  | 12,201    |   |  | 4,359     |  
|Share of net (losses) income of unconsolidated affiliates and at equity companies |  |      |  | (6        | ) |  | 102       |   |  | (534      | )
|(Loss) income before income taxes and minority interest                           |  |      |  | (97,059   | ) |  | 59,071    |   |  | (3,292    | )
|(Provision) benefit for income taxes                                              |  | 15   |  | (21,969   | ) |  | (9,620    | ) |  | 10,194    |  
|Minority interest                                                                 |  |      |  | (234      | ) |  | (223      | ) |  | (158      | )
|                                                                                  |  |      |  |           |   |  |           |   |  |           |  
|Net (loss) income                                                                 |  |      |  | (119,262  | ) |  | 49,228    |   |  | 6,744     |  
|                                                                                  |  |      |  |           |   |  |           |   |  |           |  
|Basic (loss) earnings per share in                                               |  | 16   |  | (1.83     | ) |  | 0.75      |   |  | 0.10      |  
|Diluted (loss) earnings per share in                                             |  |      |  | (1.83     | ) |  | 0.71      |   |  | 0.10      |  

See Notes to Consolidated Financial Statements



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##### Table of Contents

EPCOS AG

Consolidated Balance Sheets

As of September 30, 2005 and 2004 ( thousand, except share data)



|                                                                                                                                       |  |       |  |           |   |  |           |  
|-------------------------------------------------------------------------------------------------------------------------------------- |  | ----- |  | --------- | - |  | --------- | -
|                                                                                                                                       |  | Note  |  | 2005      |   |  | 2004      |  
|ASSETS                                                                                                                                 |  |       |  |           |   |  |           |  
|Current assets                                                                                                                         |  |       |  |           |   |  |           |  
|Cash and cash equivalents                                                                                                              |  | 4     |  | 193,438   |   |  | 238,386   |  
|Accounts receivable, net                                                                                                               |  | 5, 10 |  | 201,991   |   |  | 212,078   |  
|Inventories, net                                                                                                                       |  | 6     |  | 226,802   |   |  | 240,996   |  
|Prepaid expenses and other current assets                                                                                              |  |       |  | 46,579    |   |  | 47,540    |  
|Deferred income taxes                                                                                                                  |  | 15    |  | 8,708     |   |  | 9,366     |  
|                                                                                                                                       |  |       |  |           |   |  |           |  
|Total current assets                                                                                                                   |  |       |  | 677,518   |   |  | 748,366   |  
|                                                                                                                                       |  |       |  |           |   |  |           |  
|Property, plant and equipment, net                                                                                                     |  | 7     |  | 576,284   |   |  | 604,406   |  
|Intangible assets, net                                                                                                                 |  | 7, 22 |  | 19,141    |   |  | 34,195    |  
|Deferred income taxes                                                                                                                  |  | 15    |  | 70,169    |   |  | 72,561    |  
|Other assets                                                                                                                           |  | 7     |  | 33,822    |   |  | 26,684    |  
|                                                                                                                                       |  |       |  |           |   |  |           |  
|Total assets                                                                                                                           |  |       |  | 1,376,934 |   |  | 1,486,212 |  
|                                                                                                                                       |  |       |  |           |   |  |           |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                   |  |       |  |           |   |  |           |  
|Current liabilities                                                                                                                    |  |       |  |           |   |  |           |  
|Accounts payable                                                                                                                       |  | 10    |  | 133,904   |   |  | 159,941   |  
|Accrued expenses and other current liabilities                                                                                         |  | 8     |  | 119,065   |   |  | 140,834   |  
|Short-term borrowings                                                                                                                  |  | 9     |  | 107,467   |   |  | 103,001   |  
|Current portion of long-term debt                                                                                                      |  | 9     |  | 24,944    |   |  | 24,778    |  
|Deferred income taxes                                                                                                                  |  | 15    |  | 3,629     |   |  | 5,847     |  
|                                                                                                                                       |  |       |  |           |   |  |           |  
|Total current liabilities                                                                                                              |  |       |  | 389,009   |   |  | 434,401   |  
|                                                                                                                                       |  |       |  |           |   |  |           |  
|Long-term debt, excluding current installments                                                                                         |  | 9     |  | 206,127   |   |  | 192,745   |  
|Pension liabilities                                                                                                                    |  | 17    |  | 165,768   |   |  | 126,567   |  
|Deferred income taxes                                                                                                                  |  | 15    |  | 18,503    |   |  | 12,908    |  
|Other liabilities                                                                                                                      |  |       |  | 40,270    |   |  | 39,322    |  
|Minority interest                                                                                                                      |  |       |  | 764       |   |  | 705       |  
|                                                                                                                                       |  |       |  |           |   |  |           |  
|Total liabilities                                                                                                                      |  |       |  | 820,441   |   |  | 806,648   |  
|                                                                                                                                       |  |       |  |           |   |  |           |  
|Commitments and contingencies                                                                                                          |  | 20    |  |           |   |  |           |  
|                                                                                                                                       |  |       | 
|Shareholdersequity                                                                                                                    |  | 11    |  |           |   |  |           |  
|Share capital  96,280,000 shares authorized, 65,300,000 shares issued in 2005 and 2004 and 65,300,000 outstanding in 2005 and in
2004 |  |       |  | 65,300    |   |  | 65,300    |  
|Additional paid-in capital                                                                                                             |  |       |  | 254,833   |   |  | 254,833   |  
|Retained earnings                                                                                                                      |  |       |  | 287,248   |   |  | 406,510   |  
|Accumulated other comprehensive loss                                                                                                   |  |       |  | (50,888   | ) |  | (47,079   | )
|Total shareholders equity                                                                                                             |  |       |  | 556,493   |   |  | 679,564   |  
|                                                                                                                                       |  |       |  |           |   |  |           |  
|Total liabilities and shareholders equity                                                                                             |  |       |  | 1,376,934 |   |  | 1,486,212 |  
|                                                                                                                                       |  |       |  |           |   |  |           |  

See Notes to Consolidated Financial Statements



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##### Table of Contents

EPCOS AG

Consolidated Statements of Shareholders Equity and Comprehensive Income (Loss)

For the years ended September 30, 2005, 2004 and 2003 ( thousand)



|                                                                                   |  |              |  |                          |   |  |                  |   |  |                                            |   |  |                |   |  |                          |  
|---------------------------------------------------------------------------------- |  | ------------ |  | ------------------------ | - |  | ---------------- | - |  | ------------------------------------------ | - |  | -------------- | - |  | ------------------------ | -
|                                                                                   |  | Sharecapital |  | Additionalpaid-incapital |   |  | Retainedearnings |   |  | Accumulatedothercomprehensiveincome (loss) |   |  | Treasuryshares |   |  | TotalShareholdersequity |  
|Balances as of September 30, 2002                                                  |  | 65,300       |  | 255,225                  |   |  | 350,538          |   |  | (28,007                                    | ) |  | (878           | ) |  | 642,178                  |  
|Comprehensive Loss:                                                                |  |              |  |                          |   |  |                  |   |  |                                            |   |  |                |   |  |                          |  
|Net income                                                                         |  |             |  |                         |   |  | 6,744            |   |  |                                           |   |  |               |   |  | 6,744                    |  
|Currency translation adjustment                                                    |  |             |  |                         |   |  |                 |   |  | (8,415                                     | ) |  |               |   |  | (8,415                   | )
|Unrealized gains on securities                                                     |  |             |  |                         |   |  |                 |   |  | 219                                        |   |  |               |   |  | 219                      |  
|Reclassification of losses from securities to net income                           |  |             |  |                         |   |  |                 |   |  | 207                                        |   |  |               |   |  | 207                      |  
|Cash flow hedges (net of tax of 373)                                               |  |             |  |                         |   |  |                 |   |  | 722                                        |   |  |               |   |  | 722                      |  
|Additional minimum pension liabilities (net of tax of 2,060)                       |  |             |  |                         |   |  |                 |   |  | (2,979                                     | ) |  |               |   |  | (2,979                   | )
|Total comprehensive loss                                                           |  |              |  |                          |   |  |                  |   |  |                                            |   |  |                |   |  | (3,502                   | )
|                                                                                   |  |              |  |                          |   |  |                  |   |  |                                            |   |  |                |   |  |                          |  
|Balances as of September 30, 2003                                                  |  | 65,300       |  | 255,225                  |   |  | 357,282          |   |  | (38,253                                    | ) |  | (878           | ) |  | 638,676                  |  
|                                                                                   |  |              |  |                          |   |  |                  |   |  |                                            |   |  |                |   |  |                          |  
|Comprehensive Income:                                                              |  |              |  |                          |   |  |                  |   |  |                                            |   |  |                |   |  |                          |  
|Net income                                                                         |  |             |  |                         |   |  | 49,228           |   |  |                                           |   |  |               |   |  | 49,228                   |  
|Currency translation adjustment                                                    |  |             |  |                         |   |  |                 |   |  | (4,491                                     | ) |  |               |   |  | (4,491                   | )
|Unrealized gains on securities (net of tax 36)                                     |  |             |  |                         |   |  |                 |   |  | 508                                        |   |  |               |   |  | 508                      |  
|Reclassification of gains from Cash flow hedges to net income (net of tax 373)     |  |             |  |                         |   |  |                 |   |  | (722                                       | ) |  |               |   |  | (722                     | )
|Cash flow hedges (net of tax of 475)                                               |  |             |  |                         |   |  |                  |   |  | (1,425                                     | ) |  |               |   |  | (1,425                   | )
|Additional minimum pension liabilities (net of tax of 1,797)                       |  |             |  |                         |   |  |                 |   |  | (2,696                                     | ) |  |               |   |  | (2,696                   | )
|Total comprehensive income                                                         |  |              |  |                          |   |  |                  |   |  |                                            |   |  |                |   |  | 40,402                   |  
|Sale of treasury shares                                                            |  |             |  | (392                     | ) |  |                 |   |  |                                           |   |  | 878            |   |  | 486                      |  
|                                                                                   |  |              |  |                          |   |  |                  |   |  |                                            |   |  |                |   |  |                          |  
|Balances as of September 30, 2004                                                  |  | 65,300       |  | 254,833                  |   |  | 406,510          |   |  | (47,079                                    | ) |  |               |   |  | 679,564                  |  
|                                                                                   |  |              |  |                          |   |  |                  |   |  |                                            |   |  |                |   |  |                          |  
|Comprehensive Loss:                                                                |  |              |  |                          |   |  |                  |   |  |                                            |   |  |                |   |  |                          |  
|Net loss                                                                           |  |             |  |                         |   |  | (119,262         | ) |  |                                           |   |  |               |   |  | (119,262                 | )
|Currency translation adjustment                                                    |  |             |  |                         |   |  |                 |   |  | 13,133                                     |   |  |               |   |  | 13,133                   |  
|Reclassification of gains from securities to net income (net of tax of 6)          |  |             |  |                         |   |  |                 |   |  | (43                                        | ) |  |               |   |  | (43                      | )
|Unrealized gains on securities (net of tax of 23)                                  |  |             |  |                         |   |  |                 |   |  | 877                                        |   |  |               |   |  | 877                      |  
|Reclassification of losses from Cash flow hedges to net income (net of tax of 475) |  |             |  |                         |   |  |                 |   |  | 1,425                                      |   |  |               |   |  | 1,425                    |  
|Cash flow hedges (net of tax of 138)                                               |  |             |  |                         |   |  |                  |   |  | 416                                        |   |  |               |   |  | 416                      |  
|Additional minimum pension liabilities (net of tax of 13,024)                      |  |             |  |                         |   |  |                 |   |  | (19,617                                    | ) |  |               |   |  | (19,617                  | )
|Total comprehensive loss                                                           |  |              |  |                          |   |  |                  |   |  |                                            |   |  |                |   |  | (123,071                 | )
|                                                                                   |  |              |  |                          |   |  |                  |   |  |                                            |   |  |                |   |  |                          |  
|Balances as of September 30, 2005                                                  |  | 65,300       |  | 254,833                  |   |  | 287,248          |   |  | (50,888                                    | ) |  |               |   |  | 556,493                  |  
|                                                                                   |  |              |  |                          |   |  |                  |   |  |                                            |   |  |                |   |  |                          |  

See Notes to Consolidated Financial Statements



F-5



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##### Table of Contents

EPCOS AG

Consolidated Statements of Cash Flows

For the years ended September 30, 2005, 2004 and 2003 ( thousand)



|                                                                                       |  |          |   |  |          |   |  |         |  
|-------------------------------------------------------------------------------------- |  | -------- | - |  | -------- | - |  | ------- | -
|                                                                                       |  | 2005     |   |  | 2004     |   |  | 2003    |  
|Cash flows from operating activities                                                   |  |          |   |  |          |   |  |         |  
|Net (loss) income                                                                      |  | (119,262 | ) |  | 49,228   |   |  | 6,744   |  
|Adjustment to reconcile net income (loss) to net cash provided by operating activities |  |          |   |  |          |   |  |         |  
|Depreciation and amortization                                                          |  | 208,086  |   |  | 155,299  |   |  | 157,270 |  
|Provision for doubtful accounts                                                        |  | 1,387    |   |  | (165     | ) |  | (872    | )
|(Gain) Loss on sale of property, plant and equipment                                   |  | (222     | ) |  | (1,635   | ) |  | 1,106   |  
|Share of net losses (income) of unconsolidated affiliates and at equity companies      |  | 6        |   |  | (102     | ) |  | 534     |  
|Minority interest                                                                      |  | 234      |   |  | 223      |   |  | 158     |  
|Deferred income tax                                                                    |  | 18,805   |   |  | (1,795   | ) |  | (18,040 | )
|Changes in assets and liabilities, excluding effects of acquisitions                   |  |          |   |  |          |   |  |         |  
|Decrease (Increase) in accounts receivable                                             |  | 11,770   |   |  | (27,968  | ) |  | 5,468   |  
|Decrease (Increase) in inventories                                                     |  | 20,549   |   |  | (38,089  | ) |  | (1,172  | )
|(Increase) Decrease in prepaid expenses and other current assets                       |  | (2,914   | ) |  | (8,615   | ) |  | 15,509  |  
|(Decrease) Increase in accounts payable                                                |  | (30,000  | ) |  | 29,903   |   |  | (576    | )
|Decrease in accrued expenses and other current liabilities                             |  | (23,397  | ) |  | (7,125   | ) |  | (29,635 | )
|Increase in other assets                                                               |  | (3,134   | ) |  | (1,813   | ) |  | (4,683  | )
|Increase in pension liabilities                                                        |  | 6,085    |   |  | 5,571    |   |  | 9,449   |  
|Increase (Decrease) in other liabilities                                               |  | 100      |   |  | 2,550    |   |  | (5,508  | )
|                                                                                       |  |          |   |  |          |   |  |         |  
|Net cash provided by operating activities                                              |  | 88,093   |   |  | 155,467  |   |  | 135,752 |  
|                                                                                       |  |          |   |  |          |   |  |         |  
|Cash flows from investing activities                                                   |  |          |   |  |          |   |  |         |  
|Proceeds from sale of equipment                                                        |  | 1,419    |   |  | 4,132    |   |  | 17,956  |  
|Acquisitions of businesses, net of cash acquired                                       |  |         |   |  |         |   |  | (9,703  | )
|Capital expenditures                                                                   |  | (152,589 | ) |  | (111,426 | ) |  | (98,391 | )
|Investments in unconsolidated affiliates and at equity companies                       |  | (2,249   | ) |  | (616     | ) |  | (877    | )
|                                                                                       |  |          |   |  |          |   |  |         |  
|Net cash used in investing activities                                                  |  | (153,419 | ) |  | (107,910 | ) |  | (91,015 | )
|                                                                                       |  |          |   |  |          |   |  |         |  
|Cash flows from financing activities                                                   |  |          |   |  |          |   |  |         |  
|Net (decrease) increase in short-term borrowings                                       |  | (1,582   | ) |  | 9,344    |   |  | (26,267 | )
|Extinguishment of long-term debt                                                       |  | (893     | ) |  | (127     | ) |  | (9,548  | )
|Proceeds from issuance of long-term debt                                               |  | 46,118   |   |  | 3,074    |   |  | 176,254 |  
|Principal payments on long-term debt                                                   |  | (25,348  | ) |  | (15,041  | ) |  | (17,332 | )
|Principal payments under capital lease obligations                                     |  | (47      | ) |  | (637     | ) |  | (581    | )
|Sale of treasury stock                                                                 |  |         |   |  | 486      |   |  |        |  
|                                                                                       |  |          |   |  |          |   |  |         |  
|Net cash provided by (used in) financing activities                                    |  | 18,248   |   |  | (2,901   | ) |  | 122,526 |  
|                                                                                       |  |          |   |  |          |   |  |         |  
|Effect of exchange rate changes on cash and cash equivalents                           |  | 2,130    |   |  | (2,067   | ) |  | (3,173  | )
|Net (decrease) increase in cash and cash equivalents                                   |  | (44,948  | ) |  | 42,589   |   |  | 164,090 |  
|Cash and cash equivalents at beginning of year                                         |  | 238,386  |   |  | 195,797  |   |  | 31,707  |  
|                                                                                       |  |          |   |  |          |   |  |         |  
|Cash and cash equivalents at end of year                                               |  | 193,438  |   |  | 238,386  |   |  | 195,797 |  
|                                                                                       |  |          |   |  |          |   |  |         |  

See Notes to Consolidated Financial Statements



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##### Table of Contents

EPCOS AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Description of the Company and basis of presentation

EPCOS AG
(the Company) is a leading producer and supplier of passive electronic components, with headquarters in Munich/Germany. The Company has research and design centers and manufacturing facilities in Europe, Asia and the Americas, and a
worldwide sales network. Passive electronic components are used in all types of electronic circuitry. The Company designs its product offerings to meet the needs of its principal customer groups, such as the telecommunication, automotive, consumer
and industrial electronics industries and the information technology industry. Customers consist of equipment manufacturers and other companies that make modules or subsystems for equipment manufacturers, and distributors.

The core of the Company was Siemens Matsushita Components, a former fifty-fifty joint venture (the Joint Venture) formed in 1989 by Siemens AG
(Siemens) with Matsushita Electric Industrial Co., Ltd. and Matsushita Electronic Components Co., Ltd. (Matsushita). Siemens Matsushita Components consisted of a limited partnership named Siemens Matsushita Components
GmbH & Co. KG (the Limited Partnership) and Siemens Matsushita Components Verwaltungsgesellschaft mbH (S+M GmbH), the general partner of this limited partnership, as well as all of their subsidiaries. After
reorganizing the Company and in preparation for an initial public offering, S+M GmbH converted to a German stock corporation (Aktiengesellschaft, AG) and changed its Company name to EPCOS AG on September 2, 1999.

After the IPO in October 1999, and after the public sale of shares of EPCOS AG, Siemens and Matsushita group each hold 12.5% plus one share of the Companys
outstanding share capital.

The contribution of the Limited Partnership and the transfer by Siemens of certain subsidiaries and assets to S+M GmbH were
made under the terms and conditions of a contribution agreement between Siemens and Matsushita effective July 1, 1999. The contribution of the Limited Partnership represented a transfer between entities under common control and did not result
in any change in ownership as all shares were exchanged between shareholders in direct proportion to their existing ownership. The transfer of certain subsidiaries and assets by Siemens represented the transfer of assets to a joint venture by a
joint venture partner. Accordingly, all such transactions have been accounted for at historical book value.



F-7



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##### Table of Contents

EPCOS AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

2. Summary of significant accounting policies

(a) Principles of consolidation

All significant
companies over which the Company has legal and effective control are consolidated in accordance with U.S. GAAP. In addition, variable interest entities (VIEs) are consolidated where the Company can be regarded as the primary beneficiary.

All significant intercompany balances and transactions as well as all significant intra group profits or losses arising on such transactions have been eliminated in
the consolidated financial statements.

(b) Investments in unconsolidated affiliates

Businesses over which the Company does not have control, but has the ability to exercise significant influence over operating and financial policies, are recorded in the consolidated financial statements using the
equity method of accounting.

(c) Consolidated Group

The consolidated financial statements include all material German and foreign subsidiaries which EPCOS AG directly or indirectly controls. As of September 30, 2005, 2004 and 2003, the following number of companies was consolidated
alongside EPCOS AG:



|             |  |      |  |      |  |     
|------------ |  | ---- |  | ---- |  | ----
|             |  | 2005 |  | 2004 |  | 2003
|Consolidated |  |      |  |      |  |     
|Germany      |  | 2    |  | 2    |  | 2   
|Foreign      |  | 27   |  | 27   |  | 27  
|             |  |      |  |      |  |     
|             |  | 29   |  | 29   |  | 29  
|At Equity    |  | 1    |  |     |  | 1   
|             |  |      |  |      |  |     
|             |  | 30   |  | 29   |  | 30  
|             |  |      |  |      |  |     

The consolidated financial data for these companies is derived from their individual financial statements as of
September 30 of each respective year.

(d) Cash equivalents

For the purpose of the consolidated statements of cash flows, the Company considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents. These include both bank
balances as well as short-term deposits with a maturity of three months or less as at the date of deposit.



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##### Table of Contents

EPCOS AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

(e) Inventories

Inventories are stated at the cost of acquisition or production or at the market price, in consideration of the lower-of-cost-or-market-principle. The cost of
production is principally determined by the weighted average method and comprises direct material and labor costs plus applicable manufacturing overheads, including depreciation charges.

(f) Property, plant and equipment

Property, plant and equipment are stated at cost, less accumulated depreciation.
Cost includes major expenditures for improvements and replacements that extend useful lives or increase capacity and also includes interest costs associated with construction in progress. Maintenance and repairs are charged directly to expense as
incurred. Renewal or improvement costs are capitalized, insofar as they enhance the value of the related asset. On disposal, historical acquisition or production costs and accumulated depreciation are written off, and the difference between this net
book value and the disposal proceeds is recorded in the statement of operations as a gain or loss.

Depreciation for all foreign subsidiaries is computed
on the straight-line method. For the German group companies, depreciation for assets acquired in fiscal 2000 or earlier is computed on either the straight-line method or the declining balance method if the declining balance method resulted in higher
depreciation over the estimated useful lives of the assets. Additions after October 1, 2000, are depreciated using the straight-line method only, consistent with the foreign subsidiaries. Differences arising from this change are not
significant.

In general, the estimated useful lives of depreciable assets are assigned as follows:



|                                              |  |              
|--------------------------------------------- |  | -------------
|Buildings and improvements to rented property |  | 5 to 50 years
|Machinery and other equipment                 |  | 5 to 10 years
|Other assets, office fixtures and fittings    |  | 3 to 5 years 

(g) Equipment under capital leases

The Company leases some of its office equipment under capital lease agreements. The assets and liabilities under capital leases are recorded at the present value of aggregate future minimum lease payments or at the
fair value of the assets leased, whichever is lower. Assets under capital leases are amortized over the lease term or useful life of the asset, whichever is shorter.

(h) Intangible assets

Intangible assets other than goodwill are carried at acquisition cost net of accumulated
amortization, calculated under the straight-line method over the respective useful life of the asset.

Intangible assets other than goodwill, which is the
excess of purchase price over fair value of net assets of companies acquired, consist of customer lists, patents and licenses. Patents are amortized over the term of the patent. Customer lists are amortized over 10 years. Licenses are amortized over
the term of the licensing agreement.



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##### Table of Contents

EPCOS AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

As from October 1, 2001, the Company adopted
Statement of Financial Accounting Standard (SFAS) No. 142 Goodwill and Intangible Assets, whereby goodwill is no longer subjected to regular amortization. The goodwill allocated to business units is reviewed at least annually
or when circumstances indicate potential impairment and, if necessary, is written down to fair value.

(i) Impairment of long-lived assets

The Company reviews long-lived assets, including amortizable intangible assets, for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset, or group of assets, with future undiscounted cash flows expected to be
generated by the asset, or group of assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Estimated fair value
is generally either based on appraised value or measured by discounted estimated future net cash flows. Management judgment is necessary to estimate discounted future net cash flows. Accordingly, actual results could vary from such estimates.

(j) Revenue recognition

Revenues resulting from sales
of products are recognized under SEC Staff Accounting Bulletin (SAB) No. 104 Revenue Recognitionwhen corresponding agreements exist, the purchase price is fixed or clearly defined, products are shipped and the payment of the
customer is reasonable predictable. Revenue from sales is recognized net of discounts, customer bonuses and rebates granted.

(k) Other product-related
costs

Research and development costs and marketing and selling expenses are expensed as incurred. Provisions for estimated warranty costs are recorded
at the time the related sales are recognized and periodically adjusted to reflect actual experience.

(l) Income taxes

Income taxes are calculated using the asset and liability method in accordance with the provisions of SFAS No. 109 Accounting for Income Taxes. All
liabilities or claims relating to taxes on earnings, capital and property arising during the fiscal year are reflected in the consolidated financial statements pursuant to the relevant tax laws applicable to the individual companies. Deferred tax
assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax
credit carryforwards. Deferred tax assets and liabilities are computed using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.



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##### Table of Contents

EPCOS AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

(m) Financial instruments and risk management

Derivative financial instruments are utilized by the Company in principle to reduce foreign exchange and interest rate risks and fluctuations of market
prices of precious metals. The Company does not hold or issue derivative financial instruments for trading or speculative purposes. The Company enters into forward foreign exchange contracts, interest rate contracts and commodity contracts to reduce
its exposure to certain risks inherent within its business.

All derivative financial instruments, including those which are embedded in other contracts,
are recorded in the balance sheet at fair value. The market value of the derivative financial instruments is recorded as other current assets or other current liabilities.

The Company accounts for some of its financial instruments as cash flow hedges.

The notional amounts of these transactions
are not included within the consolidated financial statements. The gains or losses resulting from these instruments are either shown as foreign exchange gain or loss (for forward foreign exchange contracts) or cost of goods sold (for forward
commodity contracts) in the consolidated statement of operations or are recorded in accumulated other comprehensive income/loss if the financial instruments are designated as hedges of forecasted transactions. These instruments fulfil all
requirements of hedge accounting including effectiveness under SFAS No. 133. The gains or losses reported in accumulated other comprehensive income/loss are shown in the consolidated statement of operations when the hedged transactions are
recognized. The ineffective portion of the hedged transactions is always included in the consolidated statement of operations.

Reductions or extra charges
of financial instruments or prices of options are included in the net income/loss over the life of the forward contract.

For hedging of currency and interest rate risks, the Company entered into interest rate and cross-currency swaps.

The market value of the financial instruments including derivatives is disclosed in Note 19.

(n) Securities

The Company classifies its existing marketable securities as available for sale in accordance with SFAS No. 115 Accounting for Certain Investments in Debt and
Equity Securities. These securities are carried at fair market value with unrealized gains or losses reported in shareholders equity as a component of other comprehensive income (loss), unless impaired. Gains or losses on securities sold
or impaired are booked in the statement of operations.

(o) Foreign currencies

Transactions in foreign currencies

Purchases and sales in foreign currencies are converted using the daily rate of
exchange at the time of the transaction. Monetary assets and liabilities denominated in non functional currencies are converted into the functional currency at the rate applying at the balance sheet date. The resulting foreign currency gains and
losses are included in the statement of operations.



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##### Table of Contents

EPCOS AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

Translation of financial statements into euros

The Groups reporting currency is the euro (). The balance sheet items of subsidiary companies whose functional currency is not the euro are
translated at the exchange rate applying on the balance sheet date. Statement of operations items are converted at the weighted average exchange rate for the respective year. The resulting translation differences are reported as separate components
of equity under other comprehensive income or loss.

(p) Use of estimates

The Companys management has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these consolidated
financial statements in conformity with U.S. GAAP. Actual results could differ from those estimates.

(q) Earnings per share

Basic earnings per share are computed by dividing net income (loss) by the weighted average number of ordinary shares outstanding for the year. In calculating the diluted
earnings per share, the weighted average number of outstanding shares is increased by the number of additional shares that would potentially dilute ordinary shares had they been issued. For computations of basic and diluted earnings per share, see
Note 16.

(r) Stock-based compensation

On
September 30, 2005 the Company has two stock based compensation plans for employees and members of the Management Board. For further details of stock-based compensation, see Note 12. Stock-based compensation is accounted for in accordance with
Accounting Principles Board Opinion (APB) No. 25 Accounting for Stock Issued to Employees, and its related interpretations at present. Accordingly, compensation expense for stock option plans for employees is measured as the
excess of the quoted market price of the Companys ordinary shares at the measurement date over the amount the employee must pay. The compensation expense in the statements of operations is nil for the years 2003 to 2005 because the exercise
price on the measurement date was identical with the market value of the corresponding shares.

For pro forma purposes, the estimated fair value of the
Companys stock-based awards to employees is amortized over the options vesting period of two years. Had the Company measured compensation cost for the stock options granted under the fair value based method prescribed by SFAS
No. 123, net income (loss) and earnings (loss) per share would have been changed to the pro forma amounts set forth below:



F-12



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##### Table of Contents

EPCOS AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



| |  | Net income (loss) and earnings (loss) per share
|- |  | -----------------------------------------------



|                                                                                         |  |          |   |  |        |   |  |        |  
|---------------------------------------------------------------------------------------- |  | -------- | - |  | ------ | - |  | ------ | -
|Year ended September 30 ( thousand)                                                     |  | 2005     |   |  | 2004   |   |  | 2003   |  
|Net income (loss)                                                                        |  |          |   |  |        |   |  |        |  
|As reported                                                                              |  | (119,262 | ) |  | 49,228 |   |  | 6,744  |  
|                                                                                         |  |          |   |  |        |   |  |        |  
|Less: total compensation expense for stock options (calculated by the fair value method) |  | (2,320   | ) |  | (4,983 | ) |  | (9,617 | )
|                                                                                         |  |          |   |  |        |   |  |        |  
|Pro forma                                                                                |  | (121,582 | ) |  | 44,245 |   |  | (2,873 | )
|                                                                                         |  |          |   |  |        |   |  |        |  
|Basic and diluted earnings (loss) per share (in )                                       |  |          |   |  |        |   |  |        |  
|Basic                                                                                    |  |          |   |  |        |   |  |        |  
|As reported                                                                              |  | (1.83    | ) |  | 0.75   |   |  | 0.10   |  
|Pro forma                                                                                |  | (1.86    | ) |  | 0.68   |   |  | (0.04  | )
|                                                                                         |  |          |   |  |        |   |  |        |  
|Diluted                                                                                  |  |          |   |  |        |   |  |        |  
|As reported                                                                              |  | (1.83    | ) |  | 0.71   |   |  | 0.10   |  
|Pro forma                                                                                |  | (1.86    | ) |  | 0.65   |   |  | (0.04  | )
|                                                                                         |  |          |   |  |        |   |  |        |  

For those options resulting from the Stock Option Plan 2004, the corresponding compensation expense is also
accounted as difference between market value and exercise price under SFAS No. 123. A reliable fair value can not be generated because the Supervisory Board and the Management Board are authorized to introduce a cap in the case of unforeseen
developments. For further details to stock option plans, see Note 12.

3. Recent accounting pronouncements

In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123 (revised 2004), Share-Based Payment (SFAS No. 123R), which replaces
SFAS No. 123, Accounting for Stock-Based Compensation, and supersedes Accounting Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to Employees, and related Interpretations. SFAS No. 123R requires
companies to recognize the cost resulting from all share-based payment transactions in the financial statements. With certain limited exceptions, the new standard establishes a grant-date fair-value-based measurement method in accounting for
share-based payment transactions. Liability-classified awards are to be remeasured to fair value at each reporting date until the award is settled. Equity-classified awards are measured at grant-date fair value whereas related compensation cost is
recognized based on the estimated number of instruments for which the requisite service is expected to be rendered. SFAS No. 123R is effective as of the beginning of the first fiscal year that begins after June 15, 2005. For its
equity-classified awards, the Company intends to apply the modified prospective transition method. Under this method, unvested equity-classified awards granted prior to the effective date of the new statement are accounted for under SFAS
No. 123R and related costs are recognized in the statement of operations.

In May 2005, the FASB issued SFAS No. 154, Accounting 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



F-13



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##### Table of Contents

EPCOS AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

method. The Statement generally requires
retrospective application to prior periods financial statements for changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. In addition, this Statement
requires that 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 depletion method for long-lived, nonfinancial assets be
accounted for on a prospective basis. The adoption of SFAS No. 154 is not expected to have material impact on the Companys consolidated financial statements.

In June 2005, the FASB ratified EITF Issue 05-5, Accounting for Early Retirement or Postemployment Programs with Specific Features (such as Terms specified in Altersteilzeit Early Retirement Arrangements).
Altersteilzeit (ATZ) in Germany is an incentive and benefit program for early retirement. Companies are required to recognize the salary under the ATZ program ratably over the employees active service period. Accruals for Company-granted
bonuses are recorded ratably from the date the individual employee enrolls in the ATZ arrangement to the end of the active service period. Related government subsidies are accounted for separately from the ATZ benefits at the time the criteria to
receive them are met. EITF 05-5 is effective for fiscal years beginning after December 15, 2005. The adoption of EITF 05-5 is not expected to have material impact on the Companys consolidated financial statements.

4. Cash and cash equivalents

Under cash and cash equivalents,
1.053 million is listed as restricted funds. These assets serve as security for partial retirement funds.

5. Accounts receivable, net

Accounts receivable are presented net of an allowance for doubtful accounts. The following table presents changes to the allowance for doubtful
accounts for the years ended September 30, 2005, 2004 and 2003:



| |  | Allowance for doubtful accounts
|- |  | -------------------------------



|                                                   |  |       |   |  |        |   |  |        |  
|-------------------------------------------------- |  | ----- | - |  | ------ | - |  | ------ | -
|( thousand)                                       |  | 2005  |   |  | 2004   |   |  | 2003   |  
|Allowance for doubtful accounts, beginning of year |  | 3,006 |   |  | 4,354  |   |  | 6,667  |  
|Additions (reductions) charged to bad debt expense |  | 1,387 |   |  | (165   | ) |  | (872   | )
|Write-offs charged against the allowance           |  | (429  | ) |  | (1,088 | ) |  | (1,172 | )
|Recoveries of amounts previously written-off       |  | 1     |   |  | 9      |   |  | 20     |  
|Foreign exchange translation adjustment            |  | 217   |   |  | (104   | ) |  | (289   | )
|                                                   |  |       |   |  |        |   |  |        |  
|Allowance for doubtful accounts, end of year       |  | 4,182 |   |  | 3,006  |   |  | 4,354  |  



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##### Table of Contents

EPCOS AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

The amount of factored accounts receivables for the
years ended September 30, 2005, 2004 and 2003, respectively was 101.787 million, 126.936 million and 139.788 million, respectively. Total interest expense on these transactions amounted to 0.191million,
0.247 million and 0.336 million for the years ended September 30, 2005, 2004 and 2003, respectively.

6. Inventories, net



| |  | Net inventories
|- |  | ---------------



|                                |  |         |  |        
|------------------------------- |  | ------- |  | -------
|As of September 30 ( thousand) |  | 2005    |  | 2004   
|Raw materials and supplies      |  | 59,356  |  | 62,496 
|Work in process                 |  | 58,028  |  | 72,224 
|Finished products               |  | 109,418 |  | 106,276
|                                |  |         |  |        
|Total inventories, net          |  | 226,802 |  | 240,996
|                                |  |         |  |        

Amounts appearing in the preceding table are presented net of valuation allowances of 32.823 million
and 28.038 million as of September 30, 2005 and 2004 respectively.

7. Fixed assets, net

Fixed asset schedule

Information with respect to changes to the
Companys intangible assets, property, plant and equipment and long-term financial assets is presented in the following fixed asset schedule:



| |  | Acquisition and manufacturing costs
|- |  | -----------------------------------



|                                                   |  |           |  |           |  |                  |   |  |           |   |  |                       |  |          
|-------------------------------------------------- |  | --------- |  | --------- |  | ---------------- | - |  | --------- | - |  | --------------------- |  | ---------
|As of September 30 ( thousand)                    |  | 2004      |  | Additions |  | Reclassification |   |  | Disposals |   |  | Translationadjustment |  | 2005     
|Goodwill                                           |  | 23,191    |  |          |  |                 |   |  |          |   |  | 57                    |  | 23,248   
|Other intangible assets                            |  | 43,756    |  | 3,325     |  |                 |   |  |          |   |  | 64                    |  | 47,145   
|                                                   |  |           |  |           |  |                  |   |  |           |   |  |                       |  |          
|Intangible assets                                  |  | 66,947    |  | 3,325     |  |                 |   |  |          |   |  | 121                   |  | 70,393   
|                                                   |  |           |  |           |  |                  |   |  |           |   |  |                       |  |          
|Land                                               |  | 9,516     |  |          |  |                 |   |  | (188      | ) |  | 147                   |  | 9,475    
|Buildings                                          |  | 147,206   |  | 3,074     |  | (4,097           | ) |  | (365      | ) |  | 3,615                 |  | 149,433  
|Technical equipment, machinery and other equipment |  | 1,350,539 |  | 101,864   |  | 63,878           |   |  | (37,044   | ) |  | 25,251                |  | 1,504,488
|Construction in progress                           |  | 53,346    |  | 44,326    |  | (59,781          | ) |  |          |   |  | 2,262                 |  | 40,153   
|                                                   |  |           |  |           |  |                  |   |  |           |   |  |                       |  |          
|Property, plant and equipment                      |  | 1,560,607 |  | 149,264   |  |                 |   |  | (37,597   | ) |  | 31,275                |  | 1,703,549
|                                                   |  |           |  |           |  |                  |   |  |           |   |  |                       |  |          
|Investments                                        |  | 1,423     |  | 2,269     |  | 551              |   |  | (423      | ) |  | 196                   |  | 4,016    
|Investment securities                              |  | 15,095    |  | 14,814    |  |                 |   |  | (12,082   | ) |  |                      |  | 17,827   
|Other financial assets                             |  | 1,518     |  | 161       |  | (551             | ) |  | (106      | ) |  | 26                    |  | 1,048    
|                                                   |  |           |  |           |  |                  |   |  |           |   |  |                       |  |          
|Long-term financial assets                         |  | 18,036    |  | 17,244    |  |                 |   |  | (12,611   | ) |  | 222                   |  | 22,891   
|                                                   |  |           |  |           |  |                  |   |  |           |   |  |                       |  |          



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##### Table of Contents

EPCOS AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



| |  | Accumulated depreciation and amortization
|- |  | -----------------------------------------



|                                                   |  |         |  |           |  |                  |   |  |           |   |  |                       |  |          
|-------------------------------------------------- |  | ------- |  | --------- |  | ---------------- | - |  | --------- | - |  | --------------------- |  | ---------
|As of September 30 ( thousand)                    |  | 2004    |  | Additions |  | Reclassification |   |  | Disposals |   |  | Translationadjustment |  | 2005     
|Goodwill                                           |  | 3,103   |  | 11,800    |  |                 |   |  |          |   |  | 7                     |  | 14,910   
|Other intangible assets                            |  | 29,649  |  | 6,633     |  |                 |   |  |          |   |  | 60                    |  | 36,342   
|                                                   |  |         |  |           |  |                  |   |  |           |   |  |                       |  |          
|Intangible assets                                  |  | 32,752  |  | 18,433    |  |                 |   |  |          |   |  | 67                    |  | 51,252   
|                                                   |  |         |  |           |  |                  |   |  |           |   |  |                       |  |          
|Land                                               |  | 246     |  | 40        |  |                 |   |  |          |   |  | 14                    |  | 300      
|Buildings                                          |  | 71,978  |  | 4,667     |  | (3,473           | ) |  | (320      | ) |  | 1,254                 |  | 74,106   
|Technical equipment, machinery and other equipment |  | 883,977 |  | 184,946   |  | 3,473            |   |  | (35,988   | ) |  | 16,451                |  | 1,052,859
|Construction in progress                           |  |        |  |          |  |                 |   |  |          |   |  |                      |  |         
|                                                   |  |         |  |           |  |                  |   |  |           |   |  |                       |  |          
|Property, plant and equipment                      |  | 956,201 |  | 189,653   |  |                 |   |  | (36,308   | ) |  | 17,719                |  | 1,127,265
|                                                   |  |         |  |           |  |                  |   |  |           |   |  |                       |  |          
|Investments                                        |  |        |  |          |  |                 |   |  |          |   |  |                      |  |         
|Investment securities                              |  | 245     |  |          |  |                 |   |  |          |   |  |                      |  | 245      
|Other financial assets                             |  |        |  |          |  |                 |   |  |          |   |  |                      |  |         
|                                                   |  |         |  |           |  |                  |   |  |           |   |  |                       |  |          
|Long-term financial assets                         |  | 245     |  |          |  |                 |   |  |           |   |  |                      |  | 245      
|                                                   |  |         |  |           |  |                  |   |  |           |   |  |                       |  |          



| |  | Net book value
|- |  | --------------



|                                                   |  |         |  |        
|-------------------------------------------------- |  | ------- |  | -------
|As of September 30 ( thousand)                    |  | 2005    |  | 2004   
|Goodwill                                           |  | 8,338   |  | 20,088 
|Other intangible assets                            |  | 10,803  |  | 14,107 
|                                                   |  |         |  |        
|Intangible assets                                  |  | 19,141  |  | 34,195 
|                                                   |  |         |  |        
|Land                                               |  | 9,175   |  | 9,270  
|Buildings                                          |  | 75,327  |  | 75,228 
|Technical equipment, machinery and other equipment |  | 451,629 |  | 466,562
|Construction in progress                           |  | 40,153  |  | 53,346 
|                                                   |  |         |  |        
|Property, plant and equipment                      |  | 576,284 |  | 604,406
|                                                   |  |         |  |        
|Investments                                        |  | 4,016   |  | 1,423  
|Investment securities                              |  | 17,582  |  | 14,850 
|Other financial assets                             |  | 1,048   |  | 1,518  
|                                                   |  |         |  |        
|Long-term financial assets                         |  | 22,646  |  | 17,791 
|                                                   |  |         |  |        

Long-term financial assets shown above are included in the consolidated balance sheets under other long-term
assets.



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##### Table of Contents

EPCOS AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

The investment securities mainly consist of shares in
funds. These securities are defined as available for sale securities under SFAS No. 115. The shares in funds do not have a specified time to maturity.

The unrealized gains are as follows for the years ended September 30, 2005 and 2004:



| |  | Unrealized gains/losses resulting from securities
|- |  | -------------------------------------------------



|                                |       |       |        |      |       |     |        |  
|------------------------------- | ----- | ----- | ------ | ---- | ----- | --- | ------ | -
|As of September 30 ( thousand) |       | 2005  |        | 2004
|                                | Gains |       | Losses |      | Gains |     | Losses
|Available for sale securities   |       | 1,395 |        |     |       | 544 |        | 

The realized gains resulting from securities were 0.739 million, 0.342 million and
0.252 million for the years ended September 30, 2005, 2004 and 2003, respectively.

Proceeds from disposal of securities amounted
12.821 million, 11.883 million and 11.288 million for fiscal 2005, 2004 and 2003, respectively.

Depreciation expense on
property, plant and equipment was 189.653 million, 148.299 million and 150.074 million for the years ended September 30, 2005, 2004 and 2003, respectively. For the years ended September 30, 2004 and 2003,
depreciation includes an impairment charge for the Surface Acoustic Wave (SAW) business segment in the amount of 2.680 million and 1.693 million, respectively. In fiscal 2005 there was no requirement for impairment in this
business segment. In the business segment Inductors and Ferrites there was an impairment of fixed assets in the amount of 0.100 million for fiscal year 2005 and 0.927 million for the previous year. In the business segment
Capacitors impairment arose in amount of 46.540 million, triggered mainly by the planned disposal of the tantalum business. The result of the valuation showed a market value of the corresponding assets that was smaller than the net book
value of these assets. The impairment concerns property, plant and equipment at the locations in Évora/Portugal, and Heidenheim/Germany. The corresponding expenses are reported in cost of goods sold.

Interest expense capitalized on construction projects amounted to 1.629 million in fiscal 2005, 1.444 million in fiscal 2004 and
1.629 million in fiscal 2003, respectively.

Goodwill

On October 1, 2001, the Company adopted SFAS No. 142. This standard requires that amortization of goodwill cease and that the carrying amount of goodwill be evaluated for recoverability, at least annually,
or when circumstances indicate possible impairment. Accordingly, the Company has not recorded any goodwill amortization since fiscal 2002. Furthermore, the Company has performed its annual impairment test of goodwill and has concluded that there was
no impairment in fiscal 2004 and 2003.

EPCOS performed an impairment test on the goodwill associated with the ferrites reporting unit during the second
quarter of fiscal 2005 due to a significant adverse change of expected ferrite core sales volume, combined with higher than originally estimated expenses associated with the closing-down of the ferrite manufacturing facility in Bordeaux/France.
During the



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##### Table of Contents

EPCOS AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

first two quarters of fiscal 2005 and since the last
annual impairment test for fiscal 2004, the Company experienced a much longer than expected decrease in demand for its ferrite cores. This development, coupled with the higher costs associated with closing down of the manufacturing facility,
resulted in a revision to the earnings and cash flow forecasts for the ferrites reporting unit. Based on these circumstances, a goodwill impairment of 11.800 million was recognized in the ferrites reporting unit. The fair value of that
reporting unit was estimated using the expected present value of future cash flows.

The carrying amount of goodwill as of
September 30, 2005 and 2004, is as follows:



| |  | Segmental analysis of goodwill
|- |  | ------------------------------



|                                |  |       |  |       
|------------------------------- |  | ----- |  | ------
|As of September 30 ( thousand) |  | 2005  |  | 2004  
|Capacitors                      |  | 1,871 |  | 1,865 
|Ceramic Components              |  | 4,104 |  | 4,097 
|SAW Components                  |  | 299   |  | 291   
|Inductors and Ferrites          |  | 2,064 |  | 13,835
|                                |  |       |  |       
|Total                           |  | 8,338 |  | 20,088
|                                |  |       |  |       

Other intangible assets

Included in the other intangible assets as of September 30, 2005 and 2004, are the following categories of acquired other intangible assets:



| |  | Other intangible assets (finite lives)
|- |  | --------------------------------------



|                                       |       |        |     |        |       |        |     |       
|-------------------------------------- | ----- | ------ | --- | ------ | ----- | ------ | --- | ------
|As of September 30 ( thousand)        |       | 2005   |     | 2004  
|                                       | Gross |        | Net |        | Gross |        | Net
|Patents, licenses and similar rights   |       | 42,888 |     | 8,670  |       | 39,596 |     | 11,550
|Customer lists                         |       | 3,200  |     | 1,707  |       | 3,200  |     | 2,026 
|Other                                  |       | 1,057  |     | 426    |       | 960    |     | 531   
|                                       |       |        |     |        |       |        |     |       
|Other intangible assets (finite lives) |       | 47,145 |     | 10,803 |       | 43,756 |     | 14,107
|                                       |       |        |     |        |       |        |     |       

Amortization related to other intangible assets amounted to 6.633 million, 7.000 million and
6.951 million for fiscal 2005, 2004 and 2003, respectively. In accordance with SFAS No. 142, the Company reassessed the useful lives of all other intangible assets in fiscal 2005. There were no changes to such lives and there are no
expected residual values associated with these intangible assets.



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##### Table of Contents

EPCOS AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

The development of
the estimated fiscal year amortization expense is as follows:



| |  | Estimated amortization expense
|- |  | ------------------------------



|                          |  |      
|------------------------- |  | -----
|Fiscal years ( thousand) |  |      
|2006                      |  | 3,474
|2007                      |  | 2,927
|2008                      |  | 1,685
|2009                      |  | 1,356
|2010                      |  | 1,132

8. Accrued expenses and other current liabilities

Accrued expenses and other current liabilities as of September 30, 2005 and 2004, are as follows:



| |  | Accrued expenses and other current liabilities
|- |  | ----------------------------------------------



|                                                     |  |         |  |        
|---------------------------------------------------- |  | ------- |  | -------
|As of September 30 ( thousand)                      |  | 2005    |  | 2004   
|Accrued employee-related costs                       |  | 57,773  |  | 66,730 
|Salaries and payroll taxes payable                   |  | 20,784  |  | 22,135 
|Taxes payable                                        |  | 9,608   |  | 21,304 
|Purchase without invoice                             |  | 7,678   |  | 909    
|Accruals for warranties                              |  | 5,146   |  | 7,946  
|Loss on contracts                                    |  | 5,059   |  | 3,558  
|Derivatives                                          |  | 1,333   |  | 2,457  
|Freight and transport                                |  | 899     |  | 2,969  
|Royalty accruals                                     |  | 500     |  | 3,654  
|Other                                                |  | 10,285  |  | 9,172  
|                                                     |  |         |  |        
|Total accrued expenses and other current liabilities |  | 119,065 |  | 140,834
|                                                     |  |         |  |        

The accruals for product warranties developed as follows:



| |  | Accruals for product warranties
|- |  | -------------------------------



|                                                  |  |        |   |  |        |  
|------------------------------------------------- |  | ------ | - |  | ------ | -
|( thousand)                                      |  | 2005   |   |  | 2004   |  
|Product warranties, beginning of year             |  | 7,946  |   |  | 4,267  |  
|Product warranties issued during reporting period |  | 2,913  |   |  | 5,463  |  
|Utilization of accruals                           |  | (2,429 | ) |  | (2,529 | )
|Change in estimates                               |  | (3,387 | ) |  | 754    |  
|Foreign exchange translation adjustment           |  | 103    |   |  | (9     | )
|                                                  |  |        |   |  |        |  
|Accrual as of end of period                       |  | 5,146  |   |  | 7,946  |  



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##### Table of Contents

EPCOS AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

9. Short-term borrowings and long-term debt

Financing

As of September 30, 2005 the
Company can call on a 250.000 million credit facility granted until November 2009 by a bank syndicate under the leadership of Bayerische Hypo- und Vereinsbank, The Royal Bank of Scotland and HSBC. The credit facility carries an interest rate
of EURIBOR or LIBOR plus 0.30%. For the unused part of the borrowing arrangement a commitment fee is paid to the syndicate of 0.105% per year. Under the credit facility, the Company is required to meet or exceed financial key data. Further
members of the bank syndicate are ABN Amro Bank, Barclays Bank, BNP Paribas, Citibank, Commerzbank, Deutsche Bank, Dresdner Bank, DZ Bank, and SEB. The credit facility was unused as of September 30, 2005. In addition, the Company has entered
into a number of bilateral borrowing arrangements by international and national banks totalling 194.450 million. These borrowing arrangements were used in the amount of 51.460 million as of September 30, 2005. In addition, the
Company has loans from state aid to exports and investing activities that are not included in the borrowing arrangements already mentioned.

Short-term
borrowings

Short-term borrowings as of September 30, 2005 and 2004, were 107.467 million and 103.001 million, respectively. These
short-term borrowings as of September 30, 2005 consisted of unsecured bank loans and export financing in amount of 52.000 million. The export financing bears an interest rate of 1.85%. Other short-term borrowings consist of various
working capital bank loans with a weighted average interest rate of 8.18% in fiscal 2005 and 5.28% in fiscal 2004.

Long-term debt

Long-term debt consists of the following:



| |  | Long-term debt
|- |  | --------------



|                                              |  |         |   |  |         |  
|--------------------------------------------- |  | ------- | - |  | ------- | -
|As of September 30 ( thousand)               |  | 2005    |   |  | 2004    |  
|Debentures                                    |  | 124,620 |   |  | 124,240 |  
|Long-term debt with third parties             |  | 106,451 |   |  | 93,283  |  
|Total long-term debt                          |  | 231,071 |   |  | 217,523 |  
|Less current installments                     |  | (24,944 | ) |  | (24,778 | )
|Long-term debt excluding current installments |  | 206,127 |   |  | 192,745 |  



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##### Table of Contents

EPCOS AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

Details of currencies, interest rates, maturities and
lenders of the long-term debt are given in the following table:



| |  | Long-term Debt including current installments (loans and debentures)
|- |  | --------------------------------------------------------------------

As of September 30, 2005 (Currencies in millions)



|            |  |                 |  |                 |  |                          |  |                                                       
|----------- |  | --------------- |  | --------------- |  | ------------------------ |  | ------------------------------------------------------
|Principal   |  | Euro equivalent |  | Interestrate    |  | Maturity (calendar year) |  | Lender                                                
|EUR 124.6   |  | 124.6           |  | 2.50%           |  | 2010                     |  | Convertible Bond                                      
|EUR 32.0    |  | 32.0            |  | 4.2375%         |  | 2006-2009                |  | KfW                                                   
|EUR 54.2    |  | 54.2            |  | 0.669% - 4.00%  |  | 2005-2011                |  | Austrian banking syndicate and government institutions
|EUR 2.7     |  | 2.7             |  | 0%              |  | 2005-2010                |  | Agência Portuguesa para o Investimento                
|INR 0.4     |  | 0.0             |  | 0%              |  | 2006-2007                |  | ICICI Bank                                            
|BRL 20.0    |  | 7.5             |  | 14.75% - 18.75% |  | 2005-2009                |  | Banco Nacional de Desenvolvimento Econômico e Social  
|HUF 2,500.0 |  | 10.0            |  | 6.61%           |  | 2008                     |  | HVB Bank                                              

In addition there were obligations under capital leases of 0.014 million and 0.067 million as of
September 30, 2005 and 2004, respectively.

On July 16, 2003 the Company (as guarantor) through its subsidiary EPCOS Finance B.V. (as issuer),
issued a convertible bond due 2010 with a nominal amount of 126.425 million at an interest rate of 2.5%. At September 30, 2005, deferred debt issuance costs were 1.805 million. The bond is convertible, at the option of the
holders of the notes, into a maximum of 6,500,000 ordinary shares of the Company, at a conversion price of 19.45 per share. Upon conversion, the Company may pay a cash amount in lieu of delivery of all or a part of the shares. The bond is
unsecured and ranks pari passu with all present and future unsecured subordinated obligations of the issuer. The conversion right may be exercised by the bondholder during the period commencing on September 1, 2003 and ending on July 1,
2010. The bond holders have an early redemption option in the event of a change of control in which case each bondholder may demand from the issuer redemption of any or all of its bonds at the principal amount plus interest accrued thereon.
Beginning July 17, 2008, the Company may redeem the convertible bond at the principal amount plus interest accrued thereon if the Companys share price exceeds 150% of the conversion price on ten trading days during a period of 20 days. If
the aggregate principal amount of bonds outstanding falls below 20.000 million the Company may redeem the remaining parts of the convertible bond.

On April 1, 2003 EPCOS AG entered into a loan of 40.000 million with KfW, carrying an interest rate of 4.2375%. The loan matures on September 30, 2009 and is being repaid, from March 31, 2005, in equal semi-annual
installments.

At September 30, 2005, long-term debt with third parties included 54.246 million held by the Companys Austrian subsidiary
EPCOS OHG. An amount of 5.668 million of this debt is secured by investment securities and 39.184 million by liens on land. The weighted average interest rate of all the Austrian long-term third-party debt as of September 30, 2005
and 2004, was 1.91% and 2.31%, respectively. The loans are due in semi-annual installments over a period of up to six years.



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##### Table of Contents

EPCOS AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

As of September 30, 2005, long-term debt with
third parties also included 2.696 million in non-interest-bearing loans guaranteed by the government of Portugal. For one part of this amount the repayment is in quarterly installments until December 2007 and for the other part the repayment
is in semi-annual installments beginning June 2007 until December 2010.

The Indian subsidiary EPCOS Ferrites Private Ltd. (EFPL) has a
non-interest-bearing loan in the amount of Indian rupees (INR) 0.372 million (0.007 million). The loan is to be repaid by January 2007.

The Brazilian subsidiary EPCOS do Brazil Ltda. has two loans with nominal amount of BRL 17.763 million (6.649 million) to finance capital expenditure. The loans bear interest at rates as of September 30, 2005 of 14.75%
and 18.75%. The loans are to be repaid including interest in monthly installments through June 2009.

The Hungarian subsidiary EPCOS Elektronikai
Alkatrész Kft. has a bank loan in the amount of Hungarian forint (HUF) 2,500.000 million (10.015 million) with a variable interest rate of 6.61%. The loan is to be repaid in full in August 2008.

The credit lines of group subsidiaries are partly secured by letters of support or guarantees provided by EPCOS AG.

The aggregate amounts of long-term debt maturities as of September 30, 2005, are, in repayment date order, as follows:



| |  | Long-term debt maturities
|- |  | -------------------------



|                                      |  |        
|------------------------------------- |  | -------
|As of September 30, 2005 ( thousand) |  |        
|Fiscal year due                       |  |        
|2006                                  |  | 24,944 
|2007                                  |  | 19,693 
|2008                                  |  | 27,558 
|2009                                  |  | 19,224 
|2010                                  |  | 133,877
|Thereafter                            |  | 5,775  

10. Related party and related persons transactions

Total sales to Siemens for both internal usage and resale were 15.0%, 16.0% and 17.3% of total consolidated net sales for the years ended September 30, 2005, 2004
and 2003, respectively. Resales by Siemens to third parties accounted for 1.0%, 2.6% and 2.8% of total consolidated net sales for the years ended September 30, 2005, 2004 and 2003 respectively, whereas sales directly to Siemens for internal
usage accounted for 14.0%, 13.4% and 14.5% of total consolidated net sales, respectively.

In a few countries, EPCOS does not have sales organizations
established to distribute products. In these countries, EPCOS utilizes agency or distributor agreements with Siemens. EPCOS is in the process of building up its own sales operations in these countries, which has resulted in the termination of most
agency or distributor agreements.



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##### Table of Contents

EPCOS AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

The Siemens sales-companies receive a monthly
turnover-based sales commission. Sales promotion measures of the Siemens sales companies must comply with the requirements of the Company.

The Company and
its subsidiaries make use of various services provided by Siemens. These agreements are either for fixed terms or can be terminated within one to three years. Under these agreements, Siemens provides the Company with a range of personnel and
administrative services. Siemens administers pension plans for the Company, part of its payroll accounting and the Companys data processing systems. Siemens also provides the Company with library and information services, as well as specific
purchasing, procurement, sourcing and transportation services.

The Company also purchases IT services from Siemens. In fiscal 2005 Siemens performed IT
services for the Company, which consisted primarily of the following: operating, servicing and development of IT systems and programs, network and telecommunications services. This business relationship between Siemens and EPCOS is based on general
and specific agreements.

Effective April 1, 1999, the Company entered into a lease with Siemens for the Companys headquarters in Munich. The
lease was modified in September 2005, expires on December 31, 2010, and can be terminated with twelve months prior notice from September 30, 2008, at the earliest. The annual rent in fiscal 2005 was 1.370 million. The
Surge Arresters business unit, Berlin, holds a lease from Siemens for production facilities and office buildings. The contract can be terminated at the end of any calendar quarter with twelve months prior notice. The annual rent was
0.182 million in fiscal 2005. The Ceramic Components segment entered into an agreement with Siemens to lease a production building in Austria effective October 1, 1999. For further details see Note 20.

Effective July 1, 1999, the Company entered into an agreement with Siemens which allows the Company to commission Siemens with research and development projects on
a project-by-project basis. The agreement grants the Company all patents and rights issuing from such research and development projects. Siemens has the nonexclusive, worldwide and royalty-free right to use these patents and rights for its own
business purposes.

Effective January 1, 2001, the Company acquired from Siemens the operating activity for the development of specialized
applications of radio-frequency surface acoustic wave technology. The acquisition price was 5.000 million and the activity purchased is mainly recorded as intangible assets.

In autumn 2004 the Company signed a strategic supplier contract to Siemens VDO. This contract replaces or supersedes other contracts, including the supplier contract for piezo actuators for unit injector diesel
injection systems.

Effective June 15, 1999, the Company entered into a know-how license agreement with Matsushita-Kotobuki Electronics Industries,
Ltd. (Matsushita-Kotobuki). This agreement grants the Company a nonexclusive, nontransferable and worldwide license to use Matsushita-Kotobukis know-how and information relating to low-temperature co-fired multilayer ceramic
substrates. Matsushita-Kotobuki has agreed to provide the Company with technical advice and guidance relating to the manufacture of products that use this technology. In consideration of the rights and licenses granted to the Company, the Company



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##### Table of Contents

EPCOS AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

made an initial payment. The Company also pays
ongoing royalties fixed at a percentage of the net sales price of products manufactured using this technology and sold or otherwise disposed of by the Company or its subsidiaries.

Effective June 30, 1999, the Company entered into an agreement on technical cooperation with Matsushita Electronic Components Co., Ltd. (MACO). This agreement is the basis for a project-by-project
exchange of technical know-how, advice, and shared development work between the parties. All costs are to be borne by the party which incurs them, unless a contrary written agreement exists. To cover MACOs costs, the Company paid an annual fee
for the period until June 30, 2004; since then, the Company and MACO have continued the agreement without making payments to each other. Insofar as MACO and the Company enter into specific technical cooperation and technical projects on the
basis of this agreement, the Company is required to pay a one-time license fee or an annual fee based on sales of the related product. It is possible to combine these alternatives.

On the basis of the aforementioned agreement, the Company and MACO have entered into a license agreement effective April 5, 2000, for the use of know-how pertaining to tantalum capacitors, which grants the
Company certain nonexclusive and nontransferable licenses for the use of the respective know-how. Additionally, MACO advises the Company on technical matters concerning the use of this know-how. In consideration of the licenses granted to the
Company, the Company agreed to make initial payments to MACO. The Company also pays ongoing royalties fixed at a percentage of the net sales price of products manufactured using this technology and sold or otherwise disposed of by the Company or its
subsidiaries.

Effective July 25, 2001, the Company entered into a know-how license agreement with MACO, granting the Company certain nonexclusive,
nontransferable licenses to use know-how relating to the production of multilayer ceramic capacitors. In consideration of the rights and licenses granted to the Company, the Company has agreed to pay one-time license fees to MACO. A license
agreement concluded between the Company and MACO as of September 1, 2001, for the use of know-how pertaining to ultracapacitors, was later terminated by common consent.

Further, the Company and MACO have entered into a SAW know-how cross-license agreement based on the technical cooperation agreement as mentioned above. This agreement has been in force since January 1, 2002, and
grants the Company and MACO certain nonexclusive and nontransferable licenses for reciprocal use of their respective know-how. Additionally, the Company and MACO advise each other on technical matters concerning the use of this know-how. The mutual
granted licenses are not royalty-bearing. As of June 1, 2002 and as of November 20, 2003, respectively, the Company and MACO entered into two development agreements regarding certain SAW devices. These development agreements grant the
Company and MACO certain nonexclusive and nontransferable licenses for use of the development results achieved by the other party within the framework of the joint development. The Company and MACO make no payments to each other for the development
work and the granted licenses.

Effective June 30, 1999, the Company entered into a patent cross-license agreement with Matsushita Electric Industrial
Co., Ltd. (MEI). Under this agreement, both parties grant each other nonexclusive, nontransferable, worldwide licenses to their respective patents relating to both parties major product families. As of June 30, 2004, this
agreement was renewed. The Company has agreed to pay MEI a fixed annual fee until the year 2009. At that time, the Company and MEI will mutually agree to a revised royalty fee amount.



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##### Table of Contents

EPCOS AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

EPCOS (Xiaogan) Co., Ltd. in China has rented office
and production space from the minority shareholder Hanguang Electron Device Factory for an annual rental of 0.070 million. It also purchased materials and services from this company for 1.005 million in fiscal 2005 and
0.999 million in fiscal 2004.

Transactions with related parties were as follows for the years ended
September 30:



| |  | Transactions with related parties
|- |  | ---------------------------------



|                                                                    |  |         |   |  |         |   |  |         |  
|------------------------------------------------------------------- |  | ------- | - |  | ------- | - |  | ------- | -
|Year ended September 30 ( thousand)                                |  | 2005    |   |  | 2004    |   |  | 2003    |  
|Net sales to                                                        |  |         |   |  |         |   |  |         |  
|Siemens (including resales to third parties)                        |  | 185,233 |   |  | 217,599 |   |  | 220,032 |  
|Matsushita and others                                               |  | 6,563   |   |  | 7,427   |   |  | 8,121   |  
|                                                                    |  |         |   |  |         |   |  |         |  
|                                                                    |  | 191,796 |   |  | 225,026 |   |  | 228,153 |  
|                                                                    |  |         |   |  |         |   |  |         |  
|Purchases of inventories and services charged to cost of goods sold |  |         |   |  |         |   |  |         |  
|Siemens                                                             |  | (22,709 | ) |  | (21,981 | ) |  | (23,266 | )
|Matsushita and others                                               |  | (1,322  | ) |  | (6,247  | ) |  | (3,584  | )
|                                                                    |  |         |   |  |         |   |  |         |  
|                                                                    |  | (24,031 | ) |  | (28,228 | ) |  | (26,850 | )
|                                                                    |  |         |   |  |         |   |  |         |  
|Research and development expenses                                   |  |         |   |  |         |   |  |         |  
|Siemens                                                             |  | (2,083  | ) |  | (1,098  | ) |  | (1,887  | )
|Matsushita and others                                               |  | (84     | ) |  | (25     | ) |  | (19     | )
|                                                                    |  |         |   |  |         |   |  |         |  
|                                                                    |  | (2,167  | ) |  | (1,123  | ) |  | (1,906  | )
|                                                                    |  |         |   |  |         |   |  |         |  
|Marketing, selling, general and administrative expenses             |  |         |   |  |         |   |  |         |  
|Siemens                                                             |  | (7,502  | ) |  | (12,786 | ) |  | (8,293  | )
|Matsushita and others                                               |  |        |   |  |        |   |  | (114    | )
|                                                                    |  |         |   |  |         |   |  |         |  
|                                                                    |  | (7,502  | ) |  | (12,786 | ) |  | (8,407  | )
|                                                                    |  |         |   |  |         |   |  |         |  
|Interest expense                                                    |  |         |   |  |         |   |  |         |  
|Siemens                                                             |  |        |   |  |        |   |  | (58     | )
|                                                                    |  |         |   |  |         |   |  |         |  

Additionally the Company paid sales commissions to Siemens sales companies in the amount of
6.611 million for fiscal 2005, 9.715 million for fiscal 2004 and 11.856 million for fiscal 2003.

Furthermore, expenses
for licences and service fees paid to the Matsushita group for fiscal year 2005, 2004 and 2003 amounted to 0.964 million, 1.306 million and 1.402 million, respectively.

In fiscal 2004, the American affiliate Crystal Technology, Inc., purchased an interest of 10% in the American company Siemens Subscriber Networks, Inc. for an amount of
0.689 million. The Siemens company was transformed into a Limited Liability Company in fiscal 2005.



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##### Table of Contents

EPCOS AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

Amounts due from and to related parties included in
the consolidated balance sheets at September 30 were as follows:



| |  | Amounts due from and to related parties
|- |  | ---------------------------------------



|                                |  |        |   |  |        |  
|------------------------------- |  | ------ | - |  | ------ | -
|As of September 30 ( thousand) |  | 2005   |   |  | 2004   |  
|Siemens                         |  |        |   |  |        |  
|Trade accounts receivable       |  | 13,630 |   |  | 43,742 |  
|Trade accounts payable          |  | (4,296 | ) |  | (6,219 | )
|Matsushita and others           |  |        |   |  |        |  
|Trade accounts receivable       |  | 510    |   |  | 809    |  
|Trade accounts payable          |  | (565   | ) |  | (1,691 | )

Transactions with related persons were as follows for the years ended
September 30:



| |  | Transactions with related persons
|- |  | ---------------------------------



|                                                                    |  |        |   |  |         |   |  |        |  
|------------------------------------------------------------------- |  | ------ | - |  | ------- | - |  | ------ | -
|Year ended September 30 ( thousand)                                |  | 2005   |   |  | 2004    |   |  | 2003   |  
|Net sales to                                                        |  |        |   |  |         |   |  |        |  
|Members of Supervisory Board                                        |  | 3,208  |   |  | 2,431   |   |  | 1,172  |  
|                                                                    |  |        |  
|Purchases of inventories and services charged to cost of goods sold |  |        |   |  |         |   |  |        |  
|Members of Supervisory Board                                        |  | (8,001 | ) |  | (10,253 | ) |  | (7,706 | )

Purchases from those companies that are directly or indirectly owned by members of the Supervisory Board are
conducted on arms length basis. Purchases in fiscal 2003, 2004 and 2005 were not considered material for either EPCOS AG or those companies that are directly or indirectly owned by members of the Supervisory Board.



| |  | Amounts due from and to related persons
|- |  | ---------------------------------------



|                                |  |      |   |  |        |  
|------------------------------- |  | ---- | - |  | ------ | -
|As of September 30 ( thousand) |  | 2005 |   |  | 2004   |  
|Members of Supervisory Board    |  |      |   |  |        |  
|Trade accounts receivable       |  | 386  |   |  | 854    |  
|Trade accounts payable          |  | (922 | ) |  | (1,547 | )

11. Shareholders equity

At September 30, 2005, the Company had share capital amounting to 65.300 million divided into 65,300,000 ordinary registered shares of no par value with a notional value of 1 per share.

The Management Board is authorized, with the consent of the Supervisory Board, to increase share capital on or before February 10, 2009 by up to a
total of 13.020 million (Authorized Capital 2004). This Authorized Capital can be utilized to issue new ordinary registered shares of up to 13.020 million for cash or in-kind contributions.



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##### Table of Contents

EPCOS AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

No cash dividends
were declared and paid in the years ended September 30, 2005, 2004 and 2003.

Under the German Stock Corporation Act, the amount of income available
for distribution to shareholders is based upon the equity of the Company as reported in its financial statements drawn up on a stand-alone basis in accordance with the HGB. Accordingly, the Annual General Meeting decides only on the dividends
payable from the retained earnings as shown in the Companys annual German statutory accounts. As of September 30, 2005, the distributable amount was 49.203 million. As of September 30, 2004, this amount was
46.932 million.

The German Stock Corporation Act also defines the rules for acquisition of treasury shares. The Company does not require
authorization or shareholder approval to acquire treasury shares for the purpose of transferring them to employees as part of an employee share purchase plan. In fiscal 2005, the Company neither purchased shares nor reissued shares to its employees.
In fiscal 2004 the Company sold the 25,000 shares owned at September 30, 2003, to third parties (see Note 12).

The Company has Conditional Capital of
up to 4.960 million (Conditional Capital 1999 I: 2.480 million and Conditional Capital 2004 II: 2.480 million) that may be used for a stock option plan. Additionally, the Company has Conditional Capital of
13.000 million (Conditional Share Capital 2002 I: 6.500 million and Conditional Capital 2004 I: 6.500 million) for the exercise of conversion privileges and option rights for convertible or warrant-linked bonds.

12. Stock-based compensation

Stock option plans

EPCOS Stock Option Plan 1999

Effective
October 13, 1999, an extraordinary shareholders meeting adopted a stock option plan (EPCOS Stock Option Plan 1999). The plan had a term of five years. Under this plan, which was terminated by the shareholders meeting on
February 11, 2004, members of the Management Board, directors of subsidiaries and other eligible key employees could be granted non-transferable options to purchase up to 2,480,000 shares at 115% of the average closing market price of the
Companys shares during the five-day period immediately before the date of grant. For options granted immediately before the Companys initial public offering, the exercise price was 115% of the subscription price of 31 per share.
The Supervisory Board of the Company decided annually on the number of options to be granted to the Management Board. In turn, the Management Board and the governing bodies of the group companies decided annually on the number of shares to be
granted to the other eligible employees. Options granted under the plan can be exercised during the five-year period starting two years after the options are granted, provided that the share price has reached or exceeded the exercise price on at
least one day since the grant date. In connection with the EPCOS stock option plan 1999, Conditional Capital of the Company in the amount of up to 2.480 million was created for the issuance of up to 2,480,000 additional shares with no par
value and a notional value of 1 each. The Conditional Capital became effective on October 13, 1999, when it was recorded in the German Commercial Register.



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##### Table of Contents

EPCOS AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

EPCOS Stock Option Plan 2004

In the shareholders meeting of February 11, 2004 the shareholders approved the current EPCOS Stock Option Plan 2004.

Under this plan a maximum of 2,480,000 options may be issued to the members of the Management Board of EPCOS AG, to managing directors of EPCOS affiliates and to other
selected executives until February 10, 2007. The Supervisory Board of EPCOS AG decides on the number of options to be granted to the Management Board, and the Management Board on the number of options to be granted to the other eligible
persons. The exercise price amounts to 115% of the base price, i. e. the average opening market price of EPCOS AG shares on the five trading days before the grant date. The exercise price is also the performance hurdle. The options may only be
exercised after the expiration of a vesting period. This vesting period begins one week after the grant date and runs for at least two years. The option rights may be exercised during the five years following the vesting period. Instead of shares
issued from Conditional Capital 2004 II of 2.480 million created for this purpose, the eligible persons may, at the discretion of the Company, be granted treasury shares repurchased from the stock market or paid cash settlement. The
shares, to be issued from the Conditional Capital 2004 II, have no par value and their notional amount is 1 each. In the event of extraordinary, unforeseen developments, the Supervisory Board and the Management Board are authorized to
introduce a cap on possible gains from stock options.

The following table summarizes stock option activity:



| |  | Stock option activity
|- |  | ---------------------



|                                 |  |                  |  |                                                
|-------------------------------- |  | ---------------- |  | -----------------------------------------------
|                                 |  | Number ofoptions |  | Weighted averageexercise price per share (in )
|Balance as of September 30, 2002 |  | 1,069,750        |  | 76.47                                          
|                                 |  |                  |  |                                                
|Granted                          |  | 698,500          |  | 15.23                                          
|Exercised                        |  |                 |  |                                               
|Forfeited                        |  | 30,500           |  | 66.51                                          
|                                 |  |                  |  |                                                
|Balance as of September 30, 2003 |  | 1,737,750        |  | 52.03                                          
|                                 |  |                  |  |                                                
|Granted                          |  | 495,000          |  | 21.76                                          
|Exercised                        |  |                 |  |                                               
|Forfeited                        |  | 50,500           |  | 40.54                                          
|                                 |  |                  |  |                                                
|Balance as of September 30, 2004 |  | 2,182,250        |  | 45.43                                          
|                                 |  |                  |  |                                                
|Granted                          |  | 340,000          |  | 13.74                                          
|Exercised                        |  |                 |  |                                               
|Forfeited                        |  | 35,500           |  | 24.36                                          
|                                 |  |                  |  |                                                
|Balance as of September 30, 2005 |  | 2,486,750        |  | 41.40                                          
|                                 |  |                  |  |                                                



F-28



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##### Table of Contents

EPCOS AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

The following table summarizes all stock options
issued by the Company and exercisable as of September 30, 2005:



| |  | Options outstanding and exercisable
|- |  | -----------------------------------

As of September 30, 2005



|                                |  |                |  |                  |  |                         |  |                                                                       |  |                                                      |  |                                                        |  |                                                                |  |                     |  |                                    
|------------------------------- |  | -------------- |  | ---------------- |  | ----------------------- |  | --------------------------------------------------------------------- |  | ---------------------------------------------------- |  | ------------------------------------------------------ |  | -------------------------------------------------------------- |  | ------------------- |  | -----------------------------------
|                                |  |                |  |                  |  |                         |  |                                                                       |  |                                                      |  |                                                        |  |                                                                |  | Options exercisable
|Range of exercise prices (in ) |  | Grantedoptions |  | Forfeitedoptions |  | Remaininggrantedoptions |  | Optionsoutstandingweightedaverageremainingcontractual life (in years) |  | Weightedaverageexerciseprice
pergrantedoption (in ) |  | Weightedaverageexerciseprice
perforfeitedoption (in ) |  | Weightedaverageexercise price perremaininggrantedoption (in ) |  | Number              |  | Weightedaverageexerciseprice (in )
|13.74                           |  | 340,000        |  | -8,000           |  | 332,000                 |  | 6                                                                     |  | 13.74                                                |  | 13.74                                                  |  | 13.74                                                          |  |                    |  |                                   
|15.23                           |  | 698,500        |  | -33,000          |  | 665,500                 |  | 4                                                                     |  | 15.23                                                |  | 15.23                                                  |  | 15.23                                                          |  | 665,500             |  | 15.23                              
|21.76                           |  | 495,000        |  | -25,500          |  | 469,500                 |  | 5                                                                     |  | 21.76                                                |  | 21.76                                                  |  | 21.76                                                          |  |                    |  |                                   
|35.65                           |  | 158,000        |  | -7,750           |  | 150,250                 |  | 1                                                                     |  | 35.65                                                |  | 35.65                                                  |  | 35.65                                                          |  | 150,250             |  | 35.65                              
|64.11                           |  | 463,500        |  | -28,500          |  | 435,000                 |  | 3                                                                     |  | 64.11                                                |  | 64.11                                                  |  | 64.11                                                          |  | 435,000             |  | 64.11                              
|90.90-105.04                    |  | 454,500        |  | -20,000          |  | 434,500                 |  | 2                                                                     |  | 103.17                                               |  | 105.04                                                 |  | 103.09                                                         |  | 434,500             |  | 103.09                             
|                                |  |                |  |                  |  |                         |  |                                                                       |  |                                                      |  |                                                        |  |                                                                |  |                     |  |                                    
|13.74-105.04                    |  | 2,609,500      |  | -122,750         |  | 2,486,750               |  | 4                                                                     |  | 41.51                                                |  | 43.76                                                  |  | 41.40                                                          |  | 1,685,250           |  | 52.32                              
|                                |  |                |  |                  |  |                         |  |                                                                       |  |                                                      |  |                                                        |  |                                                                |  |                     |  |                                    

The Company has adopted the disclosure provisions of SFAS No. 123Accounting for Stock-Based Compensationand SFAS No. 148Accounting for Stock-Based Compensation  Transition and Disclosure, but continues to account for stock-based compensation in accordance with APB No. 25 and its related interpretations. These personnel
costs were nil in fiscal years ended September 30, 2005, 2004 and 2003.

After 158,000 options had been granted at a weighted average fair value of
21.25 per option on October 14, 1999, another 454,500 options were granted in fiscal 2001 in two tranches on November 29, 2000, and February 22, 2001. The weighted average fair value for the first tranche was 40.41 and for
the second tranche 31.26 per option, measured at the respective grant date. For all options granted in fiscal 2001, the weighted average fair value amounted to 39.20 per option. On November 27, 2001, another 463,500 options were
granted at a weighted average fair value of 25.45 per option. On November 21, 2002, additional 698,500 options were granted in fiscal 2003. The weighted average fair value amounted to 6.87 per option. On December 11, 2003,
495,000 options were granted at a weighted average fair value of 7.76 per option. On December 14, 2004, 340,000 options were granted. The fair value amounted to 3.90 per option (without taking into account the cap on possible gains
as defined in the Stock Option Plan 2004).

All forfeited options concern employees who left the Company.

The fair value of the Companys stock options of fiscal 2005, 2004 and 2003 used to compute pro forma net income (loss) disclosures was estimated on the date of
grant using the Black-Scholes option pricing model based on the following weighted-average assumptions for fiscal 2005, 2004 and 2003 at the corresponding grant date:



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##### Table of Contents

EPCOS AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



| |  | Average values of stock options
|- |  | -------------------------------



|                                    |  |      |   |  |      |   |  |      |  
|----------------------------------- |  | ---- | - |  | ---- | - |  | ---- | -
|Year ended September 30             |  | 2005 |   |  | 2004 |   |  | 2003 |  
|Risk-free interest rate             |  | 3.16 | % |  | 4.13 | % |  | 4.03 | %
|Expected life of options (in years) |  | 5    |   |  | 5    |   |  | 5    |  
|Expected volatility                 |  | 43.4 | % |  | 41   | % |  | 50   | %
|Average expected dividend yield     |  | 1.73 | % |  | 1.24 | % |  |     |  

Employee share purchase plan

In fiscal years 2000 through 2002, EPCOS AG adopted yearly employee share purchase plans under which employees, depending on their function, could purchase a number of shares, determined annually, at a certain
discount. During fiscal 2002, the Company purchased 25,000 of its ordinary shares in preparation for such an offer to its employees in fiscal 2003, but in October 2002, the Management Board decided not to offer an employee share purchase plan so
that no shares were sold to employees. The Company sold its ordinary shares in the market in fiscal 2004. The amount of minus 0.392 million, by which the sales price was below the purchase price, is booked as a decrease of additional
paid-in capital.

13. Restructuring

Due to the
considerable changes in market conditions for passive electronic components since fiscal 2001, it was necessary for the Company to undertake restructuring measures to reduce its workforce, dispose of certain equipment and speed up relocation of
manufacturing operations to countries with lower labor costs. On the basis of various restructuring plans in fiscal 2005, worldwide measures were taken, which resulted in the following personnel costs and impairments:



| |  | Restructuring costs, net
|- |  | ------------------------



|                                                         |  |       |  |       |  |       
|-------------------------------------------------------- |  | ----- |  | ----- |  | ------
|Year ended September 30 ( thousand)                     |  | 2005  |  | 2004  |  | 2003  
|Personnel costs, net                                     |  | 4,726 |  | 828   |  | 13,848
|Impairment of property, plant and equipment (see Note 7) |  | 404   |  | 3,607 |  |      
|Other                                                    |  | 484   |  |      |  |      
|                                                         |  |       |  |       |  |       
|Total restructuring costs                                |  | 5,614 |  | 4,435 |  | 13,848
|                                                         |  |       |  |       |  |       



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##### Table of Contents

EPCOS AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

The split of
restructuring costs by segment was as follows:



| |  | Segmental analysis of restructuring costs, net
|- |  | ----------------------------------------------



|                                     |  |       |   |  |       |   |  |       
|------------------------------------ |  | ----- | - |  | ----- | - |  | ------
|Year ended September 30 ( thousand) |  | 2005  |   |  | 2004  |   |  | 2003  
|Capacitors                           |  | 914   |   |  | (925  | ) |  | 2,921 
|Ceramic Components                   |  | 1,091 |   |  | (89   | ) |  | 312   
|SAW Components                       |  | (958  | ) |  | 3,461 |   |  | 6,461 
|Inductors and Ferrites               |  | 4,567 |   |  | 1,988 |   |  | 3,826 
|Other                                |  |      |   |  |      |   |  | 328   
|                                     |  |       |   |  |       |   |  |       
|Total restructuring costs            |  | 5,614 |   |  | 4,435 |   |  | 13,848
|                                     |  |       |   |  |       |   |  |       

These restructuring costs mainly impact cost of goods sold. In fiscal 2005 EPCOS paid 12.300 million to
employees.

Parts of accruals were canceled because of structural changes compared with the planned reduction of manpower and fluctuation of employees.

The development of accruals and liabilities for personnel restructuring costs during fiscal 2005 and 2004 is as follows:



| |  | Development of accruals and liabilities
|- |  | ---------------------------------------



|                                      |  |                    |   |  |                                      |  
|------------------------------------- |  | ------------------ | - |  | ------------------------------------ | -
|                                      |  | Number ofemployees |   |  | Accruals andliabilities ( thousand) |  
|As of September 30, 2003              |  | 839                |   |  | 30,838                               |  
|                                      |  |                    |   |  |                                      |  
|Increase in accruals/liabilities, net |  | 12                 |   |  | 828                                  |  
|Usage                                 |  | (197               | ) |  | (8,550                               | )
|                                      |  |                    |   |  |                                      |  
|As of September 30, 2004              |  | 654                |   |  | 23,116                               |  
|                                      |  |                    |   |  |                                      |  
|Increase in accruals/liabilities, net |  | 99                 |   |  | 4,726                                |  
|Usage                                 |  | (356               | ) |  | (13,220                              | )
|                                      |  |                    |   |  |                                      |  
|As of September 30, 2005              |  | 397                |   |  | 14,622                               |  
|                                      |  |                    |   |  |                                      |  

14. Other income, net

Net other income of 6.958 million in fiscal 2005 mainly consisted of grants for research and further education in Austria (4.934 million) and investment grants in Czech Republic (1.264 million). The net
other income of 12.201 million in fiscal 2004 mainly consisted of Portuguese government grants in amount of 7.577 million and of grants for research in amount of 3.852 million for an Austrian affiliate.



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##### Table of Contents

EPCOS AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

15. Income taxes

Consolidated income (loss) before income taxes and minority interests was attributable based on taxation aspects to domestic and foreign sources as follows:



| |  | Income (loss) before income taxes
|- |  | ---------------------------------



|                                     |  |         |   |  |        |  |         |  
|------------------------------------ |  | ------- | - |  | ------ |  | ------- | -
|Year ended September 30 ( thousand) |  | 2005    |   |  | 2004   |  | 2003    |  
|Germany                              |  | (35,831 | ) |  | 1,257  |  | (32,957 | )
|Foreign                              |  | (61,228 | ) |  | 57,814 |  | 29,665  |  
|                                     |  |         |   |  |        |  |         |  
|                                     |  | (97,059 | ) |  | 59,071 |  | (3,292  | )
|                                     |  |         |   |  |        |  |         |  

The provision (benefit) for income taxes consisted of the following:



| |  | Provision (benefit) for income taxes
|- |  | ------------------------------------



|                                     |  |        |  |        |   |  |         |  
|------------------------------------ |  | ------ |  | ------ | - |  | ------- | -
|Year ended September 30 ( thousand) |  | 2005   |  | 2004   |   |  | 2003    |  
|Current taxes                        |  |        |  |        |   |  |         |  
|Germany                              |  | 1,036  |  | 3,087  |   |  | 1,683   |  
|Foreign                              |  | 2,128  |  | 8,328  |   |  | 6,163   |  
|Deferred taxes                       |  |        |  |        |   |  |         |  
|Germany                              |  | 13,587 |  | 274    |   |  | (12,259 | )
|Foreign                              |  | 5,218  |  | (2,069 | ) |  | (5,781  | )
|                                     |  |        |  |        |   |  |         |  
|                                     |  | 21,969 |  | 9,620  |   |  | (10,194 | )
|                                     |  |        |  |        |   |  |         |  

The Companys subsidiary in Singapore was granted a tax holiday by the government of Singapore relating to
production of SAW components there until 2013. Based on the pre-tax income of 3.788 million, 49.425 million, and 42.718 million for the years ended September 30, 2005, 2004 and 2003, respectively, relating to this
production facility, and the statutory tax rate of 20% for 2005 and 2004 and 22% for 2003 in Singapore, the effect of the tax holiday for the years ended September 30, 2005, 2004 and 2003 on net income amounted to 0.758 million,
9.885 million and 9.398 million, respectively, and the effect on basic net income per share was 0.01, 0.15 and 0.14, respectively.



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##### Table of Contents

EPCOS AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

A reconciliation of income taxes follows for the
years ended September 30, 2005, 2004 and 2003 based on consolidated statutory rate of 40% (2005 and 2004) and 41% (2003), which represents the German corporate tax rate plus the after federal tax benefit rate for trade taxes:



| |  | Reconciliation of income taxes
|- |  | ------------------------------



|                                                                    |  |         |   |  |         |   |  |         |  
|------------------------------------------------------------------- |  | ------- | - |  | ------- | - |  | ------- | -
|Year ended September 30 ( thousand)                                |  | 2005    |   |  | 2004    |   |  | 2003    |  
|Expected provision (benefit) for income taxes                       |  | (38,823 | ) |  | 23,629  |   |  | (1,350  | )
|Foreign tax rate differential                                       |  | 23,516  |   |  | (20,410 | ) |  | (21,234 | )
|Change in valuation allowance                                       |  | 34,683  |   |  | 3,539   |   |  | 9,456   |  
|Change in deferred taxes resulting from a change in German tax rate |  |        |   |  |        |   |  | 179     |  
|Non-deductible expenses Germany                                     |  | 735     |   |  | 2,177   |   |  | 1,881   |  
|Foreign withholding tax                                             |  | 329     |   |  | 633     |   |  | 527     |  
|Tax expense prior years Germany                                     |  | 523     |   |  | 24      |   |  | 491     |  
|Trade tax differential Germany                                      |  | 390     |   |  | 339     |   |  | (273    | )
|Other                                                               |  | 616     |   |  | (311    | ) |  | 129     |  
|Actual provision (benefit) for income taxes                         |  | 21,969  |   |  | 9,620   |   |  | (10,194 | )

The statutory corporate income tax rate in Germany was 25%. The solidarity surcharge of 5.5% was calculated on the
federal corporate tax, so that the total federal corporate tax rate amounted to 26.4% in fiscal year 2005 and 2004. The statutory corporate income tax rate was temporarily raised in fiscal year 2003 to 26.5% (plus the solidarity surcharge of 5.5%),
in order to aid the victims of the flood in Germany. The effective rate for trade tax was 13.6% for fiscal 2005, 2004 and 2003.

In December 2003, the
German parliament passed new tax legislation. Among other things, new regulations for the utilization of net operating losses were introduced. As an effect of this, longer periods are needed for the utilization of tax loss carryforwards.



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##### Table of Contents

EPCOS AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

Deferred income tax
assets and liabilities as of September 30, 2005 and 2004, are summarized as follows:



| |  | Deferred income tax assets and liabilities
|- |  | ------------------------------------------



|                                                |  |         |   |  |         |  
|----------------------------------------------- |  | ------- | - |  | ------- | -
|As of September 30 ( thousand)                 |  | 2005    |   |  | 2004    |  
|Inventories                                     |  | 5,026   |   |  | 4,925   |  
|Fixed assets                                    |  | 12,955  |   |  | 14,362  |  
|Net operating loss and tax credit carryforwards |  | 84,732  |   |  | 66,362  |  
|Accrued expenses                                |  | 10,466  |   |  | 12,065  |  
|Pension liabilities                             |  | 67,160  |   |  | 51,844  |  
|Other liabilities                               |  | 1,620   |   |  | 8,690   |  
|Other                                           |  | 3,344   |   |  | 2,207   |  
|Gross deferred tax assets                       |  | 185,303 |   |  | 160,455 |  
|Deferred tax asset valuation allowance          |  | (52,126 | ) |  | (17,443 | )
|Net deferred tax assets                         |  | 133,177 |   |  | 143,012 |  
|Receivable provisions                           |  | (2,173  | ) |  | (1,846  | )
|Inventories                                     |  | (1,461  | ) |  | (814    | )
|Fixed assets                                    |  | (47,998 | ) |  | (53,532 | )
|Accrued expenses                                |  | (8,110  | ) |  | (15,660 | )
|Other                                           |  | (16,690 | ) |  | (7,988  | )
|Gross deferred tax liabilities                  |  | (76,432 | ) |  | (79,840 | )
|Deferred tax assets, net                        |  | 56,745  |   |  | 63,172  |  

The net operating loss carryforwards relate mainly to the German, Austrian, French, Indian and Spanish operations.
The evaluation of the deferred tax assets showed a longer period required for recoverability than previously assumed especially for the net operating losses. Therefore, in addition to the valuation allowance already recognized in prior years, a
partial valuation allowance on deferred tax assets resulting from net operating losses particularly for the Austrian and German operations has been made. The pension scheme of EPCOS is accomplished by a relief fund (UK EPCOS e.V). Taxable income of
6.982 million in fiscal 2005 and of 3.400 million in fiscal 2004 has been generated at EPCOS AG, because indirect pension obligations can not be considered for tax purposes. A temporary difference has arisen between the book value and
the tax basis, which has led to a deferred tax asset of 42.388 million at September 30, 2005 and of 39.595 million at September 30, 2004.



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##### Table of Contents

EPCOS AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

Net deferred tax assets and liabilities are recorded
in the consolidated balance sheets as of September 30, 2005 and 2004, as follows:



| |  | Deferred income tax assets and liabilities in consolidated balance sheets
|- |  | -------------------------------------------------------------------------



|                                |  |         |   |  |         |  
|------------------------------- |  | ------- | - |  | ------- | -
|As of September 30 ( thousand) |  | 2005    |   |  | 2004    |  
|Deferred tax assets             |  |         |   |  |         |  
|Current                         |  | 8,708   |   |  | 9,366   |  
|Non-current                     |  | 70,169  |   |  | 72,561  |  
|Deferred tax liabilities        |  |         |   |  |         |  
|Current                         |  | (3,629  | ) |  | (5,847  | )
|Non-current                     |  | (18,503 | ) |  | (12,908 | )
|                                |  |         |   |  |         |  
|                                |  | 56,745  |   |  | 63,172  |  
|                                |  |         |   |  |         |  

As of September 30, 2005, the Company had consolidated net operating loss (NOL) carryforwards amounting to
258.790 million, of which 3.519 million expire by 2010 and 255.271 million expire later than 2011 or have no expiry date. These figures show the gross amount of the available NOLs. In addition, the subsidiary in Spain has a tax
credit amount of 2.717 million at its disposal which will not expire until 2015. The Companys valuation allowances increased from 2004 to 2005 by 34.683 million, in 2003 to 2004 by 3.539 million and from 2002 to 2003 by
9.456 million. The valuation allowance reduced the deferred tax asset to a net amount that will more likely than not be realized, based on the Companys estimate of future earnings and the expected timing of temporary difference
reversals.

At September 30, 2004 the Company made provisions for income taxes of 2.802 million and at September 30, 2005 of 2.695
million on retained earnings of foreign subsidiaries. Income taxes on the remaining earnings of 56.685 million at September 30, 2005 of foreign subsidiaries have not been provided, because such earnings are intended to be indefinitely
reinvested in those operations. It is not economically practicable to estimate the amount of unrecognized deferred tax liabilities for these undistributed earnings.



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##### Table of Contents

EPCOS AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

16. Earnings per share

The following table sets forth the computation of basic and diluted earnings (loss) per share for the years ended September 30, 2005, 2004 and 2003:



| |  | Earnings (loss) per share
|- |  | -------------------------



|                                                                     |  |            |   |  |            |  |           
|-------------------------------------------------------------------- |  | ---------- | - |  | ---------- |  | ----------
|Year ended September 30                                              |  | 2005       |   |  | 2004       |  | 2003      
|Net (loss) income ( thousand)                                       |  | (119,262   | ) |  | 49,228     |  | 6,744     
|Income impact of assumed conversion convertible bond (net of tax)    |  |           |   |  | 2,125      |  |          
|                                                                     |  |            |   |  |            |  |           
|Adjusted net (loss) income                                           |  | (119,262   | ) |  | 51,353     |  | 6,744     
|                                                                     |  |            |   |  |            |  |           
|Denominator for basic earnings per share (weighted average shares)   |  | 65,300,000 |   |  | 65,296,107 |  | 65,275,000
|Effect of dilutive shares - stock options                            |  |           |   |  | 74,386     |  |          
|Effect of dilutive shares - convertible bond                         |  |           |   |  | 6,500,000  |  |          
|Denominator for diluted earnings per share (weighted average shares) |  | 65,300,000 |   |  | 71,870,493 |  | 65,275,000
|Earnings (loss) per common share (in )                              |  |            |   |  |            |  |           
|basic                                                                |  | (1.83      | ) |  | 0.75       |  | 0.10      
|diluted                                                              |  | (1.83      | ) |  | 0.71       |  | 0.10      

For fiscal years 2003 and 2005, 6,500,000 potential dilutive shares resulting from the convertible bonds were not
considered, because the inclusion would be antidilutive.

17. Pensions

The Company provides pension benefits principally under several defined benefit pension plans. September 30 is the measurement date of the leading plans. Both in Germany and also in Brazil employees are covered
under two defined benefit pension plans each. Both U.S. subsidiaries, EPCOS Inc., Iselin/New Jersey, and Crystal Technology, Inc., Palo Alto/California, provide defined benefit pension plans, the largest of which is funded.

Moreover, in Germany there is a deferred compensation plan, which gives German employees the opportunity to convert part of their compensation to a pension based on
amounts contributed, including the interest earned on them up until retirement age. The provision for future payments to retired staff is determined by an actuary.

The liability is recorded at the maximum of the market value of the plan assets and the actuarial present value of the guaranteed financial funds.

In fiscal year 2003 the Company transferred its accumulated benefit obligation relating to the vested and non-vested portions of its defined benefit pension plan in Spain to an external pension fund for a payment of 0.632 million.
This amount was paid in November 2002. The transaction was accounted for as a settlement and curtailment since the defined benefit plan was settled and replaced by a defined contribution plan.



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##### Table of Contents

EPCOS AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

Payments for defined contribution plans amounted to
2.038 million in fiscal 2005, 1.639 million in fiscal 2004 and 1.941 million in fiscal 2003. The estimated value for fiscal 2006 amounts to 1.900 million.

Consolidated information regarding all of the Companys pension plans at the dates indicated is presented in the following tables.

The following table presents the changes in projected benefit obligations (PBO) during the years indicated:



| |  | Changes in projected benefit obligations
|- |  | ----------------------------------------



|                                                           |  |         |   |  |         |   |  |         |  
|---------------------------------------------------------- |  | ------- | - |  | ------- | - |  | ------- | -
|Year ended September 30 ( thousand)                       |  | 2005    |   |  | 2004    |   |  | 2003    |  
|Projected benefit obligations (PBO) at beginning of year |  | 161,827 |   |  | 150,575 |   |  | 142,797 |  
|Service cost                                               |  | 5,830   |   |  | 5,334   |   |  | 4,910   |  
|Interest cost                                              |  | 8,906   |   |  | 8,579   |   |  | 8,478   |  
|Actuarial losses                                           |  | 38,038  |   |  | 4,631   |   |  | 3,836   |  
|Foreign exchange rate changes                              |  | 2,245   |   |  | (1,104  | ) |  | (2,706  | )
|Benefits paid                                              |  | (5,935  | ) |  | (5,626  | ) |  | (5,905  | )
|Curtailments                                               |  |        |   |  | (36     | ) |  | (120    | )
|Settlements                                                |  | (158    | ) |  | (526    | ) |  | (715    | )
|Projected benefit obligations (PBO) at end of year       |  | 210,753 |   |  | 161,827 |   |  | 150,575 |  

The accumulated benefit obligation at end of fiscal year 2005 amounts to 192.195 million.

The following table presents the changes in plan assets during the fiscal years indicated:



| |  | Changes in plan assets
|- |  | ----------------------



|                                               |  |        |   |  |        |   |  |        |  
|---------------------------------------------- |  | ------ | - |  | ------ | - |  | ------ | -
|Year ended September 30 ( thousand)           |  | 2005   |   |  | 2004   |   |  | 2003   |  
|Fair value of plan assets at beginning of year |  | 16,486 |   |  | 15,351 |   |  | 16,320 |  
|Actual return on plan assets                   |  | 1,294  |   |  | 1,505  |   |  | 409    |  
|Foreign exchange rate changes                  |  | 1,471  |   |  | (780   | ) |  | (2,169 | )
|Employer contributions                         |  | 1,808  |   |  | 1,158  |   |  | 1,536  |  
|Benefits paid                                  |  | (932   | ) |  | (748   | ) |  | (745   | )
|Fair value of plan assets at end of year       |  | 20,127 |   |  | 16,486 |   |  | 15,351 |  



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##### Table of Contents

EPCOS AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

The plan asset allocation is as follows:



| |  | Plan assets allocation
|- |  | ----------------------



|                               |  |       |  |      
|------------------------------ |  | ----- |  | -----
|Year ended September 30 (in %) |  | 2005  |  | 2004 
|Investment in stocks           |  | 40.9  |  | 58.3 
|Bonds                          |  | 58.4  |  | 40.4 
|Other                          |  | 0.7   |  | 1.3  
|Total                          |  | 100.0 |  | 100.0

The investment managers of the plan assets seek to reduce volatility by their investment strategy. Thus the
exposure of corporate bonds, which are held in USA, is limited to 50%. The bonds require a minimum rating of Standard & Poors or Moodys of A or better at the date of purchase. The exposure to equity instruments is limited to
60%. The stock investment in any corporation is limited to 5% of total equity assets within the plan assets.

A reconciliation of the funded status with
the amounts recognized in the consolidated balance sheets is as follows:



| |  | Reconciliation of funded status with consolidated balance sheets
|- |  | ----------------------------------------------------------------



|                                                       |  |          |   |  |          |  
|------------------------------------------------------ |  | -------- | - |  | -------- | -
|As of September 30 ( thousand)                        |  | 2005     |   |  | 2004     |  
|Funded status of plans *)                              |  | (190,626 | ) |  | (145,341 | )
|Unrecognized prior service cost                        |  | 723      |   |  | 756      |  
|Unrecognized actuarial net losses                      |  | 58,300   |   |  | 20,285   |  
|Intangible assets                                      |  | (540     | ) |  | (552     | )
|Additional minimum liability                           |  | (42,173  | ) |  | (9,532   | )
|Net amount reported in the consolidated balance sheets |  | (174,316 | ) |  | (134,384 | )
|Less current portion                                   |  | 8,548    |   |  | 7,817    |  
|Long-term portion of pension liability                 |  | (165,768 | ) |  | (126,567 | )

---

|*) | Difference between projected benefit obligations and fair value of plan assets.
|-- | -------------------------------------------------------------------------------

The additional minimum pension liability increased by 32.641 million from the previous year. This change effected other comprehensive loss in the amount of 19.617 million (net of tax) in fiscal 2005.



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##### Table of Contents

EPCOS AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

The following table presents the components of net
pension cost for the years ended September 30, 2005, 2004 and 2003:



| |  | Net pension cost
|- |  | ----------------



|                                                       |  |        |   |  |        |   |  |        |  
|------------------------------------------------------ |  | ------ | - |  | ------ | - |  | ------ | -
|Year ended September 30 ( thousand)                   |  | 2005   |   |  | 2004   |   |  | 2003   |  
|Service cost                                           |  | 5,830  |   |  | 5,334  |   |  | 4,910  |  
|Interest cost                                          |  | 8,906  |   |  | 8,579  |   |  | 8,478  |  
|Expected return on plan assets                         |  | (1,328 | ) |  | (1,149 | ) |  | (1,153 | )
|Amortization of unrecognized obligation                |  |       |   |  |       |   |  | 888    |  
|Amortization of unrecognized actuarial gains or losses |  | 349    |   |  | 265    |   |  |       |  
|Unrecognized prior service cost                        |  | 78     |   |  | 82     |   |  | 82     |  
|Curtailment losses (gains)                             |  | 32     |   |  | (36    | ) |  |       |  
|Net periodic pension cost                              |  | 13,867 |   |  | 13,075 |   |  | 13,205 |  

Assumed discount rates and rates of increase in compensation used in calculating the PBO together with long-term
rates of return on plan assets vary with the economic conditions of the country in which the retirement plans apply. The weighted average assumptions used in calculating the actuarial values for the principal pension plans were 4.00% for the
discount rate in fiscal 2005, 5.25% in fiscal 2004 and 5.50% in fiscal 2003. The compensation increases were assumed to be 2.00% in fiscal 2005, 2.00% in fiscal 2004 and 2.75% in fiscal 2003. The expected return on plan assets for the USA funded
pension plan in fiscal 2005 was 7.00% (previous year: 7.00%). The expected return on plan assets of the Brazilian subsidiary amounts to 13.00% (previous year: 13.00%).

The following table presents the estimated pension payment for the next ten years:



| |  | Forecast payment of pensions
|- |  | ----------------------------



|                                     |  |       
|------------------------------------ |  | ------
|Year ended September 30 ( thousand) |  |       
|2006                                 |  | 7,398 
|2007                                 |  | 6,744 
|2008                                 |  | 7,104 
|2009                                 |  | 8,107 
|2010                                 |  | 8,955 
|2011 till 2015                       |  | 45,426



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##### Table of Contents

EPCOS AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

18. Supplemental cash flow information

Cash payments for income taxes, dividends and interest for the years ended September 30, 2005, 2004 and 2003, were as follows:



| |  | Payments for income taxes, interest, and non-cash transactions
|- |  | --------------------------------------------------------------



|                                             |  |        |  |        |  |       
|-------------------------------------------- |  | ------ |  | ------ |  | ------
|Year ended September 30 ( thousand)         |  | 2005   |  | 2004   |  | 2003  
|Payments for                                 |  |        |  |        |  |       
|Income taxes                                 |  | 10,355 |  | 9,268  |  | 35,589
|Interest net of amounts capitalized          |  | 9,846  |  | 11,045 |  | 10,249
|Non-cash transactions                        |  |        |  |        |  |       
|Acquisition of equipment under capital lease |  |       |  |       |  | 585   

19. Financial instruments and risk management

Foreign currency forward contracts and options

To reduce its exposure to certain risks inherent in its business, the
Company enters into forward foreign exchange and options contracts based on forecast foreign currency transaction exposures. Contracts generally extend for a period of less than one year. These contracts are marked to market and included in accrued
expenses or other assets. The change in market value of instruments other than hedges that are designated as cash flow hedges is included in currency gains or losses within the consolidated statements of operations. The Management Board believes
that the credit risk in these transactions is minimal, and is involved on a daily basis in risk management decisions, operating under rules adopted by the Supervisory Board. The inherent risks are monitored using a value-at-risk model.

Commodity contracts

The Company shows gains or losses due to
commodity contracts that are designated as cash flow hedges to hedge anticipated future cash flows in other comprehensive income/loss. These hedging contracts are commodity contracts to hedge price fluctuations for palladium over a period of one to
ten months.

The gains or losses are reclassified in the statements of operations as soon as the underlying transactions materialize, while the ineffective
portion of these hedging contracts is recorded directly in the statements of operations. The statement of operations as of the fiscal year ending on September 30, 2005, was influenced by reclassification of losses from other comprehensive
income/loss in amount of 1.900 million gross and 1.425 million net of tax respectively. The statements of operations were not affected by any changes in the market values due to the ineffective portion of the hedges. The unrealized
losses due to commodity contracts will be reported in total within the statement of operations of the next fiscal year because of the maturity date.



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##### Table of Contents

EPCOS AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

Interest rate and cross-currency swaps

For hedging of currency and interest rate risks, the Company has entered into cross-currency and interest rate swaps with an aggregate notional amount
of 32.000 million. The swaps have several maturities up to October 5, 2007.

These swaps are marked to market and included in accrued expenses
or other assets.

Fair value of financial instruments

The carrying amounts of the Companys significant financial instruments as of September 30, 2005 and 2004, are summarized here. The carrying values of the Companys cash and cash equivalents, trade accounts receivable and
payable, short-term borrowings and accrued expenses and other current liabilities approximate their fair market values as of September 30, 2005 and 2004, due to their short-term maturity. The carrying amounts of the Companys variable rate
debt likewise approximate fair value because the interest rates are based on floating rates that reflect market rates. The fair value of the Companys long-term fixed rate debt is estimated using discounted cash flow analysis based on the
Companys current borrowing rates for debt with similar maturities. Because considerable judgment is required in interpreting market data to develop estimates of fair value, the estimates do not necessarily indicate the amounts that could be
realized or would be paid in a current market transaction. The effect of using different market assumptions or estimate methodologies may be material to the estimated fair value amounts.

The following table summarizes the carrying amount and fair value of the Companys fixed rate long-term debt and derivative financial instruments:



| |  | Carrying amount and fair value
|- |  | ------------------------------



|                                       |                |         |                |         |      |           |         |   |                |         |                |         |   |           |         |  
|-------------------------------------- | -------------- | ------- | -------------- | ------- | ---- | --------- | ------- | - | -------------- | ------- | -------------- | ------- | - | --------- | ------- | -
|As of September 30 ( thousand)        |                | 2005    |                |         | 2004 |          
|                                       | Notionalamount |         | Carryingamount |         |      | Fairvalue |         |   | Notionalamount |         | Carryingamount |         |   | Fairvalue |        
|Convertible bonds                      |                |        |                | 124,620 |      |           | 126,046 |   |                |        |                | 124,240 |   |           | 132,203 |  
|Fixed rate long-term debt              |                |        |                | 83,970  |      |           | 81,972  |   |                |        |                | 88,803  |   |           | 86,835  |  
|Forward exchange contracts             |                | 193,274 |                | 428     |      |           | 428     |   |                | 217,077 |                | 231     |   |           | 231     |  
|Cross-currency and Interest rate swaps |                | 32,000  |                | (408    | )    |           | (408    | ) |                | 32,000  |                | 1,319   |   |           | 1,319   |  
|Commodity contracts                    |                | 8,995   |                | 90      |      |           | 90      |   |                | 7,899   |                | (1,721  | ) |           | (1,721  | )

Concentrations of risk

The Company has business relationships with numerous customers and affiliates around the world. From a risk standpoint, apart from Siemens (see Note 10), there have been no other major customers in fiscal 2005, 2004 and 2003. Although the
Company has a large volume of receivables from a limited number of customers, such receivables are managed under standard commercial terms. Consequently, in managements opinion, any concentration of credit risk relating to these customers is
appropriately monitored. The Company believes it has adequate sources for the supply of raw materials and components for its manufacturing requirements.



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##### Table of Contents

EPCOS AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

The Company purchases a significant amount of raw
materials and supplies from single sources on grounds of technology, availability, price, quality and other criteria. Should a major delivery from such a single-source supplier be delayed or curtailed, the Companys ability to ship the related
product in the desired quantity on time may be impaired. The Company attempts to mitigate these risks by working closely with key suppliers on product plans, strategic inventory levels and coordinated product launches.

20. Commitments and contingencies

(a) Leases

The Company currently leases manufacturing, executive and administrative facilities, and various types of equipment under operating lease agreements. In addition, the
Company has entered into capital lease agreements for certain office equipment that expire during the next year. Many lease agreements include renewal or purchase options. In most cases, management expects that in the normal course of business,
lease agreements will be renewed or replaced by other agreements. Rental expense for all operating lease agreements charged against earnings amounted to 23.503 million, 23.559 million and 24.443 million for the years
ended September 30, 2005, 2004 and 2003, respectively. These amounts include lease payments to Siemens of 4.984 million, 4.685 million and 5.325 million for the three years respectively. No contingent lease
agreements exist.

Assets under capital lease agreements are included in the consolidated balance sheets as follows:



| |  | Capital lease assets
|- |  | --------------------



|                                                   |  |      |  |     
|-------------------------------------------------- |  | ---- |  | ----
|As of September 30 ( thousand)                    |  | 2005 |  | 2004
|Technical equipment, machinery and other equipment |  | 113  |  | 113 
|Less accumulated depreciation                      |  |     |  |    
|                                                   |  |      |  |     
|Net assets under capital lease                     |  | 113  |  | 113 
|                                                   |  |      |  |     

Depreciation on assets under capital lease amounted to 0.023 million and 0.144 million for
the years ended September 30, 2004 and 2003 respectively. For fiscal 2005 there was no depreciation on assets under capital lease.



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##### Table of Contents

EPCOS AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

The following is a summary of future minimum lease
payments under capital and operating lease agreements that had initial or remaining periods of notice of more than one year:



| |  | Future minimum lease payments
|- |  | -----------------------------



|                                                           |  |              |   |  |               
|---------------------------------------------------------- |  | ------------ | - |  | --------------
|As of September 30, 2005 ( thousand)                      |  | Capitallease |   |  | Operatinglease
|2006                                                       |  | 16           |   |  | 15,886        
|2007                                                       |  |             |   |  | 14,836        
|2008                                                       |  |             |   |  | 7,922         
|2009                                                       |  |             |   |  | 5,592         
|2010                                                       |  |             |   |  | 4,352         
|Thereafter                                                 |  |             |   |  | 12,756        
|                                                           |  |              |   |  |               
|Total minimum lease payment                                |  | 16           |   |  | 61,344        
|                                                           |  |              |   |  |               
|Less amount representing interest                          |  | (2           | ) |  |               
|Present value of net minimum capital lease payments        |  | 14           |   |  |               
|Less current portion of obligations under capital lease    |  | (14          | ) |  |               
|Obligations under capital lease, excluding current portion |  |             |   |  |               

Effective October 1, 1999, the Ceramic Components Division entered into a lease with Siemens for a facility
in Austria. Annual lease payments for the ten-year term of the contract amount to 1.193 million. The Companys Austrian subsidiary also has an operating lease agreement for a factory building with annual lease payments of
2.154 million and 2.150 million in fiscal 2005 and fiscal 2004 respectively. The contract, beginning January 2001, cannot be terminated during its 15-year term. The resulting commitments are included in the above table.

(b) Other commitments and contingencies

The Company
and its subsidiaries are defendants in litigation and proceedings involving various matters. In the opinion of the Management Board, based on the advice of counsel handling such litigation and proceedings, adverse outcomes, if any, will not result
in a material effect on the Companys consolidated financial condition or results of operations.

The Company is subject to extensive environmental
regulation in the jurisdictions in which it operates, including requirements governing emissions into the air, effluents, and storage of hazardous materials and waste. These requirements will continue to be significant to its future operations. In
the past, the Company has been exposed to liability for the remediation of soil or groundwater contamination at its facilities. The Company may also face liability for remediation of its sites located in the United States, where it could be
designated a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act or other federal, state or local environmental remediation laws for its U.S. locations.

The Company has not incurred any significant penalties for environmental violations and liability for damage to natural resources, property damage and environmental
exposure claims to date, but the Company could incur some or all of these types of liabilities in the future. Because some facilities are closely located to or shared with those of other companies, including those of Siemens affiliates, the Company
may have to answer claims relating to environmental contamination not originating from the operations of the Company.



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##### Table of Contents

EPCOS AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

Significant financial reserves or additional
compliance expenditures could be required in the future due to changes in law, new information on environmental conditions or other events, and those expenditures could adversely affect the Companys financial condition or results of
operations.

For September 30, 2005 and 2004 the following contingent liabilities exist:



| |  | Contingent liabilities
|- |  | ----------------------



|                                                  |  |      |  |     
|------------------------------------------------- |  | ---- |  | ----
|As of September 30 ( thousand)                   |  | 2005 |  | 2004
|Acceptance liability/discounted bills of exchange |  | 177  |  |    
|Other contingent liabilities                      |  | 328  |  |    
|                                                  |  |      |  |     
|Total                                             |  | 505  |  |    
|                                                  |  |      |  |     

21. Segment reporting

The Company has four reportable operating segments, which are regularly evaluated by the Management Board in deciding how to allocate resources. The segments are managed separately because of differences in the nature of their respective
products. The four reportable operating segments are Capacitors, Ceramic Components, Surface Acoustic Wave (SAW) Components, and Inductors and Ferrites.

The Company manufactures capacitors with diverse technologies using a range of insulating materials as dielectrics. The various capacitor technologies make use of the different properties of these materials and offer unique physical and
electrical performance characteristics that make them suitable for particular applications. The Ceramic Components segment, using advanced ceramic technologies, produces thermistors, varistors, sensors, multilayer ceramic capacitors and piezo
actuators. This segment also includes gas-filled surge voltage arresters, which share many of the same protective applications and are usually used together with varistors. The SAW Components segment focuses on surface acoustic wave technology,
which has diverse signal filtering and frequency control applications in the radio-frequency spectrum. This segment also includes business with microwave ceramic filters and multilayer ceramic modules. The technology used by the Company to
manufacture SAW components has much in common with advanced semiconductor fabrication. The Inductors and Ferrites segment produces cores for inductors made of soft magnetic ferrite, an iron-oxide-based synthetic material. This segment also includes
transformers, components for electromagnetic compatibility (EMC) and other inductive ferrite components made by winding ferrite cores with wire, plus matching accessories.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies, except that the disaggregated financial results for the reportable segments have been prepared
using a management approach which is consistent with how management internally analyzes financial information for the purposes of making operating decisions. Generally, the Company evaluates performance based on net income (loss) before interest
income and expense, taxes and minority interest (EBIT), and accounts for inter-segment sales and transfers as if the sales and transfers were to third parties, that is, at current market prices. Net sales are attributed to geographical areas based
on the location of the customer.



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##### Table of Contents

EPCOS AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

Information on the
business segments is presented in the following table:



| |  | Financial information on business segments
|- |  | ------------------------------------------



|                                                                          |  |            |   |  |                   |   |  |               |  |                       |   |  |               |  |                     |  
|------------------------------------------------------------------------- |  | ---------- | - |  | ----------------- | - |  | ------------- |  | --------------------- | - |  | ------------- |  | ------------------- | -
|( million)                                                               |  | Capacitors |   |  | CeramicComponents |   |  | SAWComponents |  | Inductors andFerrites |   |  | Elimi-nations |  | Conso-lidated total |  
|2005                                                                      |  |            |   |  |                   |   |  |               |  |                       |   |  |               |  |                     |  
|Net sales to third and related parties                                    |  | 336.2      |   |  | 361.3             |   |  | 369.5         |  | 170.5                 |   |  |              |  | 1,237.5             |  
|EBIT                                                                      |  | (74.2      | ) |  | (24.3             | ) |  | 28.7          |  | (18.6                 | ) |  |              |  | (88.4               | )
|Interest result, net                                                      |  |            |   |  |                   |   |  |               |  |                       |   |  |               |  | (8.7                | )
|Loss before income taxes and minority interest                            |  |            |   |  |                   |   |  |               |  |                       |   |  |               |  | (97.1               | )
|Depreciation and amortization                                             |  | 79.1       |   |  | 37.0              |   |  | 63.2          |  | 26.2                  |   |  | 2.6           |  | 208.1               |  
|Capital expenditures on fixed assets (without long-term financial assets) |  | 35.8       |   |  | 71.0              |   |  | 30.4          |  | 12.7                  |   |  | 2.7           |  | 152.6               |  
|                                                                          |  |            |   |  |                   |   |  |               |  |                       |   |  |               |  |                     |  
|Total assets                                                              |  | 400.1      |   |  | 398.3             |   |  | 385.9         |  | 192.6                 |   |  |              |  | 1,376.9             |  
|                                                                          |  |            |   |  |                   |   |  |               |  |                       |   |  |               |  |                     |  
|2004                                                                      |  |            |   |  |                   |   |  |               |  |                       |   |  |               |  |                     |  
|Net sales to third and related parties                                    |  | 353.7      |   |  | 374.3             |   |  | 449.7         |  | 184.5                 |   |  |              |  | 1,362.2             |  
|EBIT                                                                      |  | (11.3      | ) |  | 19.4              |   |  | 57.2          |  | (0.4                  | ) |  |              |  | 64.9                |  
|Interest result, net                                                      |  |            |   |  |                   |   |  |               |  |                       |   |  |               |  | (5.9                | )
|Income before income taxes and minority interest                          |  |            |   |  |                   |   |  |               |  |                       |   |  |               |  | 59.1                |  
|Depreciation and amortization                                             |  | 30.3       |   |  | 33.0              |   |  | 74.5          |  | 15.4                  |   |  | 2.1           |  | 155.3               |  
|Capital expenditures on fixed assets (without long-term financial assets) |  | 26.3       |   |  | 30.6              |   |  | 41.5          |  | 10.0                  |   |  | 3.0           |  | 111.4               |  
|                                                                          |  |            |   |  |                   |   |  |               |  |                       |   |  |               |  |                     |  
|Total assets                                                              |  | 447.4      |   |  | 393.3             |   |  | 418.7         |  | 226.8                 |   |  |              |  | 1,486.2             |  
|                                                                          |  |            |   |  |                   |   |  |               |  |                       |   |  |               |  |                     |  
|2003                                                                      |  |            |   |  |                   |   |  |               |  |                       |   |  |               |  |                     |  
|Net sales to third and related parties                                    |  | 350.4      |   |  | 355.8             |   |  | 403.8         |  | 161.6                 |   |  |              |  | 1,271.6             |  
|EBIT                                                                      |  | (10.8      | ) |  | 15.9              |   |  | 16.7          |  | (16.3                 | ) |  |              |  | 5.5                 |  
|Interest result, net                                                      |  |            |   |  |                   |   |  |               |  |                       |   |  |               |  | (8.8                | )
|Loss before income taxes and minority interest                            |  |            |   |  |                   |   |  |               |  |                       |   |  |               |  | (3.3                | )
|Depreciation and amortization                                             |  | 31.3       |   |  | 30.2              |   |  | 78.5          |  | 14.5                  |   |  | 2.8           |  | 157.3               |  
|Capital expenditures on fixed assets (without long-term financial assets) |  | 18.8       |   |  | 25.9              |   |  | 37.0          |  | 12.2                  |   |  | 4.5           |  | 98.4                |  
|                                                                          |  |            |   |  |                   |   |  |               |  |                       |   |  |               |  |                     |  
|Total assets                                                              |  | 419.9      |   |  | 375.6             |   |  | 411.9         |  | 221.6                 |   |  |              |  | 1,429.0             |  
|                                                                          |  |            |   |  |                   |   |  |               |  |                       |   |  |               |  |                     |  



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##### Table of Contents

EPCOS AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

Information on the principal geographical areas, net
sales and identifiable assets for the years ended September 30, 2005, 2004 and 2003, are presented in the following table:



| |  | Financial information on geographical areas
|- |  | -------------------------------------------



|                               |  |           |  |                            |  |           |  |                            |  |           |  |                           
|------------------------------ |  | --------- |  | -------------------------- |  | --------- |  | -------------------------- |  | --------- |  | --------------------------
|                               |  | 2005      |  | 2004                       |  | 2003     
|As of September 30 ( million) |  | Net sales |  | Identifiabletangibleassets |  | Net sales |  | Identifiabletangibleassets |  | Net sales |  | Identifiabletangibleassets
|Europe                         |  |           |  |                            |  |           |  |                            |  |           |  |                           
|Germany                        |  | 360.5     |  | 191.0                      |  | 366.3     |  | 233.5                      |  | 351.5     |  | 234.5                     
|Austria                        |  | 16.7      |  | 117.7                      |  | 33.6      |  | 83.2                       |  | 30.1      |  | 84.5                      
|Other                          |  | 357.6     |  | 130.0                      |  | 401.0     |  | 151.6                      |  | 417.1     |  | 161.5                     
|Asia                           |  | 346.5     |  | 91.3                       |  | 393.8     |  | 103.3                      |  | 328.9     |  | 138.6                     
|United States                  |  | 70.6      |  | 9.6                        |  | 78.6      |  | 10.7                       |  | 75.6      |  | 13.2                      
|Other                          |  | 85.6      |  | 36.7                       |  | 88.9      |  | 22.1                       |  | 68.4      |  | 17.2                      
|                               |  |           |  |                            |  |           |  |                            |  |           |  |                           
|Total                          |  | 1,237.5   |  | 576.3                      |  | 1,362.2   |  | 604.4                      |  | 1,271.6   |  | 649.5                     
|                               |  |           |  |                            |  |           |  |                            |  |           |  |                           

22. Acquisitions

During the year ended September 30, 2003 the Company made a number of relatively small acquisitions, all of which were accounted for under the purchase accounting method and included in the consolidated financial statements.

The Company adopted SFAS No. 141 Business Combinations, which was effective for all business combinations initiated after June 30, 2001.
SFAS No. 141 requires that all business combinations have to be accounted for by the purchase method and requires separate recognition of intangible assets apart from goodwill, if they meet contractual-legal criteria or a separability
criterion. None of the Companys acquisitions during the fiscal years ended September 30, 2005, 2004 and 2003 were significant to the Companys results of operations for the respective periods.



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##### Table of Contents

EPCOS AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

In total the Company paid 9.703 million in
fiscal 2003 net of cash acquired for acquisitions of consolidated companies. Goodwill of 8.909 million in fiscal 2003 arose on these transactions.

23. Discontinued Operations

On December 12, 2005, EPCOS signed a contract to sell of its Tantalum Capacitor Business Unit to KEMET
Corp. based in the United States of America. The sale includes the plants in Évora, Portugal and parts of the activities in Heidenheim and Munich, Germany. Closing is expected to take place in Spring 2006.



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##### Table of Contents

Item 19. Exhibits



|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description of Exhibit                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|1             |  | Articles of Association of EPCOS AG (English translation), as amended in February 2004 (as registered with the commercial register of the lower court of Munich in April 2004)                                                                                                                                                                                                                                                                                                                                                                                    
|              | 
|2.1           |  | Form of Deposit Agreement between EPCOS AG, Morgan Guaranty Trust Company of New York and Owners and Holders of American Depositary Receipts (incorporated by reference to exhibit 4.1 of
EPCOS Registration Statement on Form F-1 (File No. 333 - 10844), filed on September 20, 1999).                                                                                                                                                                                                                                                                         
|              | 
|2.2           |  | Form of Share Certificate (English Translation) (incorporated by reference to exhibit 4.2 of EPCOS Registration Statement on Form F-1 (File No. 333 - 10844), filed on September 20,
1999).                                                                                                                                                                                                                                                                                                                                                                      
|              | 
|2.3           |  | Form of American Depositary Receipt (incorporated by reference to exhibit 4.3 included in exhibit 4.1 of EPCOS Registration Statement on Form F-1 (File No. 333 - 10844), filed on
September 20, 1999).                                                                                                                                                                                                                                                                                                                                                          
|              | 
|4.1           |  | Contribution Agreement between Siemens Aktiengesellschaft, Matsushita Electronic Components (Europe) GmbH and Siemens Matsushita Components Verwaltungsgesellschaft mbH, dated June 29, 1999
(incorporated by reference to exhibit 10.1 of EPCOS Registration Statement on Form F-1 (File No. 333  10844), filed on September 20, 1999).                                                                                                                                                                                                                        
|              | 
|4.2           |  | Shareholders Agreement by and between Siemens AG and Matsushita Electric Industrial Co., Ltd., Matsushita Electronic Components Co., Ltd. and Matsushita Electronic Components (Europe)
GmbH, dated June 29, 1999 (incorporated by reference to exhibit 10.2 of EPCOS Registration Statement on Form F-1 (File No. 333  10844), filed on September 20, 1999).                                                                                                                                                                                                  
|              | 
|4.3           |  | Patent Cross License Agreement between Matsushita Electric Industrial Co., Ltd. and Siemens Matsushita Components Verwaltungsgesellschaft mbH, dated June 30, 1999 (incorporated by reference
to exhibit 10.3 of EPCOS Registration Statement on Form F-1 (File No. 333  10844), filed on September 20, 1999).                                                                                                                                                                                                                                                  
|              | 
|4.4           |  | Patent Cross License Agreement between Matsushita Electric Industrial Co., Ltd. and EPCOS AG, effective on June 30, 2004 (incorporated by reference to Exhibit 4.4 of EPCOS Annual Report
for fiscal year 2004 on Form 20-F, filed on March 17, 2005, as subsequently amended).                                                                                                                                                                                                                                                                                  
|              | 
|4.5           |  | Technical Cooperation Agreement between Matsushita Electronic Components Co. Ltd. and Siemens Matsushita Verwaltungsgesellschaft mbH, effective on June 30, 1999 (incorporated by reference to
exhibit 10.4 of EPCOS Registration Statement on Form F-1 (File No. 333  10844), filed on September 20, 1999).                                                                                                                                                                                                                                                    
|              | 
|4.6           |  | Amendment Agreement to the Technical Cooperation Agreement between Matsushita Electronic Components Co., Ltd. and Siemens Matsushita Verwaltungsgesellschaft mbH, effective on June 30, 1999
(incorporated by reference to exhibit 10.4 of EPCOS Registration Statement on Form F-1 (File No. 333  10844), filed on September 20, 1999), effective on June 30, 2004.                                                                                                                                                                                            
|              | 
|4.7           |  | Technical Cooperation Agreement between Matsushita Electric Industrial Co., Ltd. and Siemens Matsushita Components Verwaltungsgesellschaft mbH, made on July 14, 1999, with effect as of June
30, 1999 (incorporated by reference to exhibit 10.5 of EPCOS Registration Statement on Form F-1 (File No. 333  10844), filed on September 20, 1999).                                                                                                                                                                                                              
|              | 
|4.8           |  | Amendment Agreement to the Technical Cooperation Agreement between Matsushita Electric Industrial Co., Ltd. and Siemens Matsushita Components Verwaltungsgesellschaft mbH, made on July 14,
1999, with effect as of June 30, 1999 (incorporated by reference to exhibit 10.5 of EPCOS Registration Statement on Form F-1 (File No. 333  10844), filed on September 20, 1999), effective on June 30, 2004 (incorporated by reference
to Exhibit 4.8 of EPCOS Annual Report for fiscal year 2004 on Form 20-F, filed on March 17, 2005, as subsequently amended).



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|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.9  |  | Rental Contract for Commercial Business Space between Industrieverwaltungsgesellschaft Aktiengesellschaft and Siemens Matsushita Components GmbH & Co. KG, effective as of July 1,
1994 (as supplemented and amended) (as example of form of rental contract relating to 11 properties leased by SAW components product group) (incorporated by reference to exhibit 10.6 of EPCOS Registration Statement on Form F-1 (File No.
333  10844), filed on September 20, 1999).
|     | 
|4.10 |  | Rental Contract for Commercial Business Space between Siemens Immobilien Management GmbH & Co. oHG, represented by Siemensstadt-Grundstücksverwaltung GmbH & Co. oHG, and Siemens
Matsushita Components GmbH, dated July 16, 1999 (incorporated by reference to exhibit 10.9 of EPCOS Registration Statement on Form F-1 (File No. 333  10844), filed on September 20, 1999).                                                                                             
|     | 
|4.11 |  | Rental Contract for Commercial Business Space between Siemens Aktiengesellschaft and Siemens Matsushita Components GmbH, dated August 6, 1999 (incorporated by reference to exhibit 10.10 of
EPCOS Registration Statement on Form F-1 (File No. 333  10844), filed on September 20, 1999).                                                                                                                                                                                
|     | 
|4.12 |  | Framework Agreement between Siemens AG and EPCOS AG Regarding Technical Developments of Siemens Central Technical Division, effective July 1, 1999 (incorporated by reference to exhibit 10.11
of EPCOS Registration Statement on Form F-1 (File No. 333  10844), filed on September 20, 1999).                                                                                                                                                                           
|     | 
|4.13 |  | Memorandum by and between Ceramics Division of Matsushita Electronic Components Co., Ltd. and Siemens Matsushita Components oHG, made and entered into as of July 7, 1998 (incorporated by
reference to exhibit 10.12 of EPCOS Registration Statement on Form F-1 (File No. 333  10844), filed on September 20, 1999).                                                                                                                                                    
|     | 
|4.14 |  | Technical Know-How Agreement between EPCOS oHG and Matsushita Electronic Components Co., Ltd., made and entered into as of July 25, 2001 (incorporated by reference to Exhibit 4.11 of
EPCOS Annual Report for fiscal year ended September 30, 2002 on Form 20-F, filed on March 24, 2003).                                                                                                                                                                                
|     | 
|4.15 |  | Know-How License Agreement by and between Matsushita-Kotobuki Electronics Industries, Ltd. and Siemens Matsushita Components GmbH & Co. KG, made and entered into as of January 15, 1999
(incorporated by reference to exhibit 10.13 of EPCOS Registration Statement on Form F-1 (File No. 333  10844), filed on September 20, 1999).                                                                                                                                     
|     | 
|4.16 |  | Form of Management Contract (incorporated by reference to Exhibit 4.16 of EPCOSs Annual Report for fiscal year ended September 30, 2004 on Form 20-F, filed on March 17,
2005).                                                                                                                                                                                                                                                                                            
|     | 
|8    |  | List of Subsidiaries of EPCOS AG at September 30, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                     
|     | 
|12   |  | Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                   
|     | 
|13   |  | Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                   
|     | 
|15   |  | Declaration of Conformity pursuant to the German Corporate Governance Code, dated December 13, 2005.                                                                                                                                                                                                                                                                                                                                                                        



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SIGNATURE

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.



EPCOS AG(Registrant)By:

/s/ WILFRIED BACKESDr. Wilfried Backes Chief Financial
Officer


Date: March 23, 2006