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Annual Report 2002
SGL CARBON AG
Head Office
Investor Relations
Rheingaustrasse 182
D-65203 Wiesbaden
Germany
Phone +49 (611) 60 29-100
Fax +49 (611) 60 29-101
Website: www.sglcarbon.com
Upcoming Events
2003
March 13 Annual Report,
Year-End Press Conference and Analyst Meeting,
Frankfurt am Main,
Conference Call
April 30 Annual General Meeting, Wiesbaden
May 14 Q1 Shareholders’ Letter, Conference Call
June 30 Form 20-F
August 12 Q2 Shareholders’ Letter, Conference Call
November 11 Q3 Shareholders’ Letter,
Fall Press Conference and Analyst Meeting,
Frankfurt am Main,
Conference Call
2004
March 16 Year-End Press Conference (to be confirmed)
April 30 Annual General Meeting (to be confirmed)
SGL
CARB
ON
GRO
UP
Ann
ual R
epor
t 200
2
Focused on Customers.Understand demands. Develop solutions. Create value.
Mission
Core Businesses
Strengthen global market position.
Achieve cost and technology leadership.
Optimize cash flow.
New Businesses (SGL Technologies)
Develop new businesses with high growth and profit potential.
Leverage carbon fiber to composite value chain.
Concentrate on core competencies: high temperature technology, advanced materials, and engineering.
SGL Excellence
Understand and satisfy customer requirements.
Create value for our customers, shareholders and employees.
Build trust and encourage knowledge sharing,continuous learning, open feedback and communication among all employees.
Take responsibility and lead by example.
Develop people and promote teamwork.
Provide a climate that meets all legal, personnel and environmental obligations.
Build a Corporate Identity throughout the Company.
SGL Carbon is the world’s largest manufacturer of carbon, graphite and composite
materials. In the manufacturing industry and the aerospace sector, our products
and system solutions allow our customers to improve their efficiency, safety,profitability and quality. With around 30 sites and a customer-orientedsales and service network today SGL Carbon is a company with a
global focus.
230441/SGL/Umschlag_E 12.03.2003 15:07 Uhr Seite 1
Annual Report 2002
SGL CARBON AG
Head Office
Investor Relations
Rheingaustrasse 182
D-65203 Wiesbaden
Germany
Phone +49 (611) 60 29-100
Fax +49 (611) 60 29-101
Website: www.sglcarbon.com
Upcoming Events
2003
March 13 Annual Report,
Year-End Press Conference and Analyst Meeting,
Frankfurt am Main,
Conference Call
April 30 Annual General Meeting, Wiesbaden
May 14 Q1 Shareholders’ Letter, Conference Call
June 30 Form 20-F
August 12 Q2 Shareholders’ Letter, Conference Call
November 11 Q3 Shareholders’ Letter,
Fall Press Conference and Analyst Meeting,
Frankfurt am Main,
Conference Call
2004
March 16 Year-End Press Conference (to be confirmed)
April 30 Annual General Meeting (to be confirmed)
SGL
CARB
ON
GRO
UP
Ann
ual R
epor
t 200
2
Focused on Customers.Understand demands. Develop solutions. Create value.
Mission
Core Businesses
Strengthen global market position.
Achieve cost and technology leadership.
Optimize cash flow.
New Businesses (SGL Technologies)
Develop new businesses with high growth and profit potential.
Leverage carbon fiber to composite value chain.
Concentrate on core competencies: high temperature technology, advanced materials, and engineering.
SGL Excellence
Understand and satisfy customer requirements.
Create value for our customers, shareholders and employees.
Build trust and encourage knowledge sharing,continuous learning, open feedback and communication among all employees.
Take responsibility and lead by example.
Develop people and promote teamwork.
Provide a climate that meets all legal, personnel and environmental obligations.
Build a Corporate Identity throughout the Company.
SGL Carbon is the world’s largest manufacturer of carbon, graphite and composite
materials. In the manufacturing industry and the aerospace sector, our products
and system solutions allow our customers to improve their efficiency, safety,profitability and quality. With around 30 sites and a customer-orientedsales and service network today SGL Carbon is a company with a
global focus.
230441/SGL/Umschlag_E 12.03.2003 15:07 Uhr Seite 1
AFRICA/ASIA
MoroccoSGL ACOTEC S.a.r.l. MAROC, Safi
SingaporeSGL ACOTEC Singapore Pte. Ltd., Singapore
ChinaSGL ACOTEC (Wuhan) Co. Ltd., Wuhan
AMERICA
BrazilSGL ACOTEC Ltda., São Paulo
CanadaSGL Canada Inc., Lachute
MexicoCeilcote S.A. de C.V., Mexico City
USASGL CARBON LLC., CharlotteM.G.P. Inc., RobesoniaHITCO CARBON Composites Inc., GardenaSGL TECHNIC Inc., Valencia SGL ACOTEC Inc., Strongsville
EUROPE
GermanySGL CARBON AG, WiesbadenSGL CARBON Beteiligung GmbH, WiesbadenSGL CARBON GmbH, MeitingenSGL TECHNOLOGIES GmbH, MeitingenSGL BRAKES GmbH, MeitingenSGL ACOTEC GmbH, SiershahnKCH Beteiligungs GmbH, SiershahnSGL PanTrac GmbH, Berlin
AustriaSGL CARBON GmbH & Co., Steeg
FranceSGL CARBON S.A., CheddeSGL TECHNIC S.A., GrenobleSGL ACOTEC S.a.r.l., Houdain
Great BritainRK Carbon International Ltd., WilmslowSGL TECHNIC Ltd., Muir of OrdP.G. Lawton Ltd., HalifaxSGL CARBON Ltd., AlcesterSGL ACOTEC Ltd., Sandbach
ItalySGL CARBON S.p.A., MilanSGL Risomesa S.p.A., MilanSGL ACOTEC S.p.A., Milan
PolandSGL CARBON S.A., Nowy Sacz SGL ACOTEC Polska Sp. z.o.o., KielceZEW Zaklady Elektrod Weglowych S.A., Ratibor
SpainSGL CARBON S.A., La Coruña
SGL CARBON Europe
Major consolidated companies
SGL
CARB
ON
wor
ldw
ide
SGL CARBON worldwideKey Figures
Key
Figu
res
and
Ove
rvie
w o
f Bus
ines
s A
reas
1 Reclassification of the graphite foils business from
Graphite Specialties to SGL Technologies2 Before provisions for antitrust risks and restructuring
expenses3 Before restructuring expenses4 Ratio of profit from operations to sales revenues5 After adjustments for exchange rate effects
and before antitrust payments6 Please refer to page 48
7 Not including extraordinary depreciation associated
with restructuring8 Carrying amounts of inventories and trade receivables
less trade payables9 Carrying amounts of property, plant and equipment,
intangible assets and working capital10 Ratio of financial liabilities less cash and cash
equivalents to equity
2002 2001 Change
(€ million) (€ million) (%)
Sales revenues 1,112 1,233 – 10
Carbon and Graphite 551 620 – 11
Graphite Specialties1 196 231 – 15
Corrosion Protection 212 236 – 10
SGL Technologies1 150 135 11
Profit from operations2 29 59 – 51
Carbon and Graphite3 52 79 – 34
Graphite Specialties1, 3 2 22 – 91
Corrosion Protection3 5 13 – 62
SGL Technologies1 – 12 – 34 – 65
Return on Sales4 3% 5%
Profit/loss before tax – 27 – 66 – 59
Net loss for the period – 24 – 95 – 75
Earnings per share (€) – 1.08 – 4.42 – 76
Profit from operations before depreciation
and amortization (EBITDA)2 110 145 – 24
Cash provided by operating activities5, 6 149 93 60
Investments in property, plant and equipment 41 91 – 55
Depreciation of property, plant and equipment7 71 78 – 9
Research and development costs 25 31 – 19
Working capital8 385 549 – 30
Capital employed9 967 1,213 – 20
Equity 196 255 – 23
Total assets 1,286 1,495 – 14
Gearing10 2.2 2.1
Number of employees (at end of year) 7,360 8,197 – 10
Market capitalization (at end of year) 175 488 – 64
Overview of Business Areas
Share of Group Sales
Products/Applications
Graphite Electrodes
Cathodes
Carbon Electrodes
Furnace Linings
Customer Industries
Steel
Aluminum
Metallurgy
Share of Group Sales
Products/Applications
Technical Carbon
Semiconductors
Mechanical Carbon
Electrical Contacts
Customer Industries
Chemicals
Energy
Glass and Ceramics
Semiconductor
Technology
Mechanical Engineering
Metallurgy
Automotive
Share of Group Sales
Products/Applications
Process Technology
Surface Protection
Customer Industries
Chemicals
Plant Construction
Energy
Transportation
Pharmaceuticals
Environmental Protection
Metallurgy
Share of Group Sales
Products/Applications
Brake Discs
Fuel Cell Components
Carbon Fibers, Yarns
and Fabrics
Aerospace Applications
Industrial Composites
Expanded Graphite
Customer Industries
Automotive
Electronics
Energy
Aircraft Construction
Defense
Semiconductors
Chemicals
50% 18% 19%13%
Carbon and Graphite [CG] Graphite Specialties [GS] Corrosion Protection [CP] SGL Technologies [T]
230441/SGL/Umschlag_E 12.03.2003 15:07 Uhr Seite 2
AFRICA/ASIA
MoroccoSGL ACOTEC S.a.r.l. MAROC, Safi
SingaporeSGL ACOTEC Singapore Pte. Ltd., Singapore
ChinaSGL ACOTEC (Wuhan) Co. Ltd., Wuhan
AMERICA
BrazilSGL ACOTEC Ltda., São Paulo
CanadaSGL Canada Inc., Lachute
MexicoCeilcote S.A. de C.V., Mexico City
USASGL CARBON LLC., CharlotteM.G.P. Inc., RobesoniaHITCO CARBON Composites Inc., GardenaSGL TECHNIC Inc., Valencia SGL ACOTEC Inc., Strongsville
EUROPE
GermanySGL CARBON AG, WiesbadenSGL CARBON Beteiligung GmbH, WiesbadenSGL CARBON GmbH, MeitingenSGL TECHNOLOGIES GmbH, MeitingenSGL BRAKES GmbH, MeitingenSGL ACOTEC GmbH, SiershahnKCH Beteiligungs GmbH, SiershahnSGL PanTrac GmbH, Berlin
AustriaSGL CARBON GmbH & Co., Steeg
FranceSGL CARBON S.A., CheddeSGL TECHNIC S.A., GrenobleSGL ACOTEC S.a.r.l., Houdain
Great BritainRK Carbon International Ltd., WilmslowSGL TECHNIC Ltd., Muir of OrdP.G. Lawton Ltd., HalifaxSGL CARBON Ltd., AlcesterSGL ACOTEC Ltd., Sandbach
ItalySGL CARBON S.p.A., MilanSGL Risomesa S.p.A., MilanSGL ACOTEC S.p.A., Milan
PolandSGL CARBON S.A., Nowy Sacz SGL ACOTEC Polska Sp. z.o.o., KielceZEW Zaklady Elektrod Weglowych S.A., Ratibor
SpainSGL CARBON S.A., La Coruña
SGL CARBON Europe
Major consolidated companies
SGL
CARB
ON
wor
ldw
ide
SGL CARBON worldwideKey Figures
Key
Figu
res
and
Ove
rvie
w o
f Bus
ines
s A
reas
1 Reclassification of the graphite foils business from
Graphite Specialties to SGL Technologies2 Before provisions for antitrust risks and restructuring
expenses3 Before restructuring expenses4 Ratio of profit from operations to sales revenues5 After adjustments for exchange rate effects
and before antitrust payments6 Please refer to page 48
7 Not including extraordinary depreciation associated
with restructuring8 Carrying amounts of inventories and trade receivables
less trade payables9 Carrying amounts of property, plant and equipment,
intangible assets and working capital10 Ratio of financial liabilities less cash and cash
equivalents to equity
2002 2001 Change
(€ million) (€ million) (%)
Sales revenues 1,112 1,233 – 10
Carbon and Graphite 551 620 – 11
Graphite Specialties1 196 231 – 15
Corrosion Protection 212 236 – 10
SGL Technologies1 150 135 11
Profit from operations2 29 59 – 51
Carbon and Graphite3 52 79 – 34
Graphite Specialties1, 3 2 22 – 91
Corrosion Protection3 5 13 – 62
SGL Technologies1 – 12 – 34 – 65
Return on Sales4 3% 5%
Profit/loss before tax – 27 – 66 – 59
Net loss for the period – 24 – 95 – 75
Earnings per share (€) – 1.08 – 4.42 – 76
Profit from operations before depreciation
and amortization (EBITDA)2 110 145 – 24
Cash provided by operating activities5, 6 149 93 60
Investments in property, plant and equipment 41 91 – 55
Depreciation of property, plant and equipment7 71 78 – 9
Research and development costs 25 31 – 19
Working capital8 385 549 – 30
Capital employed9 967 1,213 – 20
Equity 196 255 – 23
Total assets 1,286 1,495 – 14
Gearing10 2.2 2.1
Number of employees (at end of year) 7,360 8,197 – 10
Market capitalization (at end of year) 175 488 – 64
Overview of Business Areas
Share of Group Sales
Products/Applications
Graphite Electrodes
Cathodes
Carbon Electrodes
Furnace Linings
Customer Industries
Steel
Aluminum
Metallurgy
Share of Group Sales
Products/Applications
Technical Carbon
Semiconductors
Mechanical Carbon
Electrical Contacts
Customer Industries
Chemicals
Energy
Glass and Ceramics
Semiconductor
Technology
Mechanical Engineering
Metallurgy
Automotive
Share of Group Sales
Products/Applications
Process Technology
Surface Protection
Customer Industries
Chemicals
Plant Construction
Energy
Transportation
Pharmaceuticals
Environmental Protection
Metallurgy
Share of Group Sales
Products/Applications
Brake Discs
Fuel Cell Components
Carbon Fibers, Yarns
and Fabrics
Aerospace Applications
Industrial Composites
Expanded Graphite
Customer Industries
Automotive
Electronics
Energy
Aircraft Construction
Defense
Semiconductors
Chemicals
50% 18% 19%13%
Carbon and Graphite [CG] Graphite Specialties [GS] Corrosion Protection [CP] SGL Technologies [T]
230441/SGL/Umschlag_E 12.03.2003 15:07 Uhr Seite 2
Contents
1
CG28
Carbon and Graphite
GS32
Graphite Specialties
CP36
Corrosion Protection
T40
SGL Technologies
Business in 2002 2Company Goals 2002 and 2003 6SGL Excellence 8Corporate Governance 10
Group Management Report
Business developments within the Group 12Business developments 15Balance sheet structure 17Liquidity and capital resources 18Investments and depreciation 19Research and development 19Environmental protection and health and safety 21Risk report 22Outlook for 2003 23Annual financial statements of SGL Carbon AG (condensed) 25
Business Reporting
Carbon and Graphite [CG] 28Graphite Specialties [GS] 32Corrosion Protection [CP] 36SGL Technologies [T] 40
Our Shares 42Human Resources 44
Consolidated Financial Statements
and Notes
Consolidated Income Statement 46Consolidated Balance Sheet 47Consolidated Cash Flow Statement 48Consolidated Statement of Changes in Equity 49Notes to the Consolidated Financial Statements 50
Report of the Supervisory Board 84Supervisory Board 87Executive Committee 88Management 89Highlights 2002 90History 91Contact Details and Acknowledgements 92
2
Robert J. Koehler
Chairman of the
Executive Committee
Business in 2002
Questions to the Chairman of the Executive Committee, Robert J. Koehler
Mr. Koehler, looking back, how would you summarize fiscal 2002?For the first time in decades, the economy slumped in all the key regions – America, Europe and
Asia – at the same time, even slipping into recession in some cases. The recovery expected by
the second half of 2002 at the latest did not happen. Our customers in the chemicals and semi-
conductor industries were hit by the economic crisis as well. Only the steel industry began
to show slight signs of recovery after the specific crisis in the US and the end of destocking in
Europe.
How did SGL Carbon develop in this difficult environment?Given this environment, we did well. Our key goal in 2002 was to increase cash flow so that we
could lower our debt. We increased cash flow considerably by making significant reductions
in working capital and tightly controlling capital spending. However, lowering inventories also
reduced capacity utilization and, as a result, our profit from operations suffered. The restructuring
program introduced at the end of 2001 allowed us to cut costs considerably in Carbon and
Graphite and Graphite Specialties. Cost-cutting measures were also successful in Corrosion
Protection and SGL Technologies.
Did you succeed in reducing the Company’s financial liabilities? Absolutely: instead of our original target of 5% for 2002, we cut net debt by 19%. We were even
able to reduce working capital by 30%.
And yet you were unable to reach your earnings target for 2002.It’s true that, in late 2001/early 2002, our goal was to keep our operating result at roughly the same
level as the previous year. By the end of the first quarter of 2002, however, given the evident
economic downturn, we decided to accelerate our restructuring measures. We had originally
announced staff cuts of 430 employees for 2002. Instead, we reduced our payroll by more than
800 people – incurring corresponding charges in the year under review. Parallel to this, we accel-
erated our inventory reduction measures beyond plan, which had a negative impact on our
operating result, as described above. Finally, cost-cutting measures at CG and GS were more
successful than expected, as a result of which we needed to take a valuation charge for inventories,
thus further reducing profit from operations. For us, 2002 was a year of restructuring. The fact
that we accelerated the measures that needed to be taken over the course of the year, in some
cases bringing them forward to the year under review, will pay off in coming years.
Business in 2002
3
What was the reason behind SGL Carbon’s refinancing?In order to cover SGL Carbon’s medium-term finance requirements, we refinanced our debt by
taking out a syndicated loan at reasonable conditions in December 2002. The refinancing package
will allow us to remain flexible and has created a stable basis for our long-term, internationally-
oriented strategy. Besides, in light of the difficult economic environment, we see the fact that
the banks granted us this loan as proof of their confidence in our Company.
Isn’t the refinancing package expensive, and what will happen after the loan expires?Naturally, medium-term planning security for loans has its price: the initial interest rate is roughly
6%, which is only around 1% more than our previous average rate. The loan has a term of two
and a half years. When we come to negotiate follow-up financing with the banks at the end of this
period, SGL Carbon will have reduced its debt further and will certainly be in better economic
shape than it is today.
How do you intend to further reduce debt?By continuing increasing cash flow. The key lever in achieving this now is improving our profit from
operations. We are also going to continue reducing working capital, though our success in 2002
means that we no longer have as much potential to do this.
What progress have you made with the “SGL Excellence” improvement initiative?The goal of this Group-wide initiative is to continuously create customer value by permanently
strengthening the Company’s competitiveness. The first year of our improvement initiative went
very well: for example, we launched 42 projects to increase cash flow and profit as part of our
Six Sigma measures. These projects already made positive contributions to cash flow and profit
in their first year. And more than 200 employees worldwide have already been trained to help
implement these projects.
Bruno Toniolo, Klaus Warning
Members of the
Executive Committee
» 2002 was a year of restructuring. We
have accelerated and brought forward the
necessary measures, and this will pay off
in coming years. «
Business in 2002
4
Turning to Corporate Governance: has the German Government Commission’s Code been implemented in your Company?This is not a new topic for us. After all, back in 1999 – as the MDAX representative on the German
Panel on Corporate Governance – we played an active role in the preparatory work on extending
German corporate governance and aligning it with the interests of shareholders. The Government
Commission’s new German Corporate Governance Code, which came into effect at the end of
2002 and which we expressly welcome, was the next logical step in this process. We only had
to slightly augment our own existing Corporate Governance Principles to meet the Code’s recom-
mendations. Our Principles were approved by the Executive Committee and the Supervisory Board
in December 2002. The key components of these Principles and our declaration of conformity
are described in more detail in a separate section of this Annual Report.
What are your expectations for 2003?I am skeptical as to whether there will be an appreciable recovery in the global economy in the
course of 2003. We are not, therefore, expecting a significant pickup in demand from our cus-
tomer industries. However, our accelerated restructuring and cost-cutting programs will positively
affect results, and we are aiming to break even at SGL Technologies. Overall, we want to see
a clear improvement in our profit from operations as compared to 2002. However, our main goal
in 2003 is to continue reducing debt.
What can shareholders expect from SGL Carbon in 2003?There’s no question that most shareholders were extremely disappointed by stock exchange
performance in 2002: financial markets the world over were in crisis, some share prices fell into
an abyss from which they have yet to emerge, and billions of euros of assets were destroyed.
SGL Carbon’s shares were also hit by this trend. On top of this, damaging market rumors put
pressure on our shares as well. However, thanks to the refinancing package and our positive
outlook for the next years, we believe that our share price has the potential to recover. Our stable
financial situation will pay off for our customers and employees, too. Our customers can continue
to count on SGL Carbon as a sound partner, and we will remain a reliable employer for our staff.
In this context, I would like to thank all our stakeholders for the successful cooperation in fiscal
2002 and for the trust they continue to put in our Company.
Hariolf Kottmann
Member of the
Executive Committee
Theodore H. Breyer
Member of the
Executive Committee
» Our main goal in 2003 is to
continue reducing debt. «
5
2002
Established Businesses CG, GS, CP
SGL Technologies
CG and GSorganization
Goal: Streamlining of organizationStatus: Transformation of CG and GSinto global business units reportingdirectly to members of the ExecutiveCommittee
Comment: Adjustment of organizationalstructures to match globalization by customersand competitors; streamlining of managementlevels
Restructuring CG and GS
Goal: Reduction of costs by €22 millionStatus: Reduction of costs by €30 million
Comment: Closure of four locations in the US,further specialization of production sites
Business Area Goal: Reduction of losses by 50%Status: Reduction of losses by 65%
Comment: Significant cost reductions andincreases in sales revenue in all businesses
New products Goal: Alliances/joint venturesStatus: Alliances intensified
Comment: Increased cooperation withautomotive manufacturers in the brake discbusiness
Composites Goal: Expansion of aerospace businessStatus: Strengthening of the defensebusiness in the US
Comment: Additional business from newprojects and orders
Fibers Goal: Increase in sales revenueStatus: Increase in sales revenue of 21%
Comment: Higher demand for fibers
Company Goals and Status 2002Group
Cash flow Goal: Significant increase Status: €135 million increase in free cash flow
Comment: Reduction of investments andworking capital
Working capital Goal: Reduction by more than 5%Status: Reduction by 30%
Comment: Significant inventory reduction
Net debt Goal: Reduction by more than 5%Status: Reduction by 19%
Comment: Higher cash flow for debtrepayment
Company Goals 2002 / 2003
6
2003Profit fromoperations
Goal: Substantial improvement Comment: Lower cost base and slight increase involumes and prices
Goal: Further reduction of debt Comment: Higher profit from operations and limitedinvestment volume
SGL Excellence Goal: Contribution toearnings of €10 million
Comment: Rollout of SIX SIGMA projects throughoutthe entire Company to ensure continuous improvement
Profit fromoperations
Goal: Increase in all businesses Comment: Continuation of the restructuring programsat CG and GS; increase in sales revenue
Prices Goal: Increase for graphiteelectrodes
Comment: Price increase of €100 –200/ton in thecourse of the year compared to prices in Q4/2002.
Business Area Goal: To further reduce losses and nearly break even in profit from operations
Comment: Increase in sales revenue of around 10%and further cost cuts
New products Goal: Business expansion Comment: Increase in productivity and winning newcustomers for the brake disc business. Innovationsin expanded graphite.
Composites
Fibers
Goal: Expansion of aerospacebusiness
Goal: To expand the productrange
Comment: New orders in US (HITCO) and establishmentof European business. Strategic review of smallerproducts. Increase in sales revenue in excess of 15%.
Comment: Development of new applications.Examination of joint venture opportunities.
Company Goals 2003
Established Businesses CG, GS, CP
SGL Technologies
Group
Net debt
Company Goals 2002 / 2003
7
SGL Excellence
8
SGL Excellence
SGL Excellence is a program which aims to create a corporate culture of continuous
improvement. Our employees are at the heart of this process.
At the beginning of 2002, SGL Carbon launched its Group-wide improvement initiative called
“SGL Excellence”, which is based on three pillars:
People Excellence promotes improvements in human resources by developing existing talent and retaining excellent employees within theCompany on a long-term basis.
Operational Excellence optimizes operationalfunctions by cutting costs, improving productivity and performance and reducing current assets.
Commercial Excellence brings improvement in theadministrative sector, for example, in logistics, inportfolio management, in pricing or in competitiveanalyses.
The SIX SIGMA methodologySGL Excellence uses the proven SIX SIGMA methodology. This uses clear goals, detailed measure-
ment and analysis of existing workflows, and the implementation and monitoring of improvements
to achieve the sustained optimization of Company processes.
Results after one yearBefore SIX SIGMA could be implemented successfully, the infrastructure for it had to be put into
place within the Company. SIX SIGMA is based on the successful deployment of highly-motivated
employees who are trained in the special methodology and its application via external training
courses. After one year, 212 employees have been trained, including a total of 38 so-called
“Black Belts”. These are project leaders who are relieved of their existing responsibilities and after
completing a four-week training course, implement three to four improvement projects a year
with different teams. In addition, SGL Carbon currently boasts three “Master Black Belts”. These
coach the project teams, coordinate all SIX SIGMA projects within the Company, and train team
members.
SGL EXCELLENCE
COMMERCIALEXCELLENCE
OPERATIONALEXCELLENCE
PEOPLEEXCELLENCE
SGL Excellence
9
In 2002, increasing cash flow was a priority. This was mainly achieved through projects to reduce
inventories and receivables.
Targets for 2003The projects started in 2002 and those for 2003 are expected to produce improvements of €10 mil-
lion. The systematic application of the SIX SIGMA methodology will lead to further sustained
reduction in the cost structure and to an increase in cash flow. In addition, an increasing number of
projects will be initiated with the goal of improving customer benefits and customer satisfaction.
We will also make our internal processes measurable and focus them on the basics.
Improving customer benefits
Example: From order to delivery
Operational Excellence: Systematic application of the SIX SIGMA methodology in the GS business unit in Bonn allowed thelatter to significantly improve the process between incoming order and customer delivery.
The use of “lean tools” such as Kanban (pull production) led to a 30% reduction in work in process (WIP) inventories.
The number of delayed deliveries was reduced by 90%.
Commercial Excellence:This project also involved the examination of administrative tasks in order to improve the focus on our customers‘ needs.
Workflow improvements enabled a 35% reduction in turnaround times.
The application of the SIX SIGMA methodology is the critical success factor in enabling us to improve our competitiveness in the long term.
– 30 %
– 35 %
– 90 %
Corporate Governance
10
Corporate Governance
SGL Carbon AG’s Corporate Governance Principles are intended to guarantee transparent and
responsible management and supervision of the Company aimed at increasing its enterprise value.
Their purpose is to constantly promote the confidence of our shareholders, business partners
and employees, as well as that of the general public.
As the MDAX representative on the German Panel on Corporate Governance, we have been
actively supporting the preparatory work for more far-reaching, shareholder-oriented corporate
governance in Germany since 1999. This preparatory work led to the publication of SGL Carbon
AG’s Corporate Governance Principles. An updated version of these Principles, which were
extended to include the recommendations of the Government Commission on the German
Corporate Governance Code, was adopted by the Executive Committee and the Supervisory
Board at the end of 2002.
The Principles are intended to make the work of the Executive Committee and the Supervisory
Board (and the way in which they interact) more transparent, as well as to define the responsibili-
ties of these bodies more precisely. They can be broken down into the following core elements:
1. Legal basisThis provides the general framework for SGL Carbon AG’s Articles of Association and Corporate
Governance Principles.
2. Principles governing the work of the Executive CommitteeThese include the allocation of responsibilities and cooperation within the Executive Committee,
cooperation with the operating units, organizational principles of the Company, duties to supply
information, rules for conflicts of interest and own-account transactions, as well as remuneration
guidelines.
3. Principles governing the work of the Supervisory BoardThese cover, in particular, the responsibilities and duties of the Supervisory Board, the adoption
of resolutions, rules for conflicts of interest and own-account transactions, as well as attendance
at meetings. The Supervisory Board has a Personnel Committee, a Finance and Audit Committee
and a Strategy Committee, which gives the Supervisory Board a greater degree of involvement in
the development of Company strategy. Each committee’s tasks and how they cooperate with
the Supervisory Board as a whole are precisely defined.
4. Regulations on the cooperation between the Executive Committee and the Supervisory Board
Among other things, these include the principles governing information and communication
between the bodies and in the committees as well as the principles governing the preparation
of meetings.
Corporate Governance
11
5. Specific guidelinesThese provide guidelines for communication with the financial markets, preventing insider trading,
and SGL Carbon’s compliance policy. The latter monitors the special non-disclosure obligations
of the members of the Executive Committee and the Supervisory Board as well as observance
of the rules governing insider trading and the “Global Antitrust Compliance Policy”. These guide-
lines contain an explanation of the legal situation and rules of conduct for SGL Carbon’s Executive
Committee, Supervisory Board and employees, which are communicated regularly in special
training courses.
SGL Carbon AG’s Corporate Governance Principles comply with the recommendations of the
Government Commission on the German Corporate Governance Code with the following
exceptions:
SGL Carbon AG’s Articles of Association provide for fixed compensation for members of
the Supervisory Board as well as additional compensation for committee work. We believe
that these regulations are suited to our Company and we will therefore retain them for the
foreseeable future.
The D&O insurance policy taken out by the Company for the Executive Committee and the
Supervisory Board does not include a deductible. We are in agreement with the Supervisory
Board that a deductible is not a suitable method of improving responsible conduct by the
Executive Committee and the Supervisory Board. Furthermore, such deductibles are not
customary abroad.
As a sign of their agreement and personal commitment, all of the members of SGL Carbon AG’s
Executive Committee and Supervisory Board have signed the Corporate Governance Principles.
The Principles will be amended as necessary in the future to reflect further developments in
legislation, recommendations and actual practice.
» The purpose of the Corporate Governance
Principles is to promote the confidence of our
shareholders, business partners and employees
as well as that of the general public. «
12
Group Management Report
Economic environmentAs expected, the global economy did not recover in 2002. The economic and geopolitical effects
of September 11, 2001 on an already weak economy and the increasing threat of war in the
Middle East further impacted the global economy.
This development affected most of our customer industries and led, among other things, to
reduced investment activity in key sectors such as the chemical industry and mechanical and
plant engineering. Demand also continued to decline in the electronics industry and in the semi-
conductors market. In contrast, the steel industry almost matched 2001 production levels for the
full year, despite the difficult economic environment and bankruptcies among US steel producers.
The protective tariffs imposed on US steel imports since March 2002 led to a reduction in supply.
This resulted in price increases on the American market, which had a follow-on effect in Europe
and Asia.
Business developments within the GroupConsolidated sales revenue down on previous year
At €1,112 million, consolidated sales revenue was down 10% year-on-year. The encouraging busi-
ness developments at SGL Technologies were unable to offset the slump in the price of graphite
electrodes and the downturn in key customer industries for our established businesses.
This affected the breakdown of sales revenue from our Business Areas: while the proportion
of business accounted for by Carbon and Graphite [CG] fell from 51% to 50% and that of Graphite
Specialties [GS] from 20% to 18%, the share attributable to SGL Technologies [T] increased to
13% (previous year: 10%). Corrosion Protection [CP] remained unchanged at 19%.
Changes in the regional sales revenue breakdown were minimal: there was a slight decline
in the share of sales revenue attributable to Germany, at 19% (previous year: 20%), and North
America, at 25% (previous year: 26%), whereas the rest of Europe and the remaining world rose
to 34% (previous year: 33%) and to 22% (previous year: 21%), respectively.
Consolidated sales revenue (€m)
1,500
1,000
500
01998 1999 2000 2001 2002
Sales revenue by Business Area
GS: 18%
CG: 50%
CP: 19%
T: 13%
Group Management Report
13
Gross profit down on previous year
Gross profit amounted to €226 million, 23% below the previous year, and the gross return on
sales fell from 24% to 20%. This development is mainly due to the drop in the price of graphite
electrodes, the reduction of inventory levels (which partly affected earnings), and the economic
slump in the customer industries for our GS and CP businesses. We were able to prevent a further
drop in the gross return on sales with our restructuring program in CG and GS, which was approved
at the end of 2001. The cost-cutting measures developed better than expected, contributing to
lower cost of sales than in the previous year.
At €139 million, selling expenses were down 10% on the previous year’s figure (€154 million).
We were also able to significantly reduce research and development costs in the period under
review by 18% to €25 million (€31 million). General and administrative expenses were cut by
€10 million to €48 million. At €15 million, net other operating income and expenses increased
by around €5 million from the previous year.
Drag on earnings due to weak economy, provisions and special factors
The profit from operations before costs relating to antitrust proceedings and restructuring expenses
fell from €59 million in the previous year to €29 million.
In addition to lower sales mainly in GS and CP and the deterioration in prices of graphite elec-
trodes, two special factors are primarily attributable to this:
Firstly, although the planned reduction in inventory levels at CG and GS led to an improve-
ment in cash flow, it also resulted in a further decrease in capacity utilization, and, in turn, to
lower absorption of our fixed costs. This affected earnings by approximately €18 million. Secondly,
although the restructuring measures introduced in CG substantially improved our cost position,
this led to a lower valuation of inventories (and resulting charge) at the end of the year.
As part of its investigation of the graphite industry for anti-competitive behavior between 1992
and 1997, which has been ongoing since 1997, the European Commission imposed a fine of €28
million on SGL Carbon AG in December 2002 with regard to its Graphite Specialties activities. We
Sales revenue by region Origin
Germany: 37%
North America: 24%
Rest ofEurope: 38%
Remaining World: 1%
Sales revenue by regionDestination
Germany: 19%
North America: 25%
Rest ofEurope: 34%
Remaining World: 22%
Group Management Report
14
do not believe this fine to be justified and will lodge an appeal against the decision with the
European Court. However, in order to cover any possible risks, we have increased the existing
antitrust provision by €22 million as a precautionary measure.
In addition to the restructuring program for CG and GS in North America, which was resolved
at the end of 2001, we identified further cost-cutting potential in 2002 and took immediate action.
Restructuring measures in the European CP and GS businesses that were implemented ahead of
schedule led to 287 additional positions being eliminated. These actions resulted in a one-time
charge on profit from operations of approximately €8 million.
The consolidated loss from operations including costs relating to antitrust proceedings and
restructuring expenses therefore amounted to €–2 million in the year under review (previous year:
€–17 million).
Net financing costs almost halved in comparison to previous year
In fiscal year 2002, net financing costs were reduced by €23 million to €25 million. Due to lower
interest rates and the reduction of our net debt, net interest expense on loans fell to €25 million
(previous year: €26 million). At €10 million, the interest component of additions to pension provi-
sions remained almost unchanged. The translation at the balance sheet date of our US antitrust
liabilities into euros led to a positive non-cash exchange rate effect of around €4 million (previous
year: €–5 million) due to the weakness of the US dollar.This effect also contains the market
valuation of the derivative financial instruments used to hedge currency risks relating to our US
antitrust liabilities, which are denominated in dollars. The rescheduling of the US antitrust authorities’
payment plan and the related non-cash accrued interest on dollar liabilities due between 2003
and 2007 also made a positive contribution of €3 million to the net financing costs (previous year:
€–3 million).
Net loss after taxes improves
The tax income for the fiscal year was the result of the recognition of tax loss carryforwards. These
exceeded the tax liabilities resulting from the positive earnings in foreign companies which could
not be offset against loss carryforwards generated by other companies. As in the previous year, we
did not recognize deferred tax assets on the losses incurred in the US and in Great Britain. In
2002, the addition to the provision for antitrust risks was treated as a non-tax deductible expense
for consolidated reporting purposes. If both of these effects had been taken into account, the
net loss after taxes for 2002 would have been reduced by an additional approximately €19 million.
In fiscal year 2002, the net loss improved to €–24 million (previous year: €–95 million). Earnings
per share amounted to €–1.08 (previous year: €–4.42).
Group Management Report
15
Restructuring of CG and GS implemented successfully
The restructuring and cost-cutting program designed to reorganize and further improve the effi-
ciency of our global graphite business, which was approved at the end of 2001, is developing
better than expected. Specialization at the CG production sites is well underway. We have reduced
our headcount by 482 and improved the efficiency of production processes, which has resulted
in a sustained reduction in production costs.
US feedstock production in the GS Business Area has been consolidated further. Our highest-cost
site, Niagara Falls, was closed in order to improve capacity utilization at our Morganton site. We
consolidated further processing and finishing in St. Mary’s by closing our Dallas and Hillsboro sites.
In addition to the rationalization effects, these measures resulted in an additional elimination of
115 positions. Our restructuring program allowed us to realize cost savings of €30 million in 2002,
€8 million more than originally expected. We also anticipate further cost savings to be made in
the coming year.
Business developmentsCarbon and Graphite [CG]: Results affected by price pressure and restructuring
At €551 million, CG sales revenue in fiscal 2002 was down 11% on the previous year. In the first
quarter in particular, the slump in the steel industry in Japan and North America and the inventory
reduction in Europe had an effect. The steel industry recovered slowly over the rest of the year,
but could not make up for the slump at the beginning of the year. Sales volumes of graphite elec-
trodes fell by 2% to 173,000 tons. The average price of graphite electrodes dropped by 16% to
€2,248 per ton in the reporting period. This development was mainly due to existing overcapacity.
Profit from operations by Business Area (€m)Profit from operations (€m)
2002 2001 Change (%)
CG 52 79 – 34
GS 2 22 – 91
CP 5 13 – 62
T – 12 – 34 – 65
Corporate costs – 18 – 21 – 15
Group 29 59 – 51
200
150
100
50
019981,2 19991 2000 20012 20022
1 HGB (German Commercial Code)2 before costs relating to antitrust proceedings
and restructuring expenses
1 before restructuring expenses
1
11
1
Group Management Report
16
Due to continuing strong demand from the aluminum industry, sales revenue from cathodes
was up 21% to €91 million. Furnace lining sales revenue, on the other hand, remained unchanged
at €14 million. We were also able to increase sales revenue from carbon electrodes for silicon
production by 11% to €42 million.
Profit from operations fell in fiscal year 2002 to €52 million (previous year: €79 million). The
cost savings only partly offset lower prices for graphite electrodes in Europe and North America.
The reduced production costs from our restructuring program resulted in a one-time non-cash
impairment loss of €6 million related to the valuation of inventory at the end of the year. In addition,
the reduction in inventory levels to improve cash flow and the lower cost coverage due to the
decline in sales revenue affected profit from operations by €6 million.
Graphite Specialties [GS]: Profit from operations impacted by inventory reduction
and declining demand
As a consequence of the ongoing economic weakness in our customer industries (semiconductors,
chemicals, and mechanical and plant engineering), sales revenue declined by 15% to €196 million.
This affected all product areas with the exception of mechanical carbons. In addition to weak sales,
the planned reduction in inventory levels affected earnings by €12 million, due to the high level of
internal value added and associated high fixed costs portions. At €2 million, profit from operations
before restructuring measures was down €20 million year-on-year. The cost savings of around
€7 million from the restructuring program were unable to offset these negative effects. Additional
restructuring measures in Europe, which were accelerated from 2003, resulted in the reduction
of 91 positions and impacted earnings by €5 million. This resulted in a loss from operations of
€–3 million after restructuring measures.
Corrosion Protection [CP]: Economic downturn leads to low capacity utilization
CP sales revenue fell by 10% to €212 million in the year under review. This was mainly caused by
the reluctance of our key customer industries to invest, an overall drop in maintenance and repair
expenditures, as well as the postponement of orders by our customers in the chemical, energy
and environmental industries. This development influenced all product areas.
It also led us to accelerate additional structural adjustments originally planned for the coming
years to fiscal 2002. In the course of these restructuring measures, a total of 196 positions were
eliminated at our two German sites in Siershahn and Bornum, as well as in Houston (USA) and
at various other sites. The costs involved amounted to around €4 million in the year under review.
At €5 million, the profit from operations before restructuring expenses was down from last year’s
level (€13 million), as the ongoing rationalization measures could not fully compensate for the
decline in capacity utilization. This led to a profit from operations after restructuring expenses of
€1 million in 2002.
Group Management Report
17
SGL Technologies [T]: Loss reduction exceeds expectations
In the fiscal year under review, sales revenue by SGL Technologies increased by 11% to €150 million.
The defense business of our US subsidiary HITCO developed particularly encouragingly: sales
revenue increased by 15%. We were also able to increase sales volumes of oxidized carbon fibers
for the aircraft industry and composites for the automotive industry.
With a loss from operations of €–12 million, we managed to reduce the loss recorded last
year (€–34 million) by more than our original target of 50%. The start-up costs incurred in the
commencement of our full-scale production of carbon-ceramic brake discs, underutilization of our
fiber facilities and expenses relating to the further development of both fuel cell components
and the defense business still affected results. However, we have been able to substantially reduce
the losses in these areas.
Balance sheet structureTotal assets at the end of 2002 amounted to €1,286 million, down from the prior year-end by
€209 million, of which €89 million is due to exchange rate effects. The main reasons for the
€84 million decline in noncurrent assets were foreign currency translation effects (€50 million)
and depreciation and amortization in excess of capital expenditures by €27 million. We sub-
stantially reduced our working capital (net carrying amounts of inventories and trade receivables
less trade payables); the 30% drop to €385 million (previous year: €549 million) is mainly due to the
targeted reduction of inventories (€–106 million) as well as to a drop in receivables (€–54 million).
As a result of these measures, we were able to reduce our net financial liabilities by €100 million,
or 19%, to €427 million. Our gearing – the ratio of net financial liabilities to equity – rose slightly
to 2.2 (previous year: 2.1). Equity declined from €255 million to €196 million, mainly due to
exchange rate effects, as well as costs relating to antitrust proceedings and restructuring expenses.
As a result, the equity ratio fell to 15% (previous year: 17%).
Balance sheet structure (%)
01
1,495
02
1,286
01
1,495
02
1,286
Noncurrentassets
47
26
2730
22
48 1517
24
36 35
23 24
26
Equity
Provisions
Other liabilities
Net financialliabilitiesInventories
Receivables,other
Total assets (€m)
Group Management Report
18
Liquidity and capital resourcesDebt down substantially, refinancing arrangements concluded successfully
In the year under review, we further reduced our net financial liabilities (financial liabilities less
cash and cash equivalents) by €100 million from €527 million to €427 million. The key measures
included a significant reduction in working capital, planned cut-backs in capital expenditures in
property, plant and equipment (€41 million against €91 million in 2001) and lower antitrust payments
as a result of the rescheduling of the payment plan agreed with the US antitrust authorities in
the first quarter of 2002. At the end of the fiscal year, sales of receivables had reached €41 million
(end of 2001: €11 million). Cash provided by operating activities after adjustment for exchange
rate effects increased to €139 million, compared with €56 million in the last fiscal year. At the same
time, we increased our free cash flow (cash provided by operating activities minus cash used in
investing activities) by €135 million, to €98 million. This indicates that the reduction in net financial
liabilities was funded primarily from operations.
In December 2002, we concluded a comprehensive financing package of firm loan commit-
ments amounting to €510 million. The syndicated loan has a term of two and a half years and was
secured at normal market conditions. Together with the existing €134 million convertible bond,
this covers SGL Carbon’s entire financial liabilities, including the antitrust fines. The loan has been
granted subject to the condition that the Group complies with standard bank covenants, such
as the ratio of net debt to EBITDA and EBITDA to interest expense. The syndicated loan provides
a solid basis for the Group’s medium-term financing requirements.
Profit from operations before depreciation and amortization (EBITDA) and before antitrust risks
and restructuring expenses amounted to €110 million, down roughly €35 million year-on-year.
At €242 million in total, our established businesses continued to generate strongly positive cash
Income statement, summary (€m)
2002 2001
Sales revenue 1,112 1,233
Costs of sales – 886 – 941
Gross profit 226 292
Selling/administration/general expenses – 197 – 233
Profit from operations 29 59
Costs relating to antitrust proceedings
and restructuring expenses – 30 – 76
Net financing costs – 26 – 49
Loss before tax – 27 – 66
Income tax benefit/expense 3 – 29
Net loss for the period – 24 – 95
19
flows before restructuring expenses (and before capital spending). SGL Technologies’ net financing
requirements fell to €3 million, down €35 million from last year’s level.
In fiscal year 2002, the cash used in financing activities related to the repayment of loans and
hence to the reduction of our net financial liabilities.
Investments and depreciation Investments down by more than half
Following the sharp rise in the previous year, capital expenditures in property, plant and equipment
fell by 55% to €41 million, approximately €30 million lower than depreciation. 55% of these invest-
ments were attributable to CG, 13% to GS, 8% to CP and 24% to SGL T. Capital expenditures
in property, plant and equipment were primarily for replacement and maintenance purposes. As
planned, investments at SGL T fell substantially following the conclusion of the comprehensive
investment program undertaken in recent years.
Investments in 2003 to match previous year
Having completed our investments at SGL T for the time being, we expect Group capital expendi-
tures in 2003 to remain at last year’s level, again around €30 million lower than depreciation.
Research and developmentAs part of our restructuring program, we improved the efficiency of our research and development
activities and cut expenditure in this area by 18% year-on-year to €25 million.
CG: Electrodes demonstrate high mechanical strain tolerance
Intensive research and development allows us to constantly improve the product qualities of our
graphite electrodes. For example, we were able to significantly reduce the risk of material break-
age, which can occur when electrodes are subject to extreme mechanical strain. This improved
mechanical strain tolerance gives our graphite electrodes a considerable competitive advantage.
Capital expenditures in property, plant and equipment (€m)
2002 2001
CG 23 45
GS 6 13
CP 2 5
T 9 26
Other 1 2
Group 41 91
R&D expenditure (€m)
2002 2001
CG 8 9
GS 5 7
CP 2 2
T 9 9
Other 1 4
Group 25 31
20
GS: New material reduces customers’ production costs
We developed a new material for isostatically-molded graphites and successfully introduced it onto
the market. This material is already being used extensively in the continuous casting of metals
and in the semiconductor industry. We have also developed a new crucible material for the semi-
conductor industry, which is helping to considerably reduce our customers’ production costs for
wafer manufacture.
CP: Efficient bonded tube system for chemical plants
In its CP Business Area, SGL Carbon developed a special new bonded tube system that can be
used in place of metals. These lightweight plastic tube systems are chemical-resistant, vacuum-
tight and more cost-effective than existing systems.
Polymer floor prevents static charging
We developed a polymer base with high chemical resistance that can be used by the electronics
industry to prevent static charges building up. This helps to substantially reduce the failure rate
of electronic components as a result of undesired electric discharges.
SGL T: Expanded graphite for latent heat storage systems
Adding expanded graphite to latent heat storage systems increases their thermal conductivity
substantially, allowing smaller heat storage systems to be designed. At the same time, expanded
graphite is opening up new applications in the areas of automobile air conditioning, home heating
technology, and a variety of industrial processes.
Injection-molded bipolar plates for fuel cells
New developments in injection molding technology mean that graphite bipolar plates for fuel cells
can now be manufactured economically in large quantities.
The low-cost production of fuel cell components (bipolar plates and gas diffusion layers) by
SGL T is a key contribution to the commercialization of fuel cells. These cells offer promising future
prospects for both mobile and stationary applications.
Group Management Report
21
Environmental protection, health and safety Total expenditures on environmental protection, health and safety in the workplace and risk pre-
vention in the period under review amounted to €25 million. Of this figure, €6 million was invested
in new installations and measures relating to technical environmental protection installations,
while ongoing operating costs amounted to €19 million. Expenditures on health and safety in the
workplace and technical risk prevention amounted to €3 million.
We pressed ahead with our systematic industrial and occupational safety measures. Days
lost and the number of accidents both increased slightly year-on-year. However, the low number
of accidents at SGL Carbon compared with the industry average is proof of our continuing high
safety standards.
Despite the strained economic situation, we are continuing to implement specific measures
aimed at achieving a sustained improvement in environmental protection, health and safety in the
workplace, and risk prevention. In 2002, our environmental protection activities focused on the
installation of three state-of-the-art waste gas combustion plants in Italy and Germany. We also
installed a solid-waste recycling plant in Germany with the aim of reducing pollution, improving
efficiency and cutting our energy requirements.
Work accidents and days lost
2002 2001 2000 1999
Accidents per
200,000 hours
worked 2.38 1.9 1.4 1.2
Days lost per
200,000 hours
worked 80 65 38 48
Safety
performance
index 21,542 12,164 3,561 4,899
2001 2002
Reducing pollution in the Group (%)
1998
Waste recycling
Hazardouswaste
Environmentalindex(1995 = 100%)
Air
Water
1999 2000
100
75
50
25
0
Group Management Report
22
Risk reportOur risk management system (RMS) comprises a series of distinct but interlinked planning,
monitoring and information systems. These cover all areas of the Company, and are continuously
adapted to reflect changes in conditions. The RMS is based on an integrated planning process,
value-oriented key figure systems and control reports. The operating units and central service
departments are responsible for identifying the respective key risks for the entire medium-term
planning period, for determining their financial impact and initial probability of occurrence, and for
suggesting measures to be taken. As part of the target-setting meetings between the Executive
Committee and the operating units and central service departments, the key risks are examined
and countermeasures are agreed and introduced. A rolling evaluation of the likelihood of key risks
occurring takes place on a quarterly basis; any new risks which may have arisen are identified,
and countermeasures are examined by the responsible operating units and service departments.
Individual risks are aggregated by Corporate Financial Controlling on a quarterly basis or ad hoc
as required, and discussed at meetings of the Executive Committee. For its part, the Executive
Committee informs the Supervisory Board about risk development and risk management at regular
intervals. In addition, the Internal Audit department examines all components of the risk manage-
ment system at appropriate intervals in its role as a unit independent of these processes. The
areas of responsibility for risk management are set out in Group guidelines.
Operational risks
We believe that the main operational risks for 2003 stem from the ongoing weakness of the global
economy, particularly with regard to its impact on price and volume development. Other opera-
tional risks relate to higher than anticipated raw materials, energy, and personnel costs. All of our
businesses, and especially our growth businesses, are subject to technological development
risks. The market may grow at a slower rate than anticipated, and planned cost reductions may
not occur. These factors are monitored on an ongoing basis within the businesses and via quarterly
reports produced for the Executive Committee, which provide details of material variances.
Financial risks
Financial risks primarily relate to the syndicated loan which was obtained at the end of December
2002. Non-compliance with the agreed covenants could result in the suspension of this agreement,
and a short-term extension of these coverage ratios would then have to be negotiated with the
banks. This could lead to additional costs or, in the case of repeated instances, to the termination
of the credit lines. We are countering this risk with a tough liquidity policy, plus rolling liquidity
and financial planning based on the earnings and cash flow estimates provided by the operating
units, which are updated on an ongoing basis. Our existing credit facilities, which include the
syndicated loan, the convertible bond and local credit lines, cover the Group’s foreseeable financing
requirements.
Group Management Report
23
We are also exposed to financial risks in the form of changes in interest and exchange rates,
which we hedge using derivative financial instruments. Risk minimization is the overriding principle
for all of the activities we undertake involving derivative financial instruments, which are employed
exclusively for hedging purposes. The trading and monitoring functions are kept separate, and we
also perform regular risk appraisals and independent audits in this area.
Risks arising from antitrust proceedings
The antitrust proceedings in the US and Canada have been concluded. Our appeal to the European
Court of First Instance against the fine imposed by the European Commission in July 2001 with
regard to graphite electrodes is still pending. We will be filing an appeal with the European Court
soon against the fine imposed with regard to specialty graphites in December 2002. The out-
come of these proceedings remains uncertain at present.
Events after the balance sheet dateAll shares in SGL PanTrac GmbH were sold and transferred in January 2003.
Outlook for 2003Only moderate recovery of global economy expected
We do not expect the global economy to recover significantly in 2003. Slow economic growth in
the US and economic recovery in Japan will be offset by a merely sluggish recovery in Europe.
However, these forecasts carry high economic risks. We expect investment demand in our cus-
tomer industries, chemicals and semiconductor technology, to pick up only as the year progresses.
In the steel industry, we are forecasting steady development for the year as a whole. Nonetheless,
we expect the Group’s results to improve significantly year-on-year, reflecting the positive effects
from our cost reduction actions, higher graphite electrode prices and a further substantial
increase in the result of SGL Technologies.
CG: Stable demand
Demand from the steel industry in the US, Europe and Asia is likely to lead to higher sales volumes
of graphite electrodes and cathodes in 2003 as a whole. The ongoing consolidation in the graphite
electrode industry should lead to a further reduction in capacity, and hence a shortage in supply.
In light of these developments, we believe that we will be able to successfully implement our
already announced price increases for graphite electrodes. Pressing ahead with our restructuring
program will also allow us to further improve our cost position. Consequently, we are forecasting
a substantial increase in earnings.
Group Management Report
24
GS: No significant economic recovery
In the course of the year 2003, we are not anticipating a significant economic recovery in our
customer industries (chemicals, furnace construction and metallurgy). However, we expect the
order situation in North America to improve.
Reorganization, cost reduction measures and the strategic reorientation of GS are likely to
result in a substantial increase in earnings.
CP: Customer industries reluctant to invest
With regard to our CP business, we are not forecasting any notable economic recovery for the
current fiscal year. Economic behavior in our key industries, and in particular chemicals and plant
engineering, is still characterized by a marked reluctance to spend money on maintenance and
investment. However, our ongoing restructuring and cost reduction measures and the large order
placed by an Australian magnesium producer should more than offset this development. For this
reason, we expect the profit from operations to increase substantially in fiscal year 2003, although
sales revenue growth will be only moderate.
SGL T: Further reduction in losses
For 2003 as a whole, we are forecasting a further increase in sales revenue from our carbon
fibers and carbon-ceramic brake discs, as well as from the defense business operated by our
US subsidiary HITCO.
Lower manufacturing costs for carbon fibers and carbon-ceramic brake discs will further reduce
the loss from operations. Our goal is to almost break even for the year as a whole.
Liquidity and capital resources
The new financial framework provided by our refinancing package will provide us with sufficient
funds in the course of the year to cover peaks in demand.
Our adherence to the Group coverage ratios set by the banks is guaranteed by the expected
reduction in the loss from operations and the renewed restriction of investment volumes in 2003.
Group Management Report
25
Annual financial statements of SGL Carbon AG (condensed)*
Dec. 31, Dec. 31,
€m 2002 2001
ASSETS
Intangible assets/property, plant and equipment 34 21
Noncurrent financial assets 379 382
Noncurrent assets 413 403
Receivables and other assets 486 532
Cash, marketable securities, prepaid expenses 1 0
Current assets 487 532
Total assets 900 935
EQUITY AND LIABILITIES
Equity 245 245
Provisions and special tax-allowable reserves 96 79
Financial liabilities 358 462
Other liabilities 201 149
Total equity and liabilities 900 935
€m 2002 2001
Net investment income 28 47
Result of ordinary activities 22 28
Taxes – 2 – 8
Net loss for the year 0 – 9
Unappropriated surplus/Accumulated deficit – 9 – 9
Balance Sheet
Income Statement
Our annual report contains statements on future developments that are based on currently available
information and that involve risks and uncertainties that could lead to actual results deviating from these
forward-looking statements. These risks and uncertainties include, for example, unforeseeable changes
in political, economic and business conditions, particularly in the area of electrosteel production, the
competitive situation, interest rate and currency developments, technological developments and other
risks and unanticipated circumstances. We see other risks in price developments, unexpected develop-
ments relating to acquired and consolidated companies, ongoing restructuring measures and unfore-
seeable occurrences in conjunction with the reviews to be performed by the European antitrust
authorities. SGL Carbon does not intend to update these forward-looking statements.
* according to HGB – German Commercial Code
CG GS CP TCarbon and Graphite
Our electric steel production has
become more cost-efficient. Thanks
to the 800 mm graphite electrodedeveloped with SGL Carbon, we can produce
more steel in less time.
[Ulrich Eggers, Managing Director of Salzgitter AG’s Peine steelworks, Peine, Germany]
High-voltage steel recycling. Salzgitter AG’s modern melting furnace is equipped with SGL Carbon’s
new, high-performance 800 mm graphite electrodes. An innovation that kills two birds with one
stone, enabling the development of improved melting furnaces and making them more productive
at the same time. This reduces costs.
Carbon and Graphite
CG28
Carbon and Graphite [CG]
SGL Carbon is a leading provider of carbon and graphite. Graphite electrodes, which are
used in electric arc furnaces to produce electrosteel, are our most important products in
the CG business. We also produce carbon electrodes and cathodes for use in metallurgy
and in the aluminum industry. Our furnace linings are used in the production of pig iron.
Mid-year turnaroundThe recession in CG’s markets continued to affect business development through mid-2002. The
import duties imposed by the US government led to a recovery in the American steel industry in
the second half of the year. Demand also picked up in the Asian and European markets, particularly
in the area of specialty steels.
Successful restructuringIn order to keep up with our customers’ increasing globalization and the intensified competitive
environment, we implemented a restructuring and cost-cutting program designed to reorganize
and further improve the efficiency of our global graphite business at the end of 2001 already.
Specialization of CG production sites is well underway, and we reduced headcount by one-fifth
while improving the efficiency of our production processes. These restructuring efforts have
resulted in a permanent reduction of our cost base.
Decrease in sales revenue and earningsCG sales revenue totaled €551 million, a decrease of 11% compared with the prior year. Demand
recovered substantially during the year and remained almost unchanged, as global sales volumes
1 before restructuringexpenses
2 based on profitfrom operationsbefore restructuringexpenses
Key figures CG (€m)
2002 2001 Change (%)
Sales revenue 551 620 – 11
Profit from operations before depreciation
and amortization 90 1171 – 23
Profit from operations 52 791 – 34
Return on sales (in %) 9 132
Capital expenditures 23 45 – 49
Depreciation and amortization 38 38 0
Research and development 8 9 – 11
Employees (Dec. 31) 3,041 3,523 – 14
Carbon and Graphite
CG29
amounted to 173,000 tons in 2002 in contrast to 175,000 tons in the prior year. However, prices
continued to decline – our average price for graphite electrodes was €2,248/ton, a decline of 16%
on the prior year.
Profit from operations totaled €52 million, down 34%. This result reflected not only the
drop in prices but also a one-time charge of €6 million due to the revaluation of inventories at
significantly reduced production costs.
800 mm graphite electrode proves a major successIn 2001, we launched the world’s first 800 mm graphite electrode on the market. A major success,
this electrode offers a 20% improvement in our customers’ efficiency by enabling increased
productivity and reduced energy consumption. Together with further quality improvements to our
graphite electrodes, this gives us an important competitive advantage that our customers
appreciate.
Our joint venture with the Japanese graphite electrode manufacturer TOKAI in Shanghai is
developing according to plan. This alliance provides SGL Carbon with improved access to the
Chinese steel market, the largest and fastest-growing steel market in the world.
The global trend towards graphitized cathodes is continuing uninterruptedly. We were able to
further increase our market share for this important component of aluminum smelting furnaces.
We also strengthened our position as the global number 1 in the market for carbon electrodes for
silicon and phosphorous production.
2003: Signs of recoveryGiven the cyclical nature of our markets, we expect increased sales volumes in 2003. Our order
book is already well filled and indicates sustained high utilization of our production capacities. At
the beginning of February 2003 we announced a price increase for graphite electrodes. We expect
the graphite industry to continue its consolidation, which could lead to a further reduction in global
production capacities.
Sales revenue by Business Line
Graphite Electrodes:€403m (73%)
Carbon Products(Carbon Electrodes,Cathodes, Furnace
Linings): €148m (27%)
Sales revenue by quarter (€m)
200
150
100
50
0I. II. III. IV.
2002 2001
Profit from operations by quarter (€m)
40
30
20
10
0I. II. III. IV.
2002 20011 1 before restructuringexpenses
As Europe’s largest manufacturer of silicon wafers
for solar cells, we rely on SGL Carbon’s
ultrapure graphites, which are
tailor-made to meet our technological demands.
[Dr. Armin Müller, Head of Production Crystallization and R&D, Deutsche Solar AG, Freiberg, Germany]
CG GS CP TGraphite Specialties
The sun is an inexhaustible source of energy. In order to use it, high-performance solar cells,
which are produced using Deutsche Solar AG’s silicon wafers, are required. Graphite is a
key component in the manufacture of these wafers. SGL Carbon produces ultrapure graphites
that are tailored to customers’ needs.
Graphite Specialties
GS32
Graphite Specialties [GS]
SGL Carbon is a leading provider of graphite specialties and is the only company in the
world to have mastered every manufacturing process. This enables us to provide a
broad range of different applications and industries with graphite materials and system
solutions.
Continuing economic slump in key industriesThe Graphite Specialties Business Area was hit particularly hard by the continuing economic slump
in almost all of its target sectors – such as the semiconductor and chemical industries as well
as mechanical and plant engineering – and the resulting decline in the number of incoming orders.
Poor demand in these areas could not be fully offset by other successful businesses.
Inventory reductions affect earningsAt €196 million, sales revenue was down 15% on the previous year. Despite comprehensive
cost-cutting measures, the operating result before restructuring expenses fell by €20 million to
€2 million. The focus of our working capital management was on the reduction of inventory.
Along with lower capacity utilization at our plants and restructuring measures in Europe that were
implemented ahead of schedule, this affected earnings in the year under review. The sustained
cost cuts from the restructuring program that was approved at the end of 2001 were unable to
offset this completely.
Global focus of the organizationAt the beginning of the year under review, we reorganized the GS business. A new internal
structure, organized by function, will allow us to better meet the challenges posed by rapid
1 before restructuringexpenses
2 based on profitfrom operationsbefore restructuringexpenses
3 before write-downs
Key figures GS (€m)
2002 2001 Change (%)
Sales revenue 196 231 – 15
Profit from operations before depreciation
and amortization1 18 41 – 56
Profit from operations1 2 22 – 91
Return on sales2 (in %) 1 10
Capital expenditures 6 13 – 54
Depreciation and amortization 16 193 – 16
Research and development 5 7 – 29
Employees (Dec. 31) 1,476 1,682 – 12
Graphite Specialties
GS33
changes at both customers and competitors. In addition, we are reviewing all of our business
processes in detail with the goal of simplifying, standardizing, modernizing and accelerating them.
The Six Sigma approach used in the SGL Excellence initiative has been successfully introduced
in all areas. The savings already realized in the first year are proof of success.
New developments reduce customers’ production costsWe successfully introduced a new material for isostatically-molded graphites onto the market.
This material is already being used extensively in the continuous casting of metals and in the
semiconductor industry, where it is helping to lower our customers’ production costs consider-
ably. We have also developed a new crucible material for the semiconductor industry, which
allows wafers to be manufactured at lower cost. This is what we mean by creating value for our
customers.
Upswing in alternative energies We were able to expand our position in the relatively new market for solar technology at a level
substantially in excess of market growth (approx. 20% per year). We are a major supplier of
equipment for the manufacture of solar cells and offer a wide range of graphite products used
to line silicon crucibles and furnaces.
Restructuring measures will bear fruit in 2003Although we do not expect our customer industries to pick up to any great extent, the restructuring
program that we introduced at the end of 2001 will play a key role in compensating the ongoing
decline in demand in fiscal year 2003. This should lead to a moderate improvement in our profit from
operations. With the sale of SGL PanTrac GmbH, Berlin, at the beginning of 2003, we took our
first step toward a complete withdrawal from the manufacture of electrical contacts.
We have identified additional cost-cutting potential and are confident that we will be able to
further improve our position in the US, in Europe and Asia.
Sales revenue by Business Line Sales revenue by quarter (€m)
80
60
40
20
0I. II. III. IV.
2002 2001
Profit from operations by quarter (€m)1
8
4
0
– 4
– 8I. II. III. IV.
2002 2001
Mechanical Carbons:€23m (12%)
Semiconductor Materials:€32m (16%)
Technical Applications:€100m (51%)
Electrical Contacts:€25m (13%)
Other:€16m (8%) 1 before restructuring
expenses
CG GS CP TCorrosion Protection
One-stop services. The demand for system solutions is rising. SGL Carbon is the only company
in the world to offer a complete range of industrial corrosion protection services in one package.
For example, we supplied a system of coordinated corrosion-resistant materials and equipment,
including the entire process development stage, for the construction of ECI Elektro-Chemie GmbH’s
two new gas and acid synthesis units.
We produce basic and hydrochemicals.When it comes to corrosion protection,
we rely on SGL Carbon’s system solutions,since these save us time and reduce our
development costs.[Dr. Jürgen Baune, Managing Director, ECI Elektro-Chemie GmbH, Bitterfeld, Germany]
Corrosion Protection
CP36
Corrosion Protection [CP]
SGL Carbon is the only manufacturer worldwide with a complete range of products
and services for industrial corrosion protection. The consistent implementation of
our systems approach in the form of a full-service package to the customer is just
as important to our success as the ongoing development of our product and service
portfolio, with its strong focus on the needs of our customers.
Order postponements due to economic downturnIn light of the ongoing crisis in the global economy, our customers in the chemical, energy and
environmental sectors continued their cautious policy on investment and maintenance expen-
ditures. Numerous planned major projects were postponed or cancelled. These developments
particularly hit our surface protection business. At €212 million, sales revenue of Corrosion
Protection was down 10% year-on-year.
Reduction in staff affects profitsOur current rationalization measures are having the desired effect. In the year under review, we
reduced costs and brought forward measures that were originally planned for 2003. The related
headcount reduction costs – we reduced the number of employees by around 9% in total –
decreased profits by €4 million. This contributed to a profit from operations before restructuring
expenses of €5 million, which is down €8 million from last year’s figure.
1 before restructuringexpenses
2 based on profitfrom operationsbefore restructuringexpenses
Key figures CP (Mio. €)
2002 2001 Change (%)
Sales revenue 212 236 – 10
Profit from operations before depreciation
and amortization 151 23 – 35
Profit from operations 51 13 – 62
Return on sales (in %) 22 6
Capital expenditures 2 5 – 60
Depreciation and amortization 10 10 0
Research and development 2 2 0
Employees (Dec. 31) 2,034 2,230 – 9
Corrosion Protection
CP37
New development in the production of bonded plastic tubesOur plastic applications business has developed a completely new bonded tube system made of
fiberglass-reinforced plastic lined with a modified PTFE material. This new system will allow the
operators of chemical plants that are subject to corrosive usage to address new applications not
previously possible with conventional bonded plastic tube systems.
Focus on ChinaIn spite of the ailing economy, the surface protection business of our Chinese subsidiary reported
a substantial increase in the number of incoming orders. We want to expand our activities in
China and in Asia in general in fiscal 2003.
Major contract for Australian magnesium projectWe acquired a major new customer in our international activities. The order involves the construc-
tion of key segments of a planned large-scale production plant for the Australian Magnesium
Corporation. With a volume of €27 million by 2004, this is the largest contract in the history of our
Corrosion Protection business. The contract from Australia is testimony to SGL Carbon’s strong
position in the group of globally leading competitors in the industrial corrosion protection sector.
Better results expectedIn fiscal 2003 we will continue to implement our systems approach in the international markets. We
expect efficiency to be improved and costs reduced further in the course of our SGL Excellence
projects. Due to the continued reluctance of our customers to spend money on investment and
maintenance, we expect sales revenue to increase only moderately. However, our restructuring
and cost-cutting measures, as well as the substantial Australian order, should result in a noticeable
improvement in operating profit.
Sales revenue by Business Line
Surface Protection:€132m (62%)
Process Technology:€80m (38%)
Sales revenue by quarter (€m)
80
60
40
20
0I. II. III. IV.
2002 2001
Profit from operations by quarter (€m)
12
8
4
0
– 4I. II. III. IV.
20021 2001 1 before restructuringexpenses
CG GS CP TSGL Technologies
Boeing awarded us as a key supplierwith superior service and
outstanding quality.
[Dale W. Mizer, Program Management, HITCO Carbon Composites, Inc., Gardena, USA]
Airplanes have to be safe. And efficient. Just like the Boeing C-17 Globemaster III military trans-
porter. This aircraft not only transports heavy cargo over long distances, but can also land on
short runways. Developed with state-of-the-art technology. The tail cone on the rear of the C-17 is
manufactured using an innovative carbon composite. Supplied by HITCO Carbon Composites Inc.,
a US subsidiary of SGL Carbon AG, which has been commended by Boeing for top quality and safety.
SGL Technologies
T40
SGL Technologies [T]
Based on SGL Carbon's competencies for high-technology materials, processes and
applications, SGL Technologies is developing new business opportunities. This new
growth business is unique in covering the entire value chain from fibers through to
composites.
Positive development in all areasIn fiscal year 2002, our SGL T growth business managed to buck the general trend in a weak market
environment. The carbon fibers, expanded graphite (foils), aerospace composites and brake discs
businesses developed better than planned. We have established a leading position in many of
these emerging businesses. For example, we are the market leader in expanded graphite,
one of the leading providers of carbon fibers, and an important producer of fuel cell components.
Losses halvedSales revenue increased by 11% to €150 million, mainly as a result of the successful US defense
business as well as good results in carbon fibers. Successful cost-cutting measures – most
notably in the fibers and fuel cell businesses – had a positive effect on earnings development,
which was better than expected. At €–12 million, we exceeded our target of halving last year’s
loss.
Considerable potential in Aerospace Composites In the defense business, our US subsidiary HITCO concluded a Special Security Agreement for
defense contracts with the US government. This agreement grants HITCO long-term access to
Key figures T (€m)
2002 2001 Change (%)
Sales revenue 150 135 11
Profit from operations before depreciation
and amortization 5 – 16 –
Loss from operations – 12 – 34 – 65
Return on sales (in %) – 8 – 25
Capital expenditures 9 26 – 65
Depreciation and amortization 17 18 – 6
Research and development 9 9 0
Employees (Dec. 31) 757 705 7
SGL Technologies
T41
new defense projects that are otherwise only open to US companies. For example, HITCO received
a major follow-on contract from Boeing for the production of large carbon components for the
fuselage of C-17 Globemaster III military transport aircraft, around 20 of which are produced each
year. In addition, Airbus Deutschland GmbH has awarded us a strategically important contract
for the supply of tail unit components for the scheduled new Airbus A-380.
Brake disc series production startedOur new production plant for carbon-ceramic brake discs in Meitingen, which started operation in
July 2002, makes us the only full-scale production supplier worldwide. At €24 million, investment
costs were 10% lower than originally approved for the project. Our cooperation with Porsche is
going well, and we are also driving forward brake disc development projects for sports cars and
luxury vehicles with several major car manufacturers.
Further developments in injection molding technology for fuel cell components Our fuel cell components business for stationary applications is developing well. We are involved
in several major projects and have adjusted our resources to the market. Further developments
in injection molding technology now allow graphite bipolar plates for fuel cells to be manufactured
economically in large quantities.
Goal to almost break even in 2003 In light of the ongoing positive development in all of our businesses, we expect results to improve
further in 2003. Due to the increased use of composites in the construction of rotor blades, we
plan to become active in the wind energy sector. We are also confident that we will receive further
orders for the supply of carbon-ceramic brake discs, and that we will win additional projects in
our defense business. Our overall goal is to more or less break even in 2003.
Sales revenue by Business Line
Fibers, ExpandedGraphite, Fabrics:
€78m (52%)
Composites:€62m (41%)
New products:€10m (7%)
Sales revenue by quarter (€m)
40
30
20
10
0I. II. III. IV.
2002 2001
Loss from operations by quarter (€m)
0
– 3
– 6
– 9
– 12I. II. III. IV.
2002 2001
Our Shares
42
Our Shares
2002 was a dark year for investors, with the slump on the international stock markets
continuing. SGL Carbon’s shares were unable to escape this trend and reached an all-
time low at the beginning of October, although they recovered substantially by the end
of the year.
The German stock market – bottom of the European leagueDue to the global recession and political uncertainty, the German stock market was hit by reluc-
tance amongst both domestic and foreign investors. In this environment, the DAX lost 44% of its
value year-on-year. This represented the biggest drop in over 50 years, also making the DAX last
year’s poorest performer amongst the Western European stock markets.
Stock price development affected by uncertaintySGL Carbon’s shares reached an annual high of €28.70 on January 10, 2002. From then on, the
price declined until September in line with the MDAX. This development was caused by an ongoing
difficult period caused by the reluctance of our customer industries to invest. At the end of
June, rumors surrounding possible problems in our refinancing negotiations led to SGL Carbon’s
share price falling below the €20.00 mark. Following further speculation at the end of September –
this time surrounding the level of a possible EU fine for anti-competitive behavior in the area
of Graphite Specialties – our share price lost ground again and hit an all-time low of €5.10 on
October 8. Following a recovery accompanied by substantial volatility, our shares closed at €8.01
1 1 ordinary share = 3 ADRs2 according to the Executive
Committee’s resolution (Jan. 23,2002) to increase the sharecapital and the SupervisoryBoard’s consent (Jan. 28, 2002)
Key figures for SGL Carbon shares (€)
2002 2001
Earnings per share – 1.08 – 4.42
Equity per share 8.96 11.83
Equity ratio (%) 15 17
Return on sales (%) 3 5
Share price: high 28.70 70.80
Share price: low 5.10 16.00
Share price: year-end 8.01 22.65
Number of shares (piece)1 21,864,450 21,564,4502
Our Shares
43
on the last trading day of the year, down 64% from €22.55 at the end of the previous year.
However, they started 2003 with a sustained recovery and had risen to €11.46 by the end of
February.
Market capitalization fell from €488 million at the end of 2001 to €175 million at the end of
2002. However, with an average of 78,000 shares a day being traded on the Xetra electronic system,
the trading volume increased substantially compared to the previous year (69,000 shares).
Open communication, especially in difficult timesSGL Carbon’s investor relations work is characterized by continuity and transparency. Especially
in the difficult times last year when our share price was low, we maintained continual contact
with our shareholders at numerous events as well as via all relevant media. At a series of road-
shows in the US, Great Britain, Canada, Switzerland, Austria and Germany, we not only rein-
forced our relationship with our existing shareholders but also established valuable new contacts
with potential investors.
SGL Carbon is one of the first companies to have been admitted to the Prime Standard, the
new quality segment of the German stock market with the highest transparency requirements.
Promoting and strengthening confidenceWe do not expect the economy to recover substantially in 2003. However, having successfully
implemented its restructuring program, SGL Carbon considers itself to be well-equipped to weather
a period of economic stagnation. Now that the uncertainties surrounding the EU fine and our
debt refinancing have been cleared up, our communication will focus on SGL Carbon’s positive
outlook and prospects. We are confident that good operating results will strengthen shareholder
confidence and have a positive effect on SGL Carbon’s share price again.
150
125
100
75
50
25
0
Development of share price (€)
1998 1999 2000 2001 2002
high/low range year-end share price
SGL Carbon share price 2002 (indexed) vs. MDAX(Index: Jan. 2, 2002 = 0)
40
20
0
– 20
– 40
– 60
– 80JAN DEC
SGL Carbon
MDAX
Human Resources
44
Human Resources
In a difficult market environment, we can only succeed with qualified and motivated
employees. Our human resources policy promotes the ongoing development
of our employees and, as such, is one of the key elements of our competitiveness.
Headcount reducedThe SGL Carbon Group employed 7,360 people at the end of 2002, 837 less than at the end of
the previous year, primarily due to our restructuring measures.
The number of people employed in our established businesses Carbon and Graphite, Graphite
Specialties and Corrosion Protection during the year declined by 884 to 6,551 at December 31, 2002
(2001: 7,435). As a result of the transfer of the Graphite Foils business from Graphite Specialties
to SGL Technologies, the headcount in our growth business rose by 52 to 757 at the end of 2002
(December 31, 2001: 705).
High participation in stock purchase plansThe “matching shares” bonus program introduced in 2001 for members of the Executive Committee
and approximately 150 Group managers was offered again in 2002. Over half of those entitled
to take advantage of this offer invested up to 50% of their annual bonus to purchase SGL Carbon
stock. After a two-year lock-up period, they will then receive the same number of shares from
the Company. The Executive Committee and Group managers have invested a total of €1.1 million
in SGL Carbon shares.
During 2002 we distributed about 277,000 shares with a value of €7.3 million as part of our
bonus program for non-executive employees. Almost half of our employees took the opportunity
to buy employee shares, which are eligible for tax relief, purchasing a total of 88,800 shares.
Employees by region(as of Dec. 31, 2002)
Rest of Europe: 36%
Germany: 43%
North America: 16%
Others: 5%
Employees by Business Area(as of Dec. 31, 2002)
GS: 20%
CG: 42%
CP: 28%
T: 10%
Human Resources
45
“People Excellence” – the key to corporate successAdapting to changing market structures and competitive conditions also involves preparing our
employees for these changes. Our “People Excellence” program, one of the three pillars of the
Group-wide improvement initiative “SGL Excellence”, is designed to meet these demands.
This initiative focuses on the recruitment of qualified employees, the further development
of their existing qualifications and competencies and the acquisition of new ones, as well as on
the long-term retention of excellent employees within the Company.
The Executive Committee and the management of the operating units are committed to
implementing several employee development processes and programs created by our human
resources and organizational development experts. In this way, they are providing strong support
for these necessary changes, which have already been introduced in part.
Providing all employees the opportunity to play an active and focused role in these programs
encourages the development of strengths and talents. The combination of existing knowledge
and increasing levels of experience is one of the key foundation stones for corporate success.
Management training intensifiedIn 2002 we built on the leadership training program for management initiated last year to develop
further courses for management employees. The leadership initiative for top management was
also continued.
The targeted use of instruments such as 360° feedback, for example, highlights those areas
in need of improvement and makes progress visible. This leadership initiative is expected to
include all levels of management Group-wide by 2004. The knowledge and skills acquired as part
of this initiative will help us to successfully meet the challenges that lie ahead.
Staff costs (€m)
2002 2001
Compensation 298 326
Social security payments and welfare costs 51 60
Pension plan costs 19 17
Total 368 403
Consolidated Income Statement
46 Consolidated Income Statement
The accompanying notes to the consolidated financial statements are an integral part of these consolidated financial statements.
2002 2001
Note €m €m
Sales revenue 28 1,112.3 1,233.3
Cost of sales – 886.5 – 941.8
Gross profit 225.8 291.5
Selling expenses – 139.4 – 154.5
Research costs – 25.4 – 31.1
General and administrative expenses 4 – 47.5 – 57.8
Other operating income, net 5 15.1 10.6
Profit from operations before costs relating to antitrust
proceedings and restructuring, net 28.6 58.7
Costs relating to antitrust proceedings 6 – 22.0 – 35.0
Restructuring expenses 6 – 8.3 – 41.0
Loss from operations – 1.7 – 17.3
Net financing costs 7 – 25.5 – 48.5
Loss before tax – 27.2 – 65.8
Income tax benefit/expense 9 3.6 – 29.2
Net loss for the period before minority interests – 23.6 – 95.0
Minority interests 0.0 – 0.2
Net loss for the period – 23.6 – 95.2
Basic earnings per share (EPS) (in €) 10 – 1.08 – 4.42
Diluted earnings per share (EPS) (in €) 10 – 1.08 – 4.42
Consolidated Balance Sheet
47Consolidated Balance Sheet
The accompanying notes to the consolidated financial statements are an integral part of these consolidated financial statements.
Dec. 31, 2002 Dec. 31, 2001
Note €m €m
ASSETS
Intangible assets 11 103.8 111.2
Property, plant and equipment 12 477.3 553.5
Noncurrent financial assets 13 33.2 34.0
Noncurrent assets 614.3 698.7
Inventories 14 288.4 394.2
Trade receivables 15 208.1 262.2
Other receivables and other current assets 16 60.7 47.4
Receivables and other current assets 268.8 309.6
Cash and cash equivalents 17 21.5 12.1
Current assets 578.7 715.9
Deferred tax assets 18 93.4 80.4
Total assets 1,286.4 1,495.0
EQUITY AND LIABILITIES
Issued capital 56.0 55.2
Share premium 111.3 111.3
Retained earnings 52.6 183.9
Accumulated deficit – 23.6 – 95.2
Equity 19 196.3 255.2
Minority interests 1.4 1.6
Equity and minority interests 197.7 256.8
Provisions for pensions and other employee benefits 20 190.6 193.1
Other provisions 21 149.2 164.6
Provisions 339.8 357.7
Financial liabilities 448.5 538.9
Trade payables 110.5 107.7
Other liabilities 151.2 197.2
Liabilities 22 710.2 843.8
Deferred tax liabilities 23 38.7 36.7
Total equity and liabilities 1,286.4 1,495.0
Consolidated Cash Flow Statement
48 Consolidated Cash Flow Statement1
1 adjusted for currency translation effects
The accompanying notes to the consolidated financial statements are an integral part of these consolidated financial statements.
2002 2001
€m €m
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss before taxes – 27.2 – 65.8
Adjustments to reconcile net loss to net cash provided by operating activities:
Loss/gain on sale of property, plant and equipment – 2.8 1.0
Loss/gain on sale of noncurrent financial assets – 1.0 0.0
Depreciation and amortization expense 81.4 86.8
Write-downs of noncurrent assets 0.0 9.8
Taxes paid – 22.3 – 13.6
Change in provisions, net – 2.8 16.3
Changes in working capital
Inventories 82.7 – 26.8
Write-downs of inventories 0.0 15.0
Trade receivables 44.7 33.8
Trade payables 6.8 6.2
Other operating assets/liabilities – 10.4 30.0
Cash provided by operating activities before payment of antitrust fines 149.1 92.7
Payments relating to antitrust proceedings – 10.1 – 36.9
Cash provided by operating activities 139.0 55.8
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for property, plant and equipment, and intangible assets – 53.6 – 96.1
Proceeds from sale of property, plant and equipment, and intangible assets 7.8 3.8
Payments for noncurrent financial assets – 0.7 – 5.7
Proceeds from sale of noncurrent financial assets 5.6 5.5
Cash used in investing activities – 40.9 – 92.5
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in financial liabilities – 87.6 36.5
Dividends paid – 0.2 – 0.1
Net proceeds from capital increase 0.8 2.2
Cash used in/provided by financing activities – 87.0 38.6
Effect of foreign exchange rate changes – 1.7 0.4
Net increase in cash and cash equivalents 9.4 2.3
Cash and cash equivalents at beginning of year 12.1 9.8
Cash and cash equivalents at end of year 21.5 12.1
Consolidated Statement of Changes in Equity
49Consolidated Statement of Changes in Equity
Unappro-
thereof priated
from surplus/
currency Accumu-
Issued Share Retained trans- lated Minority
€m capital premium earnings lation deficit Equity interests Total
Balance at Jan. 1, 2001 54.8 109.5 208.7 15.5 – 36.0 337.0 2.1 339.1
Appropriation of
net loss for 2001 – 36.0 – 59.2 – 95.2 0.2 – 95.0
Other recognized
gains and losses – 0.6 – 0.6 – 0.7 – 1.3
Capital increase 0.4 1.8 2.2 2.2
Exchange differences 11.8 11.8 11.8 11.8
Balance at Dec. 31, 2001 55.2 111.3 183.9 27.3 – 95.2 255.2 1.6 256.8
Balance at Jan. 1, 2002 55.2 111.3 183.9 27.3 – 95.2 255.2 1.6 256.8
Appropriation of
net loss for 2002 – 95.2 71.6 – 23.6 – 23.6
Other recognized
gains and losses – 0.2 – 0.2
Capital increase 0.8 0.8 0.8
Exchange differences – 36.1 – 36.1 – 36.1 – 36.1
Balance at Dec. 31, 2002 56.0 111.3 52.6 – 8.8 – 23.6 196.3 1.4 197.7
The accompanying notes to the consolidated financial statements are an integral part of these consolidated financial statements.
Notes to the Consolidated Financial Statements
50 Notes to the Consolidated Financial Statements
Summary of accounting policies
Description of business
SGL Carbon Aktiengesellschaft (SGL Carbon) together with its subsidiaries (the “SGL Carbon Group”) is a global
manufacturer of carbon and graphite products. See note 28 for further information on business activities.
Basis of presentation
The consolidated financial statements of the SGL Carbon Group have been prepared in accordance with the International
Financial Reporting Standards (IFRSs) – formerly known as the International Accounting Standards (IASs) – issued by
the International Accounting Standards Board (IASB), incorporating the interpretations issued by the International Financial
Reporting Interpretations Committee (IFRIC). All standards to be applied for fiscal year 2002 have been complied with.
References to IFRSs/IASs relate to the IFRSs/IASs in force, as amended. Application of the IFRSs/IASs was possible because
consolidated financial statements prepared in accordance with internationally accepted accounting standards such as
the IFRSs/IASs qualify as exempting consolidated financial statements as defined by section 292a of the HGB (German
Commercial Code) introduced in 1998.
As in the previous year, the 2002 consolidated financial statements were prepared in euros (€) and are presented in
millions of euros (€m), rounded to the nearest 0.1 million. Conversion from Deutsche Mark to euros was based on the
official DM:€ conversion rate of 1.95583 fixed on January 1, 1999.
Consolidation methods
The annual financial statements of the companies consolidated were prepared in accordance with uniform accounting
policies. Interim financial statements are used for subsidiaries with differing balance sheet dates. Except for two sub-
holding companies and three smaller companies, all financial statements have been audited and certified by independent
auditors.
Companies are consolidated using the purchase method of accounting, under which the acquisition cost of the interests
in the subsidiaries is eliminated against the equity of the subsidiaries attributable to the parent company at the date of
acquisition. Hidden reserves or liabilities are recognized, and any remaining excess of cost of acquisition over net assets
acquired is recognized as goodwill from capital consolidation and reduced by straight-line amortization over its expected
useful life. In accordance with IAS 22, any negative goodwill is deducted from goodwill on the face of the balance sheet
and recognized in income under other operating income over the useful life of the asset. Goodwill arising prior to 1994
has been charged directly to reserves.
Companies or joint ventures representing an interest of between 20% and 50% and over whom the parent company
has a significant influence are measured at equity.
Intercompany receivables and liabilities, intercompany profits and losses, as well as intragroup sales revenue, expenses
and income are eliminated. In accordance with IAS 12, deferred tax assets and liabilities are recognized for temporary
differences arising from consolidation.
1
Notes to the Consolidated Financial Statements
51Foreign currency translation
Foreign currency receivables and liabilities in the single-entity financial statements are translated at the middle rates at
the balance sheet date. Hedged items and related derivatives are measured separately at their fair values at the balance
sheet date in accordance with IAS 39.103.
The annual financial statements of companies domiciled outside the euro zone are translated into euros in accordance
with IAS 21. For all SGL Carbon Group companies, translation is effected on the basis of the local currency, as the
companies are economically independent. Balance sheet items of annual financial statements that are not prepared in
euros are translated at the middle rates prevailing at the balance sheet date; income statement items are translated
at average rates for the year.
Exchange differences resulting from the application of different exchange rates in the income statements and the
balance sheets, as well as differences from the translation of net assets at rates differing from those applied in the
prior-year period, are taken directly to retained earnings.
Changes in the exchange rates of currencies that are material to the consolidated financial statements are presented
below:
Financial instruments
The SGL Carbon Group uses all standard financial instruments such as interest rate swaps, interest rate options, currency
forwards and options purely for hedging purposes and to reduce risk.
Derivatives are measured at cost when the transaction is executed. They are subsequently remeasured at their fair values
at the balance sheet date. Presentation in the income statement is based on the underlying transaction.
Intangible assets
Purchased intangible assets are carried at cost and amortized over an expected useful life of three years. Purchased
goodwill is generally capitalized and amortized over its expected useful life of 20 years. Internally generated intangible
assets are capitalized at cost and amortized over their expected useful life where future economic benefits are expected
to flow to the Company. Research and development costs are not capitalized, but are expensed directly when incurred.
Property, plant and equipment
Property, plant and equipment is capitalized at cost and reduced by straight-line depreciation. Production costs also
include an appropriate share of materials and production overheads. Borrowing costs are not included in production costs.
Repair costs are expensed directly when incurred. Contracts in which the lessee bears all significant opportunities
and risks from the use of the leased asset, and which are hence classified as finance leases, are carried at their fair values
€ middle rates at the balance sheet date Average rate €
ISO-Code Dec. 31, 2002 Dec. 31, 2001 2002 2001
US dollar USD 1.0415 0.8820 0.9448 0.8957
Sterling GBP 0.6502 0.6088 0.6288 0.6219
Canadian dollar CAD 1.6385 1.4102 1.4826 1.3866
Polish zloty (1:100) PLN 4.0202 3.5068 3.8894 3.6815
Notes to the Consolidated Financial Statements
52 or, if lower, at the net present value of the minimum lease payments. All other leases are treated as operating leases
and, as a result, the lease payments are expensed when incurred. The range of the standard useful lives are as follows:
buildings 10 to 41 years, technical equipment and machinery 4 to 25 years, other equipment, operating and office
equipment 3 to 15 years.
Additions to items of movable plant and equipment in the first half of the year are depreciated at the full-year rate;
additions in the second half of the year are depreciated at half the full-year rate. Low-value assets are written off in full
in the year of acquisition and reported as disposals in the statement of changes in noncurrent assets. The resulting
effects on net assets, financial position and results of operations are insignificant.
Noncurrent financial assets
Noncurrent financial assets are carried at cost, net of any write-downs incurred. Interest-free and low-interest long-term
receivables are discounted at a standard market rate for risk-free instruments.
Inventories
Inventories are carried at cost using the weighted average cost method and are written down to the lower net realizable
value where required. Net realizable value is the estimated selling price less the estimated costs of completion and the
estimated costs necessary to make the sale. Specific valuation allowances are also charged for inventory risks. In addition
to directly attributable costs, production costs also include appropriate shares of materials and production overheads,
as well as depreciation and write-downs. Directly attributable costs include labor costs, including pensions, amortization
and directly attributable material costs. Borrowing costs are not capitalized. Construction contracts whose outcome
can be reliably estimated and which have a material effect are valued using the percentage of completion method.
Customer-related expenses
Advertising and sales promotion expenses as well as other customer-related expenses are expensed directly when
incurred. Provisions are recognized for the estimated cost of warranties after the date of sale of the product concerned.
Receivables and other current assets
Trade and other receivables are carried at their principal amount, net of any bad debt allowances calculated on the basis
of the probable default risk. Bills receivable and other long-term receivables are discounted.
The carrying amounts of assets are reviewed where there are indications that the carrying amount of an asset exceeds
its value in use or net selling price (impairment test). The carrying amount is written down if it is higher than the
recoverable amount.
Provisions for pensions and other employee benefits
For the SGL Carbon defined benefit plans, provisions for pensions and other employee benefits from defined benefit
plans are measured by independent actuaries using the projected unit credit method and reflect future salary and
pension increases in accordance with IAS 19. The interest component of the addition to pension provisions is carried
under net financing costs. Payments under defined contribution plans are recognized as expenses at the time of
payment.
Notes to the Consolidated Financial Statements
53Other provisions
Other provisions are recognized in accordance with IAS 37 for obligations to third parties that will probably be required
to be settled, and where the amount of the obligation can be reliably estimated. Long-term other provisions are
only discounted in individual cases. Restructuring provisions are recognized where a formal restructuring plan has been
adopted and publicly announced in sufficient detail. The accounting for our stock option plans and recognition of the
appropriate provisions are described in note 31.
Environmental protection obligations
The SGL Carbon Group recognizes provisions for environmental protection obligations where it is probable that such
an obligation exists and its amount can be reasonably estimated. Any possible insurance compensation payments are
not deducted when estimating such liabilities.
Liabilities
Liabilities are carried at their notional amount or at the higher redemption amount at the balance sheet date. Interest-
free or low-interest liabilities due after more than one year are discounted to the balance sheet date. One-time fees for
long-term loan agreements are amortized over the term of the loan agreement.
Deferred income
Government grants are recognized only if the grants have been received and it is likely that the Company will comply
with the conditions attaching to them. The amounts are carried in deferred income and recognized as income as the
associated expenses are incurred.
Income and expenses
Income and expenses of the fiscal year are recognized upon realization. Sales revenue is recognized at the time of
transfer of risk, generally after delivery of the products or rendering of the services, net of any discounts and rebates
granted. The percentage of completion method in accordance with IAS 11 is applied to significant construction con-
tracts. Operating expenses are recognized when the service is utilized or at the time when they are incurred. Interest
income and expenses are accrued. Dividends are generally recognized at the time of distribution.
To enhance the quality of presentation of earnings power, costs relating to antitrust proceedings and restructuring are
presented separately on the income statement.
Deferred tax assets and liabilities
Income taxes are calculated using the balance sheet liability method. Deferred tax assets and liabilities are presented
separately on the balance sheet to reflect the future tax effect of temporary differences between the carrying amounts
of assets and liabilities in the financial accounts and in the tax accounts. Deferred tax assets and liabilities are calculated
on the basis of the tax rates expected to be enacted when the items reverse. The effects of changes in tax rates are
recognized at the time new tax rules come into force. Deferred tax assets are only recognized for tax loss carryforwards
where future utilization is probable.
Estimates and assumptions
Preparation of financial statements requires management in certain cases to make estimates and assumptions regard-
ing the amounts of receivables, liabilities and provisions, the disclosure of contingent liabilities and reported amounts
of income and expenses. Actual amounts may differ from those estimates.
Notes to the Consolidated Financial Statements
54 Explanation of significant differences between German accounting principles and the International
Accounting Standards in the SGL Carbon Group
The significant differences between the IFRSs/IASs and the German Commercial Code (HGB) that are relevant to the
SGL Carbon Group are as follows:
Under the HGB, goodwill may be capitalized and amortized over generally 15 years or eliminated directly against the
reserves (as was the case in the SGL Carbon Group until 1994). The IFRSs/IASs require goodwill to be capitalized
and amortized over a maximum of 20 years. The cost of integrating the company acquired is not a component of
the cost of acquisition in accordance with the IFRSs/IASs. The resulting goodwill and goodwill amortization charges
are correspondingly lower.
Under the IFRSs/IASs, internally generated intangible assets are capitalized if future economic benefits are expected
to flow to the enterprise.
Depreciation of movable items of plant and equipment was retrospectively changed from the declining balance to
the straight-line method of depreciation.
Leased items of property, plant and equipment that are attributable to the SGL Carbon Group as the beneficial
owner in accordance with the criteria set out in IAS 17 must be capitalized and depreciated. The associated liabilities
are reduced as lease payments are made and apportioned between interest expense and reduction of the
capitalized lease obligations.
The IFRSs/IASs do not permit general valuation allowances on inventories and receivables.
Foreign currency translation under the HGB is based on the imparity principle: foreign currency receivables must
be translated at the rate prevailing at the transaction date or at the lower rate prevailing at the balance sheet
date. Foreign currency liabilities must be translated at the rate prevailing at the transaction date or at the higher
rate prevailing at the balance sheet date. The IFRSs/IASs require all foreign currency receivables and liabilities to
be translated at the middle rate prevailing at the balance sheet date. Any resulting gains and losses are recognized
in income.
Deferred taxes are recognized and measured using the balance sheet liability method in accordance with IAS 12,
in contrast to the HGB. Under IAS, assets and liabilities from amounts of future income taxes recoverable or
payable must be recognized using the future enacted tax rates. This also includes the recognition of deferred
tax assets from tax loss carryforwards if it is probable that taxable profits will be available against which the
deferred tax asset can be utilized.
Under the IFRSs/IASs, pension provisions are calculated to reflect future salary and pension increases (projected
unit credit method). Under German law, the provision is calculated using the net present value method in accord-
ance with section 6a of the EStG (German Income Tax Act). IFRS/IAS pension provisions are generally higher than
HGB pension provisions.
2
Notes to the Consolidated Financial Statements
55Recognition of provisions under the IFRSs/IASs requires that future utilization of the provision is probable. Under
the HGB, provisions may also be recognized for possible obligations.
Under the IFRSs/IASs, long-term provisions and liabilities must be discounted, producing a lower carrying amount.
The accrued interest on the liability relating to the North American antitrust proceedings calculated each quarter
reduces net profit or increases net loss before tax compared with the HGB result.
Acquisitions/divestitures and basis of consolidation
The 19.6% interest in ZEW Zaklady Elektrod Weglowych S.A., Ratibor (Poland), acquired by SGL Carbon in 1999 was
increased in several steps in 2000 to 97.2%. The total acquisition cost amounted to €25.9 million. This company
was fully consolidated effective December 31, 2000, although it was not recognized in the income statement for fiscal
year 2000.
As of January 1, 2001, all shares in SGL Acotec Ltda., São Paulo (Brazil), – formerly KCH-ANCOBRAS Ltda. – were
acquired in exchange for of a 38% interest in Larrondo Inversiones S.L. at a purchase price of €1.8 million. In addition,
the interest in SGL Acotec (Wuhan) Co. Ltd., Wuhan (China), was increased from 70% to 90%. €0.9 million was
paid for the acquisition of the 20% interest to the partner continuing to hold the 10% interest. Both companies are
fully consolidated.
Tokai Carbon Co. Ltd., Tokyo (Japan), a third-party enterprise, acquired a 49% interest in the joint venture which has
been operating under the name SGL Tokai Carbon Ltd., Shanghai (China), since July 2002. The 51% interest remaining in
the hands of SGL Carbon is carried at cost and is not consolidated.
All shares in SGL PanTrac Gesellschaft für elektrische Kontakte mbH, Berlin (PanTrac), were sold to E-Carbon S.A.,
Brussels, a third-party enterprise, and were transferred in January 2003. PanTrac was still fully consolidated in the con-
solidated financial statements for fiscal year 2002.
Basis of consolidation
All significant subsidiaries under the legal or constructive control of SGL Carbon have been consolidated. At December 31,
2002, eight (2001: seven) German and 43 (2001:43) foreign subsidiaries were consolidated in addition to SGL Carbon
AG. Compared with 2001, one German and one foreign subsidiary were consolidated for the first time, and one foreign
company was no longer consolidated because it was deemed to be insignificant. The two companies consolidated
for the first time are companies that were previously unconsolidated. 25 companies were not consolidated because they
are insignificant overall for the presentation of net assets, financial position and results of operations. One joint venture
was carried at equity. The significant consolidated companies are listed on page 82.
3
Notes to the Consolidated Financial Statements
56 Consolidated income statement and consolidated balance sheet disclosures
Note 28 presents a breakdown of sales revenue by Business Area.
General and administrative expenses
During the year under review, general and administrative expenses were reduced significantly compared with the
previous year. These savings are primarily due, in particular, to the restructuring program implemented in North America,
as well as to a reduction in variable compensation.
Other operating income/expenses
Other operating income is primarily composed of income from the reversal of provisions (€10.4 million), in particular
staff cost and warranty provisions, insurance compensation (€4.9 million), income from the disposal of noncurrent
assets (€4.5 million), income from changes in bad debt allowances on receivables (€2.8 million), the amortization of
negative goodwill (€2.3 million) and exchange rate gains (€1.8 million).
The major items of other operating expenses are amortization of goodwill (€7.4 million), additions to provisions,
exchange rate losses (€1.6 million) and losses on the disposal of noncurrent assets (€0.6 million).
Costs relating to antitrust proceedings and restructuring expenses
The costs relating to antitrust proceedings relate primarily to an increase in the provisions for fines imposed by the
European Commission in fiscal years 2001 and 2002. The restructuring expenses in fiscal year 2002 relate to the GS and
CP businesses and are linked to the acceleration of the restructuring program and to the fact that measures originally
planned for 2003 were brought forward to 2002, resulting in a significant increase in job cuts. The restructuring expenses
for the previous year contain closure costs for three plants in the US, the resulting expenses for reducing the workforce
and for impairment losses of noncurrent and current assets in the US, as well as workforce resizing costs in Europe
(see also notes 21 and 25).
€m 2002 2001
Costs relating to antitrust proceedings 22.0 35.0
Restructuring expenses 8.3 41.0
Total 30.3 76.0
4
5
6
Notes to the Consolidated Financial Statements
57Net financing costs
Net financing costs include non-cash expenses amounting to €3.9 million. Other net financial income/net financing
costs relate to net exchange rate gains and losses on financial transactions and to write-downs of current financial
instruments. The fair value of options issued to a third party (see note 26) recognized in the previous year was reversed
in fiscal year 2002. The result is reported under other net financing costs. We have reclassified the interest component
of foreign currency hedging costs of €1 million in 2001 from interest on borrowings and other interest expense to other
net financial income/net financing costs.
Other disclosures
€m 2002 2001
Net investment income – 1.8 3.2
Interest on other securities and long-term loans 0.1 0.5
Other interest and similar income 2.1 2.0
(thereof from subsidiaries) (0.0) (0.2)
Interest on borrowings and other interest expense – 27.4 – 28.4
Accrued interest on liabilities from antitrust proceedings 3.4 – 2.7
Interest component of additions to pension provisions – 10.4 – 9.9
Interest expense, net – 32.2 – 38.5
Other net financial income/net financing costs 8.5 – 13.2
Total – 25.5 – 48.5
€m 2002 2001
Cost of raw materials and consumables used and of goods
purchased and held for resale 242.2 297.1
Cost of purchased services 61.3 78.2
Total 303.5 375.3
Cost of materials
€m 2002 2001
Wages and salaries 298.1 326.0
Social security contributions, retirement and other benefit costs 70.1 77.2
(thereof for pensions) (18.7) (17.3)
Total 368.2 403.2
Staff costs
7
8
Notes to the Consolidated Financial Statements
58 Other taxes
Other taxes are reported in the appropriate functional expense. The total expense was €9.8 million in 2002 and
€9.7 million in 2001.
The reduction in the average number of employees is a result of the headcount reduction implemented under the
previous year’s restructuring program and the fact that measures planned for 2003 were brought forward.
Income tax benefit/expense
Deferred tax assets from tax loss carryforwards are generally recognized in the IFRS/IAS consolidated financial
statements on the basis of five-year projected earnings before taxes of the individual consolidated companies. The
projections reflect uncertainties about certain assumptions and other general conditions and, in exceptional cases,
deferred tax assets from tax loss carryforwards have not been recognized.
Deferred tax assets from tax loss carryforwards were not recognized in the US and the UK in the period under review.
Deferred tax assets from tax loss carryforwards in the US were written down in full in the 2001 consolidated financial
statements as a consequence of the economic situation in the US steel industry.
Since the Tax Reduction Act became effective in January 2001, the net profit of German companies has been subject
to a standard 25% rate of corporation tax. In September 2002, the rate of German corporation tax for fiscal 2003 was
increased to 26.5%. The impact of this tax increase, which is limited to one year, is not of material importance and
Annual average number of employees: 2002 2001
Production and auxiliary plants 5,465 6,103
Sales and marketing 638 655
Research 307 487
Administration, other functions 1,294 1,246
Total 7,704 8,491
Breakdown of employees
The tax benefit/expense is composed as follows (€m): 2002 2001
Current income tax expense
Germany – 2.1 – 5.6
Rest of world – 5.7 – 16.8
Deferred taxes
Germany 11.1 – 1.6
Rest of world 0.3 – 5.2
Total 3.6 – 29.2
9
Notes to the Consolidated Financial Statements
59
Since the income tax burden differs from country to country, these taxation differences are disclosed separately in the
above reconciliation. The prior-period taxes are the result of refunds for taxes paid in the past due to successful appeals
to the tax authorities. The valuation allowance charged on deferred tax assets relates primarily to the non-recognition
of deferred tax assets in the US and the UK.
Earnings per Share (EPS)
Basic earnings per share are calculated by dividing the net profit or loss attributable to SGL Carbon shareholders
(2002: €–23.6 million; 2001: €–95.2 million) by the weighted average number of shares outstanding (2002: 21,813,930;
2001: 21,530,563). The weighted average number of shares outstanding is calculated from the number of shares out-
standing at January 1 plus the new shares issued in February 2002 (see note 17).
Because of the net loss for the year and the resulting lack of any dilutive effect, the diluted earnings per share in accord-
ance with IAS 33.40 for both fiscal years were identical to the basic earnings per share.
Reconciliation
€m 2002 2001
Net loss before tax – 27.2 – 65.8
Expected tax benefit at 38.4% 10.4 25.3
Change in expected tax income due to:
non-deductable expenses (incl. goodwill amortization)
and tax-exempt income – 7.6 – 16.4
Taxation differences at foreign companies 3.3 – 0.5
Prior-period taxes 4.0 – 5.2
Effect of change in tax rate 0.0 – 0.7
Change in valuation allowance against deferred tax assets – 11.4 – 31.6
Other 4.9 – 0.1
Effective tax benefit (+)/expense (–) 3.6 – 29.2
10
has therefore not been included in the calculation of deferred taxes. A solidarity surcharge of 5.5% is added to the
corporation tax rate resulting in an aggregate corporation tax rate for 2001 and 2002 of 26.4%. Together with the trade
tax burden of 12%, the German income tax rate amounts to a total of 38.4%.
Notes to the Consolidated Financial Statements
60 Intangible assets
Industrial
rights,
software and Negative
€m similar rights Goodwill goodwill Total
Historical cost:
Balance at Jan. 1, 2002 24.0 140.6 – 8.3 156.3
Change in basis of consolidation 0.0 0.0 0.0 0.0
Currency translation – 1.0 – 8.5 – 3.1 – 12.6
Additions 12.0 0.1 0.0 12.1
Disposals – 0.6 0.0 0.0 – 0.6
Balance at Dec. 31, 2002 34.4 132.2 – 11.4 155.2
Cumulative amortization:
Balance at Jan. 1, 2002 18.5 31.3 – 4.7 45.1
Change in basis of consolidation 0.0 0.0 0.0 0.0
Currency translation – 1.2 – 1.8 0.0 – 3.0
Additions 4.8 7.4 – 2.3 9.9
Disposals – 0.6 0.0 0.0 – 0.6
Balance at Dec. 31, 2002 21.5 36.9 – 7.0 51.4
Carrying amount at Dec. 31, 2002 12.9 95.3 – 4.4 103.8
Historical cost:
Balance at Jan. 1, 2001 24.3 138.2 – 8.3 154.2
Change in basis of consolidation 0.0 0.0 0.0 0.0
Currency translation 0.9 3.8 0.0 4.7
Additions 1.1 4.4 0.0 5.5
Disposals – 2.3 – 5.8 0.0 – 8.1
Balance at Dec. 31, 2001 24.0 140.6 –8.3 156.3
Cumulative amortization:
Balance at Jan. 1, 2001 15.7 22.7 – 0.7 37.7
Change in basis of consolidation 0.0 0.0 0.0 0.0
Currency translation 1.0 0.3 0.0 1.3
Additions 3.5 8.4 – 4.0 7.9
Disposals – 1.7 – 0.1 0.0 – 1.8
Balance at Dec. 31, 2001 18.5 31.3 – 4.7 45.1
Carrying amount at Dec. 31, 2001 5.5 109.3 – 3.6 111.2
11
Industrial rights, software and similar rights mainly comprise purchased and internally developed software. Additions in the
year under review relate mainly to the first phase in the creation of a standardized Group-wide SAP system (SGL ONE). The aim
of the SAP project is to replace a multitude of legacy systems with a single, fully integrated global SAP system. A total of
€4.9 million has been capitalized to date for the SGL ONE project. Negative goodwill is reversed to the income statement across
the remaining useful life of the asset. Goodwill amortization is contained in other operating expenses. There was no require-
ment for write-downs from impairment testing.
Notes to the Consolidated Financial Statements
61
Additions in property, plant and equipment fell by €49.1 million in the year under review, from €90.6 million to €41.5 million.
In fiscal year 2002, €5.5 million was invested in the new carbon-ceramic brake disc production plant, which was completed
in 2002. Other material additions relate primarily to the replacement of capital assets for our plants in Germany, the US and
Italy. Capitalized leased assets relate to land and buildings and to technical equipment, and amount to €1.4 million at
December 31, 2002.
Other
Land, Technical equipment, Advance
land rights equipment operating payments and
and and and office assets under
€m buildings machinery equipment construction Total
Historical cost:
Balance at Jan. 1, 2002 395.8 1,106.6 142.5 52.9 1,697.8
Change in basis of consolidation – 10.9 – 36.4 – 8.5 0.0 – 55.8
Currency translation – 19.3 – 61.4 – 3.2 – 2.2 – 86.1
Reclassifications 10.1 0.0 0.0 – 10.1 0.0
Additions 2.6 43.7 6.1 – 10.9 41.5
Disposals – 6.3 – 28.6 – 5.5 – 0.1 – 40.5
Balance at Dec. 31, 2002 372.0 1,023.9 131.4 29.6 1,556.9
Cumulative depreciation:
Balance at Jan. 1, 2002 214.5 811.3 118.3 0.2 1,144.3
Change in basis of consolidation – 10.0 – 34.3 – 8.5 0.0 – 52.8
Currency translation – 7.1 – 38.1 – 2.2 0.0 – 47.4
Reclassifications 0.0 0.0 0.0 0.0 0.0
Additions 10.3 52.4 8.6 0.0 71.3
Disposals – 4.0 – 26.5 – 5.3 0.0 – 35.8
Balance at Dec. 31, 2002 203.7 764.8 110.9 0.2 1,079.6
Carrying amount at Dec. 31, 2002 168.3 259.1 20.5 29.4 477.3
Historical cost:
Balance at Jan. 1, 2001 377.3 1,049.8 145.2 35.4 1,607.7
Change in basis of consolidation 2.4 0.6 0.5 0.0 3.5
Currency translation 6.7 19.1 0.4 – 1.1 25.1
Reclassifications 1.6 2.7 0.0 – 4.3 0.0
Additions 8.7 49.3 9.7 22.9 90.6
Disposals – 0.9 – 14.9 – 13.3 0.0 – 29.1
Balance at Dec. 31, 2001 395.8 1,106.6 142.5 52.9 1,697.8
Cumulative depreciation:
Balance at Jan. 1, 2001 202.1 751.7 119.5 0.0 1,073.3
Change in basis of consolidation 0.7 0.4 0.4 0.0 1.5
Currency translation – 1.8 8.2 0.0 0.0 6.4
Reclassifications 0.0 0.1 – 0.1 0.0 0.0
Additions 14.3 62.6 10.8 0.2 87.9
Disposals – 0.8 – 11.7 – 12.3 0.0 – 24.8
Balance at Dec. 31, 2001 214.5 811.3 118.3 0.2 1,144.3
Carrying amount at Dec. 31, 2001 181.3 295.3 24.2 52.7 553.5
Property, plant and equipment12
*
* Balance of additions of €28.9 million and reclassifications of operational equipment of €39.8 million
Notes to the Consolidated Financial Statements
62
Other noncurrent financial assets relate primarily to the capitalized surrender value of reinsurance policies. The change
in the basis of consolidation in the year under review relates to the carrying amount of a company which is no longer
consolidated due to immateriality. There are no longer any advance payments on noncurrent financial assets.
Invest- Other
ments Noncurrent noncurrent
in sub- financial financial
€m sidiaries investments assets Total
Historical cost:
Balance at Jan. 1, 2002 27.3 2.7 5.2 35.2
Change in basis of consolidation 11.0 0.0 0.0 11.0
Currency translation – 1.7 0.0 0.1 – 1.6
Reclassifications 0.0 – 0.3 0.3 0.0
Additions 0.6 0.1 0.0 0.7
Disposals – 4.4 0.0 – 0.2 – 4.6
Balance at Dec. 31, 2002 32.8 2.5 5.4 40.7
Cumulative write-downs:
Balance at Jan. 1, 2002 1.2 0.0 0.0 1.2
Change in basis of consolidation 6.0 0.0 0.0 6.0
Currency translation 0.0 0.0 0.1 0.1
Additions 0.0 0.0 0.2 0.2
Disposals 0.0 0.0 0.0 0.0
Balance at Dec. 31, 2002 7.2 0.0 0.3 7.5
Carrying amount at Dec. 31, 2002 25.6 2.5 5.1 33.2
Historical cost:
Balance at Jan. 1, 2001 30.1 2.5 4.2 36.8
Change in basis of consolidation 0.0 0.0 0.1 0.1
Currency translation 0.7 0.0 0.1 0.8
Reclassifications – 1.0 0.5 0.5 0.0
Additions 2.2 0.5 0.9 3.6
Disposals – 4.7 – 0.8 – 0.6 – 6.1
Balance at Dec. 31, 2001 27.3 2.7 5.2 35.2
Cumulative write-downs:
Balance at Jan. 1, 2001 0.9 0.0 0.0 0.9
Change in basis of consolidation 0.0 0.0 0.0 0.0
Currency translation 0.0 0.0 0.0 0.0
Additions 0.8 0.0 0.0 0.8
Disposals – 0.5 0.0 0.0 – 0.5
Balance at Dec. 31, 2001 1.2 0.0 0.0 1.2
Carrying amount at Dec. 31, 2001 26.1 2.7 5.2 34.0
Noncurrent financial assets13
Notes to the Consolidated Financial Statements
63Inventories
Cost in excess of billings relates to customer-specific production contracts measured at cost. The total amount of
inventories carried at net realizable value amounts to €5.8 million. Advances received amounting to €7.5 million were
netted against inventories for the first time in 2002. Write-downs were only reversed to a limited extent.
Trade receivables
Trade receivables are reported net of specific allowances for doubtful accounts amounting to €9.6 million as of
December 31, 2002 and €15.0 million as of December 31, 2001. No general valuation allowances were recognized in
2002. There were no trade receivables from associates. As of December 31, 2002 and 2001, sales of receivables, as
reported during the year, amounted to €41.2 million and €11.4 million, respectively.
Other receivables and other current assets
Other current assets relate primarily to recoverable taxes amounting to €19.8 million, positive fair values of financial
derivatives totaling €8.7 million, prepaid expenses of €7.0 million, insurance claims, short-term loans receivable, purchase
price receivables for noncurrent assets sold, and miscellaneous receivables.
14
15
16
Dec. 31, Dec. 31,
€m 2002 2001
Raw materials and supplies 83.1 109.1
Work in progress 147.9 200.9
Finished goods and goods purchased and held for resale 54.5 71.0
Cost in excess of billings 9.3 12.6
Advance payments/less payments received – 6.4 0.6
Total 288.4 394.2
Dec. 31, Dec. 31,
€m 2002 2001
Customers 198.1 256.0
(thereof with more than one year to maturity) (0.3) (0.4)
Subsidiaries 10.0 6.2
Total 208.1 262.2
Dec. 31, Dec. 31,
€m 2002 2001
Other receivables from subsidiaries 2.9 0.2
Other current assets 57.8 47.2
(thereof with more than one year to maturity) (0.0) (0.0)
Total 60.7 47.4
Notes to the Consolidated Financial Statements
64 Cash and cash equivalents
The increase in bank balances as compared to the prior year is mainly due to reporting date effects at a subsidiary in
Poland.
On February 28, 2002 the Company purchased 300,000 own shares at €2.56 each. These shares resulted from the
capital increase approved on January 23, 2002 and were for use by employees. In March 2002, a total of 276,707 shares
(notional €708,370 = 1.3% of the share capital) were issued to employees of SGL Carbon AG and its affiliates as part
of the bonus program. In November 2002, the Company purchased a total of 63,455 own shares at €7.17 each (a total
of €455,251). Using the initial portfolio of 2,027 shares, 88,775 shares (notional €227,264 = 0.4% of the share capital)
were issued as employee shares to employees of SGL Carbon AG and its affiliates in November 2002. 79,825 shares
were purchased by the participants at a price of €4.42 each and 8,950 shares at a price of €5.50 each. As a result, no
further treasury shares were held at the balance sheet date.
The financial instruments are classified as “available for sale”. The fair values of the financial instruments correspond
to their carrying amounts. There was no requirement to charge impairment losses.
Deferred tax assets
Tax loss carryforwards are recorded primarily in the US and in Germany. As the law currently stands, the tax loss carry-
forwards in Germany can be utilized without limitation of time. In the US, the tax loss carryforwards expire between
2018 and 2021. These tax loss carryforwards are measured at the expected enacted future tax rates. Valuation allowances
are charged on the gross amounts calculated in this way to obtain the amounts likely to be utilized in the future.
Deferred tax assets from loss carryforwards in the US and the UK were not recognized during preparation of the
IFRS/IAS consolidated financial statements.
Deferred tax assets were also recognized for timing differences in profit and loss resulting from consolidation adjust-
ments, and for temporary differences in carrying amounts at the Group companies resulting from provisions for onerous
contracts not allowable for tax purposes and for other measurement differences under the IFRSs/IASs. In the event
of doubts about the tax-deductibility of expenses, an equivalent valuation allowance is charged against the calculated
deferred tax assets. Most deferred tax assets have more than one year to maturity.
17
18
Dec. 31, Dec. 31,
€m 2002 2001
Cash and bank balances 21.4 11.6
Financial instruments 0.1 0.5
Total 21.5 12.1
Notes to the Consolidated Financial Statements
65Equity
The classification of items of equity is presented in the consolidated statement of changes in equity on page 49.
The share capital of SGL Carbon as of December 31, 2002 amounted to €55,972,992 and is composed of 21,864,450
no-par value bearer shares.
The share capital of SGL Carbon may be increased against cash or non-cash contributions by a resolution adopted by an
Annual General Meeting by a simple majority, or if the subscription rights of the shareholders are to be excluded, by
a majority of at least three-quarters of the share capital present (in person or by proxy) at the adoption of the resolution.
Any decrease in the share capital of SGL Carbon requires a resolution adopted by a three-quarters majority.
The Annual General Meeting of a German corporation may empower the Executive Committee to issue, subject to the
consent of the Supervisory Board, shares up to a certain aggregate notional amount not exceeding 50% of the issued
share capital at the time of the adoption of the resolution during a period not exceeding five years.
For reasons of transparency, various amounts of authorized capital in existence at the time of different Annual General
Meetings were aggregated in a single provision of the Articles of Association by resolution of the Annual General
Meeting on April 30, 2002. To do this, the following authorizations were revoked: (i) the authorization of the Executive
Committee in accordance with Article 3 (6) of the Articles of Association to increase the share capital by a total of
up to €376,192 on one or more occasions up to April 15, 2004, with the consent of the Supervisory Board, by issuing
146,950 new no-par value shares for cash contributions, and (ii) the authorization of the Executive Committee in
accordance with Article 3 (8) of the Articles of Association to increase the share capital by a total of up to €5,400,000
on one or more occasions up to April 26, 2005, with the consent of the Supervisory Board, by issuing new no-par
value shares for cash and/or non-cash contributions. The Annual General Meeting resolved to create new authorized
capital I and to revise Article 3 (6) of the Articles of Association. As a result, the Executive Committee is authorized to
increase the Company’s share capital by a total of up to €6,928,192.00 on one or more occasions up to April 29, 2007,
with the consent of the Supervisory Board, by issuing new shares against cash and/or non-cash contributions
(authorized capital I). Shareholders must be granted subscription rights. With the consent of the Supervisory Board, the
Executive Committee is authorized to exclude fractions from the shareholders’ subscription rights. Furthermore,
the Executive Committee may exclude shareholders’ subscription rights with the consent of the Supervisory Board,
insofar as it is necessary to grant a right to subscribe for shares to the holders of warrants or the creditors of
convertible bonds issued by SGL Carbon Aktiengesellschaft or its wholly owned direct or indirect subsidiaries to the
extent that they are entitled to this right after exercising their options or conversion rights or after fulfilling their
conversion obligations,
if the new shares are issued to employees of SGL Carbon Aktiengesellschaft or companies affiliated with SGL Carbon
Aktiengesellschaft as defined by sections 15 ff. of the AktG (German Stock Corporation Act). For this purpose,
however, the share capital may only be increased on one or more occasions by a total of up to €2,432,000.00
through the issue of up to a total of 950,000 new no-par value shares,
if the new shares are issued to the employees of SGL Carbon Aktiengesellschaft or affiliates of SGL Carbon Aktien-
gesellschaft as defined by sections 15 ff. of the AktG who are participating in SGL Carbon Aktiengesellschaft’s
stock option plan. For this purpose, however, the share capital may only be increased on one or more occasions by
a total of up to €640,000.00 through the issue of a total of up to 250,000 new no-par value shares,
19
Notes to the Consolidated Financial Statements
66 if the new shares are issued as part of a capital increase for non-cash contributions for the purpose of acquiring
companies, parts of companies, or equity interests,
by a total of up to €5,597,299.20, if the new shares are issued during a capital increase for cash contributions at
a price that is not significantly lower than the market price.
The Executive Committee was also authorized by the Annual General Meeting on May 3, 2001 to increase the Company’s
share capital by up to €21,058,304, with the consent of the Supervisory Board, on one or more occasions up to
May 2, 2006 by issuing 8,225,900 new no-par value shares for cash and/or non-cash contributions (authorized capital Ia).
Shareholders must be granted subscription rights. However, the Executive Committee is authorized to exclude fractions
from the shareholders’ subscription rights with the consent of the Supervisory Board. The Executive Committee is also
authorized to exclude all shareholders’ subscription rights with the consent of the Supervisory Board in order to issue
the new shares for non-cash contributions for the purpose of acquiring companies or equity interests.
The share capital of the Company has been contingently increased by an additional €3,840,000, composed of 1,500,000
no-par value bearer shares with a notional value of €2.56 each. The contingent capital increase will be implemented
only insofar as the holders of conversion rights attached to convertible bonds issued in September 2000 in the amount
of €133,650,000 exercise their conversion rights, or insofar as holders of convertible bonds who are obliged to convert
such bonds issued by SGL Carbon or a wholly owned direct or indirect subsidiary of SGL Carbon on the basis of the
authorization approved by the Annual General Meeting on April 27, 2000 fulfill their conversion obligation. The new shares
carry dividend rights from the beginning of the fiscal year in which they are created due to the exercise of conversion
or option rights or through fulfillment of the conversion obligation.
The share capital has been contingently increased by an additional notional €4,096,000. The contingent capital increase
will be implemented only by issuing up to 1,600,000 new no-par value shares carrying dividend rights from the beginning
of the fiscal year in which they were issued and will only be implemented insofar as the owners of subscription rights
issued under the terms of the Company’s stock option plan on the basis of the authorization approved on April 27, 2000
exercise their subscription rights.
The Annual General Meeting on May 3, 2001 resolved to contingently increase the share capital by up to €5,520,499.20
by issuing up to 2,156,445 bearer shares. The contingent capital increase serves to grant option rights under the terms
and conditions of the options to the holders of warrants from bonds with warrants or of conversion rights under the terms
and conditions of the bonds to the holders of convertible bonds which, in accordance with the authorization of the
Annual General Meeting on May 3, 2001, are issued up to May 2, 2006 by SGL Carbon Aktiengesellschaft or a wholly
owned direct or indirect subsidiary of SGL Carbon Aktiengesellschaft. The new shares will be issued at the exercise
or conversion price to be determined in accordance with the aforementioned resolution. The contingent capital increase
will be implemented only to the extent that the holders of the bonds with warrants or convertible bonds exercise their
option or conversion rights, or that bond holders obliged to convert meet their obligation to do so. The new shares carry
dividend rights from the beginning of the fiscal year in which they are created through the exercise of conversion or
option rights or through the fulfillment of conversion obligations. The Executive Committee is authorized to determine
the further details of the implementation of the contingent capital increase with the consent of the Supervisory Board.
Notes to the Consolidated Financial Statements
67€45,911 was withdrawn from the reserve for treasury shares and appropriated to other retained earnings. The accumu-
lated deficit of SGL Carbon AG of €9,600,000 will be carried forward to new account.
On January 31, 2003, the Executive Committee resolved, with the consent of the Supervisory Board on February 11,
2003, to use part of the authorized capital (authorized capital I) to increase the share capital by €820,500.48 by issuing
320,508 new shares. The new shares carry dividend rights starting in fiscal year 2002.
Provisions for pensions and other employee benefits
There are various arrangements worldwide in the SGL Carbon Group for retirement benefit and surviving dependents
pensions for its employees. Some of the arrangements are tied to the remuneration level of the employees, others
involve fixed amounts that depend on the classification of the employees (in terms of both salary class and level in the
corporate hierarchy). Certain arrangements also provide for future increases based on indexed inflation.
The differing pension plans for the employees of SGL Carbon AG, SGL Carbon GmbH and the former SGL Technik GmbH
were standardized as of April 1, 2000. Claims by employees from pension plans that arose prior to April 1, 2000 are
not affected, and the financial obligations arising under these pension plans remain in the SGL Carbon Group, where they
are covered by provisions. The basis of the new pension plan is the legally independent pension fund for employees
of the Hoechst Group, which is funded by employee and employer contributions. The contributions of the SGL Carbon
Group to this pension fund are linked by a certain formula to the contributions paid into this pension fund by the
employees. The payments by companies to such defined contribution pension funds are expensed as incurred in the
period concerned.
In the case of defined contribution pension plans, the company pays contributions to pension insurance funds on the
basis of statutory or contractual provisions. The company has no obligations other than to pay the contributions. Current
contribution payments are recognized as operating expenses in the period concerned.
The provisions for defined benefit plans are calculated using the projected unit credit method. Measurement is based
on the legal, economic and tax circumstances in the country concerned. Most of the obligations from current pensions
and entitlements under pension plans in the European companies are covered by the provisions carried on the balance
sheet. The North American subsidiaries have country-specific pension plans, most of which are covered by pension funds.
At certain companies in the SGL Carbon Group, the provisions also cover amounts for post-employment medical care
Dec. 31, Dec. 31,
€m 2002 2001
Pensions provisions for direct commitments 158.8 154.3
Pensions provisions for indirect commitments 16.4 16.4
Other 15.4 22.4
Total 190.6 193.1
20
Notes to the Consolidated Financial Statements
68 as well as severance payments. The future obligations are calculated using actuarial methods based on conservative
estimates of the relevant parameters. Recognition of actuarial gains and losses uses the 10% corridor rule. Personnel
turnover is determined on a company-by-company basis. The actuarial measurements are based on country-specific
mortality tables. Pension provisions amounting to €12 million have a term of less than one year.
The following parameters are applied to the most significant countries: Germany and the US.
Changes in the present value of funded obligations and in plan assets for pension provisions for direct commitments
are presented below:
German plans German plans US plans US plans
% 2002 2001 2002 2001
Discount rate 6.0 6.0 6.75 7.5
Salary growth 3.0 2.75 3.0 4.0
Expected rate of return on plan assets – – 9.0 10.0
Calculation basis and parameters for pension provisions
€m 2002 2001
Changes in present value of funded obligations:
Present value at Jan. 1 234.8 217.7
Current service cost 5.5 5.1
Interest cost 14.2 14.2
Actuarial gains/losses 6.6 6.0
Benefits paid – 12.1 – 11.5
Changes in basis of consolidation 0.0 0.1
Exchange differences – 4.2 3.2
Present value of funded obligations at Dec. 31 244.8 234.8
Changes in plan assets:
Plan assets at Jan. 1 51.6 58.9
Return on plan assets – 5.7 – 9.1
Contributions paid 2.9 1.9
Benefits paid – 3.7 – 3.4
Exchange differences 0.2 3.3
Plan assets at Dec. 31 45.3 51.6
Funding status 199.5 183.2
Unrecognized actuarial gains/losses – 40.7 – 28.9
Pension provision at Dec. 31 158.8 154.3
Notes to the Consolidated Financial Statements
69Pension expenses are composed as follows:
Other provisions
The provisions for taxes contain amounts for tax risks of fiscal years not yet finally assessed by the tax authorities. The
sharp drop in provisions for taxes in the current fiscal year is due to the fact that several tax audits were finalized in
Germany. Provisions for staff costs relate in particular to provisions for annual bonuses, jubilee benefits, partial retire-
ment and outstanding vacation.
Although we intend to file an appeal with the European Court in relation to the antitrust fine on our Graphite Specialties
activities levied by the EU in December 2002, we have increased the provisions for antitrust risks by €22 million. The
addition to provisions for restructuring and antitrust risks in the prior year was made to cover the costs of closing three
plants in the US and restructuring existing units there, as well as other restructuring expenses of €0.9 million. In
addition to the amounts transferred to the restructuring provisions, the amount expensed in the prior year included
write-downs of inventories amounting to €15 million and write-downs of property, plant and equipment amounting
to €9.8 million.
Miscellaneous other provisions relate to provisions for various risks, including provisions for bonuses, rebates and
onerous contracts amounting to €7.2 million (2001: €11.9 million), provisions for warranties amounting to €2.0 million
(2001: €2.9 million), provisions for environmental protection costs amounting to €3.4 million (2001: €4.2 million) and
provisions for other risks.
€m 2002 2001
Current service cost 5.5 5.1
Interest cost 14.2 14.2
Expected return on plan assets – 4.5 – 5.8
Amortization of actuarial gains/losses 0.7 0.2
Pension expenses from defined benefit plans 15.9 13.7
Pension expenses from defined contribution plans 2.8 3.6
Pension expenses 18.7 17.3
Restructuring
Staff and antitrust Miscel-
€m Taxes costs risks laneous Total
Balance at Jan. 1, 2002 10.5 45.4 71.1 37.6 164.6
Changes in basis of consolidation 0.0 – 0.2 0.0 – 0.1 – 0.3
Utilized – 9.6 – 12.3 – 15.0 – 12.1 – 49.0
Released – 0.1 – 6.5 – 0.8 – 13.0 – 20.4
Additions 1.8 19.3 22.0 15.6 58.7
Other changes – 0.3 – 2.4 – 1.5 – 0.2 – 4.4
Balance at Dec. 31, 2002 2.3 43.3 75.8 27.8 149.2
(thereof with a term of less
than one year) (0.3) (36.2) (75.7) (23.1) (135.3)
21
Notes to the Consolidated Financial Statements
70 Liabilities
133,650 bonds with warrants of €1,000 each were issued as part of a convertible bond on September 18, 2000 at 100%
of the principal amount. They bear interest of 3.5% p.a. on their principal amount. The bonds with warrants can be con-
verted at any time into fully paid-up, no-par value bearer shares of SGL Carbon AG in the period from October 18, 2000
to September 4, 2005. Each bond with warrants in the principal amount of €1,000 can be converted into 11.2233 shares
subject to adjustment of the conversion price. The bonds with warrants will be repaid on September 18, 2005 at their
principal amount, provided that they have not been repaid or converted at an earlier date.
The weighted average rate of interest on financial liabilities was 4.4% for 2002 (previous year: 4.8%).
Bank loans and overdrafts amounting to €189.6 million as of December 31, 2002 and €26.0 million as of December 31,
2001 bore interest at fixed rates of up to 5.9%. The remaining bank loans relate mainly to short-term € and USD loans
at rates of interest of between 3.8% and 5.9%.
A €200.0 million commercial paper program launched by SGL Carbon in 1996 was no longer drawn as of December 31,
2002 (2001: €37.0 million).
In December 2002, SGL Carbon and various German and foreign Group companies entered a syndicated loan agreement
totaling €510 million with a term of two and a half years. This amount includes the bank guarantee to the European
Commission and a working capital facility. The loan was granted subject to the condition that the Group complies with
standard bank covenants, such as the ratio of net debt to EBITDA and EBITDA to interest expense. Non-compliance
with the covenants or other obligations in the loan agreement may result in additional expenses and, if repeated,
the lenders could demand repayment of the loan ahead of schedule. Various assets, in particular property, plant and
equipment, inventories and receivables were pledged as security for the loan.
22
Dec. 31, Dec. 31,
€m 2002 2001
Bank loans and overdrafts 313.5 359.5
Commercial paper 0.0 37.0
Convertible and exchangeable bonds 135.0 135.0
Other financial liabilities 0.0 7.4
Financial liabilities 448.5 538.9
Trade payables 110.5 107.7
(thereof due within one year) (110.5) (107.7)
Customer advances received 0.8 7.3
(thereof due within one year) (0.8) (7.3)
Payable to subsidiaries 6.0 3.8
(thereof due within one year) (6.0) (3.8)
Miscellaneous other liabilities 144.4 186.1
Other liabilities 151.2 197.2
Total 710.2 843.8
Notes to the Consolidated Financial Statements
71Based on the total credit lines under the new syndicated loan and the credit lines used as of December 31, 2002, the
SGL Carbon Group had credit lines of €111 million available.
In fiscal year 2002, the advance payments received totaling €7.5 million were offset against the corresponding
inventories for each individual project. The other liabilities relate primarily to discounted liabilities for North American anti-
trust proceedings amounting to €80.9 million (2001: €109.2 million), wages and salaries amounting to €16.3 million
(2001: €16.1 million), negative fair values for financial derivatives of €12.2 million (2001: €4.6 million), and taxes amount-
ing to €6.4 million (2001: €12.5 million). Social security liabilities amounted to €6.7 million (2001: €5.2 million).
The maturity structure of the total amounts of financial and other liabilities due in each of the next five years and the
remainder thereafter is presented below:
Deferred grants from third parties as defined by IAS 20 amounted to €1.6 million as of December 31, 2002
(2001: €2.0 million). €0.2 million was recognized in income during the year under review. There are no deferred gains
on sale and leaseback transactions.
Deferred tax liabilities
Deferred tax liabilities result from differing depreciation and amortization methods applied in the tax accounts and in
the IFRS/IAS financial statements, from capitalized finance leases, and from measurement differences in the carrying
amounts of inventories between the tax accounts and the IFRS/IAS consolidated financial statements. Most deferred
tax liabilities have more than one year to maturity.
With more
than five
years to
€m 2003 2004 2005 2006 2007 maturity
Financial liabilities 193.1 5.3 213.0 7.7 21.4 8.0
Other liabilities 70.7 17.4 24.8 24.1 7.4 0.0
23
Notes to the Consolidated Financial Statements
72 Consolidated cash flow disclosures
Disclosures on the consolidated cash flow statement
The consolidated cash flow statement presents changes in the cash and cash equivalents of the SGL Carbon Group
through inflows and outflows of cash and cash equivalents over the course of a reporting period. Cash flows are
classified by operating, investing and financing activities. The effects of first-time consolidation and deconsolidation
were eliminated. The prior year figures were adjusted for currency changes in fiscal year 2001. The presentation is
supplemented by a reconciliation to cash and cash equivalents as reported in the balance sheet. The amounts of foreign
subsidiaries have generally been translated at average rates for the year in the cash flow statement. By contrast, cash
and cash equivalents are translated at the closing rate, as in the balance sheet.
Cash provided by operating activities includes interest received in the amount of €1.0 million and interest paid in the
amount of €28.0 million. Net taxes paid after refunds amounted to €22.3 million. Bank loans and overdrafts were
reduced by €46.0 million to cut financing requirements. Group debt also fell by €37 million due to the repayment of
commercial paper.
Cash used includes payments for the acquisition of noncurrent financial assets. Details on these payments are con-
tained in note 3. A total of €0.7 million was paid for the acquisition of noncurrent financial assets.
Other disclosures
Commitments and contingencies
There were no liabilities on bills as of December 31, 2002 or in the previous year. There were guarantee obligations of
€45.0 million and €39.4 million at December 31, 2002 and 2001, respectively. Other financial obligations from orders
relating to approved capital projects amounted to €21.1 million and €31.2 million at December 31, 2002 and 2001. Certain
of these capital projects involve expenses to be incurred after more than one year.
There were also rental and lease obligations for land and buildings, IT equipment, motor vehicles and other items of
property, plant and equipment with terms up to 2006 amounting to €12.3 million and €12.5 million at December 31, 2002
and 2001. For fiscal year 2002, they are distributed over the following years as shown below:
25
2007 and
€m 2003 2004 2005 2006 thereafter
Operating leases 3.2 1.8 0.7 0.6 4.8
Finance leases 0.3 0.3 0.2 0.2 0.2
discount included – 0.1
Present value of finance leases 1.1
24
Notes to the Consolidated Financial Statements
73There were no payments from subleases in the two fiscal years. The finance leases relate solely to leased items
of property, plant and equipment that are entered into under standard leasing arrangements without special purchase
options. There were provisions for environmental protection obligations at a number of the SGL Carbon Group’s
production sites, principally in North America, in the amount of €3.4 million and €4.2 million at December 31, 2002
and 2001.
A number of legal actions, court proceedings and law suits are pending or may be instituted or asserted in the future,
including those arising from alleged defects in the products of the SGL Carbon Group, from product warranties and
environmental protection matters.
Litigation is subject to many uncertainties, and the outcome of individual cases cannot be predicted with any certainty.
There are reasonable indications to suggest that the SGL Carbon Group may be adversely affected by rulings in certain
cases. Identifiable risks are adequately covered by the recognition of corresponding provisions.
Pending antitrust proceedings and claims
The antitrust proceedings in the US and in Canada have been concluded. Following negotiations with the US antitrust
authorities, we obtained a payment extension in 2002 for our remaining obligations. According to the original repayment
schedule, we had to pay a total of $65 million in 2002 and 2003. Under the new plan, a total of $15 million must be
repaid in these two years. The postponement of payments totaling $50 million to the period 2004 –2007 will further
improve the Company’s financial position. In July 2001, the European Commission imposed a fine for anti-competitive
practices in the graphite electrodes market. We have appealed against the €80.2 million fine, which we believe is un-
acceptable because of unlawful double jeopardy. After we deposited a bank guarantee, payment has been suspended
until a final decision has been made. In December 2002, the European Commission imposed a fine of €27.75 million
on SGL Carbon AG for anti-competitive practices in the graphite specialties market. We will file an appeal with the
European Court, citing in particular double jeopardy and gross unreasonableness. Additional provisions of €22 million
have been recognized to cover these antitrust risks.
Related party disclosures
During the course of its business activities, the SGL Carbon Group renders services for related companies and persons.
In turn, these persons and companies deliver goods or render services to the SGL Carbon Group as part of their business
purpose. All these transactions are settled on an arm’s length basis. Receivables from unconsolidated subsidiaries and
associates amount to €12.9 million, and the corresponding liabilities amount to €6.4 million. Details are presented in the
notes to the relevant balance sheet and income statement items.
In August 2001, Paul W. Pendorf was appointed Chief Executive Officer of HITCO Carbon Composites Inc. (HITCO).
Mr. Pendorf has acquired a 6% minority interest in this company. The SGL Carbon Group has granted a loan to
Mr. Pendorf, secured by the proceeds from the sale of his shares, to finance the purchase price. The shareholders
agreement also provides for options that can be exercised by both sides at a variable price after no later than four
years.
26
Notes to the Consolidated Financial Statements
74 Mr. Pendorf is also a shareholder in a company (AMT II) that has entered into two service and option agreements with
HITCO. Under the terms of the option agreement, AMT II has an option to buy up to 43% of the shares of HITCO on the
basis of a defined calculation formula. This option expires after no later than three years or after exercise of the put or
call option from the shareholders’ agreement (see above). SGL Carbon can prolong the option by a further year.
At December 31, 2002 and 2001, there were also call-in obligations of $3.6 million and $36.2 million, respectively, for
shares in an unconsolidated subsidiary. The contribution of the company to a joint venture in fiscal year 2002 and the
resulting reduction of the commitment has significantly reduced this amount.
Information on financial instruments
Financial instruments are contracts that give rise to both a financial asset of one enterprise and a financial liability or
equity instrument of another enterprise. According to IAS 32, these include primary financial instruments, such as trade
receivables, trade payables, financial assets and financial liabilities. They also include derivatives used to hedge interest
rate or foreign currency risks.
Primary financial instruments
Primary financial instruments are carried on the balance sheet. Financial instruments carried as assets are reported
at cost, net of any valuation allowances required. Financial instruments carried as liabilities are reported at their notional
amount or at the higher redemption amount.
The credit or default risk results from the risk that a counterparty is unable to meet its obligations. As we do not generally
enter into set-off agreements with our customers, the amounts reported on the balance sheet represent the maximum
default risk.
Foreign currency risks arise where receivables or liabilities are denominated in a currency other than the company’s
local currency. Hedging occurs firstly as a result of naturally closed positions, where a foreign currency receivable
in the SGL Carbon Group is matched by one or more liabilities in the same currency with equivalent maturities and
amounts. Derivatives are used only for hedging purposes for foreign currency risks that cannot be covered by natural
hedges.
Derivatives
The SGL Carbon Group may be exposed to risks from changes in interest rates and exchange rates during the course
of its business activities. Derivatives are used purely for hedging purposes and to reduce such risks. No financial
instruments are held for trading purposes. The use of such instruments is governed by internal instructions. Risk is
estimated and monitored continuously.
The SGL Carbon Group is exposed to a credit risk that arises if counterparties are unable to perform their contractual
obligations. Derivative contracts are entered into exclusively with internationally recognized financial institutions
to reduce the credit risk. In addition, all transactions are monitored by SGL Carbon’s central finance department. The
Executive Committee does not believe that involvement in such transactions materially adversely affects the
Group’s financial position.
27
Notes to the Consolidated Financial Statements
75Notional amounts
The notional amounts are the aggregate of all underlying purchase and sale amounts involving non-Group third parties.
The amounts presented in the following table therefore do not represent the amounts exchanged by the parties, and
are therefore no indication of the liabilities arising to the SGL Carbon Group from these financial instruments.
The notional amounts and fair values of the financial instruments as of December 31, 2002 and 2001 were
as follows:
Currency forwards and options are used primarily to hedge existing and future foreign currency receivables and liabilities.
The objective of hedging transactions in the SGL Carbon Group is to reduce the risks inherent in its receivables and
liabilities denominated in foreign currencies from exchange rate fluctuations. The underlying transactions in the individual
foreign currencies are almost fully hedged on the basis of the net position per currency. The maturities are based on
the maturity of the underlying transaction and range from several days to several months.
The fair value of derivatives is the price at which one party would assume the rights and/or obligations from another
party. Fair values are measured as follows on the basis of the market information available at the balance sheet date,
using standard market valuation methods:
Currency hedges are measured on the basis of reference rates and reflect forward premiums and discounts.
Currency options are measured using recognized option pricing models.
Interest rate contracts are measured on the basis of discounted expected future cash flows, with market rates
of interest applied for the remaining maturity of the instruments.
Interest rate options are measured using recognized option pricing models (incl. Black-Scholes).
The fair values are determined by independent financial service providers. In the case of derivatives, there is a credit
risk in the amount of the positive fair values of the derivatives.
A zero cost option was entered into to hedge the USD liability from the antitrust fine. The premium to be paid for
buying the option matches the premium resulting from the sale of the option.
Notional amounts Fair values
Bought Sold Total Total Total Total
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
€m 2002 2002 2002 2001 2002 2001
Foreign currency contracts:
USD currency forwards 3.9 170.3 174.2 242.6 5.7 – 4.1
GBP currency forwards 0.6 52.0 52.6 50.6 0.8 – 1.0
Other currency forwards 6.3 1.1 7.4 2.2 0.2 0.2
Currency options 99.1 93.6 192.7 201.0 – 10.2 1.6
Participating forward contracts 0.0 0.8 0.8 2.4 0.0 – 0.1
Interest rate contracts:
Interest rate swaps 0.0 103.2 103.2 3.8 – 0.7 0.1
Interest rate options 15.3 0.0 15.3 15.3 0.0 0.0
Notes to the Consolidated Financial Statements
76 The SGL Carbon Group conducts interest rate option and swap transactions to optimize its financing costs. In fiscal
years 2002 and 2001, the SGL Carbon Group used interest rate swaps to convert part of its financial liabilities from
fixed-interest liabilities into floating rate liabilities.
Foreign currency hedges in binding contracts or future transactions are accounted for as fair value hedges in accordance
with IAS 39.103. The hedge is measured at cost at inception. Changes in the fair values of derivatives from subsequent
remeasurement are recognized immediately in net profit or loss and the carrying amount of the hedged item is adjusted.
Gains or losses from the remeasurement of interest rate hedges designated as fair value hedges of floating rate bank
loans are also recognized in profit or loss.
Segment reporting
The SGL Carbon Group operates in the following areas:
Carbon and Graphite [CG]
Graphite electrodes and carbon products (electrodes, cathodes, furnace linings)
Graphite Specialties [GS]
Products for industrial applications, mechanical carbons and electrical contacts, carbon fibers/composites
Corrosion Protection [CP]
Process technology and surface protection
and
SGL Technologies [T]
Graphite foils, carbon fibers, expanded graphite and fabrics, composites, carbon-ceramic brake discs and fuel cell
components.
External sales revenue relates almost exclusively to revenue from the supply of products. Trading revenues or other
revenues are insignificant. Intersegment revenue is generally based on market-driven transfer prices, less selling and
administrative expenses. In exceptional cases, cost-based transfer prices may be used. The Other segment relates
to companies that primarily render services to the other Business Areas, and includes SGL Carbon AG. Consolidation
adjustments relate to the elimination of intersegment transactions. Non-cash expenses resulted primarily from the
increase in antitrust provisions in the amount of €22 million in the Other segment. The European foils business was
moved from the GS segment to the T segment as of January 1, 2002. The comparative figures for the businesses in
fiscal year 2001 were adjusted. Certain information on the businesses of the SGL Carbon Group is presented below
(primary segment reporting format in accordance with IAS 14.50 ff.).
28
Notes to the Consolidated Financial Statements
77Consolidation SGL
adjust- Carbon
€m CG GS CP T Other ments Group
2002
Net sales revenue 550.7 195.9 212.4 150.4 2.9 0.0 1,112.3
Intersegment revenue 396.5 44.5 16.3 4.4 44.4 – 506.1 0.0
Total net sales revenue 947.2 240.4 228.7 154.8 47.3 – 506.1 1,112.3
Profit/loss from operations* 51.9 1.9 4.8 – 11.7 – 18.3 0.0 28.6
Investment in property, plant and equipment 22.6 6.3 2.5 9.3 0.8 0.0 41.5
Depreciation and amortization expense 38.5 15.6 9.8 17.2 0.1 0.0 81.2
Capital employed 462 199 135 202 – 31 0 967
Debt 103.3 44.5 30.1 45.1 225.5 0.0 448.5
2001
Net sales revenue 619.8 230.7 235.8 135.1 11.9 0.0 1,233.3
Intersegment revenue 364.6 50.9 19.1 3.6 30.3 – 468.5 0.0
Total net sales revenue 984.4 281.6 254.9 138.7 42.2 – 468.5 1,233.3
Profit/loss from operations* 78.9 22.3 12.6 – 33.7 – 21.4 0.0 58.7
Investment in property, plant and equipment 45.1 12.6 5.0 26.3 1.6 0.0 90.6
Depreciation and amortization expense* 38.4 19.2 10.3 17.7 0.3 0.0 85.9
Capital employed 569 274 162 203 5 0 1,213
Debt 152.3 73.4 43.4 54.4 215.4 0.0 538.9
Europe Central Consolidation SGL
excl. North and South adjust- Carbon
€m Germany Germany America America Other ments Group
2002
Net sales revenue (by destination) 216.6 373.8 281.6 63.4 176.9 0.0 1,112.3
Net sales revenue (by company)
Third-party customers 409.5 422.9 267.8 5.1 7.0 0.0 1,112.3
Intercompany sales revenue 179.4 269.5 56.8 0.0 0.4 – 506.1 0.0
Total net sales revenue 588.9 692.4 324.6 5.1 7.4 – 506.1 1,112.3
Export sales from Germany 369.3 0.0 0.0 0.0 0.0 0.0 369.3
Capital employed 304 338 312 4 9 0 967
Investment in property, plant and equipment 17.1 12.1 11.8 0.1 0.4 0.0 41.5
2001
Net sales revenue (by destination) 246.0 409.2 315.8 63.1 199.2 0.0 1,233.3
Net sales revenue (by company)
Third-party customers 457.8 439.7 319.1 8.0 8.7 0.0 1,233.3
Intercompany sales revenue 178.3 237.1 53.1 0.0 0.0 – 468.5 0.0
Total net sales revenue 636.1 676.8 372.2 8.0 8.7 – 468.5 1,233.3
Export sales from Germany 360.7 0.0 0.0 0.0 0.0 0.0 360.7
Capital employed 404 386 410 4 9 0 1,213
Investment in property, plant and equipment 40.0 23.3 26.6 0.0 0.7 0.0 90.6
* before costs relating to antitrust proceedings and restructuring expenses
Notes to the Consolidated Financial Statements
78 List of shareholdings
The list of shareholdings is filed with the Wiesbaden commercial register. It will also be available for inspection at the
Annual General Meeting of SGL Carbon Aktiengesellschaft on April 30, 2003.
Remuneration of the Supervisory Board and Executive Committee of SGL Carbon AG
The total remuneration of the Supervisory Board amounts to €0,3 million. The remuneration of the Executive
Committee amounts to €1,6 million plus participation in the management incentive plans (see note 31). Based on the
remuneration paid to the Executive Committee in the year under review the variable component amounts to 60%.
The total remuneration of former members of management and their surviving dependents amounts to €0,1 million.
€1,1 million has been provided for pension obligations to former members of management and their surviving
dependents.
The active members of the Executive Committee hold shares in SGL Carbon AG privately. At December 31, 2002,
these totaled 55,055 shares and 3,093 ADRs.
The names of the members of the Supervisory Board and the Executive Committee are listed on pages 87– 89.
Management incentive plans
In 1996, the Company introduced management incentive plans in order to link management compensation to
enterprise value.
Stock Appreciation Rights Plan (SAR)
By means of the SAR Plan of April 1996/January 1997, SGL enabled members of the Executive Committee and manage-
ment to participate in the development of the market price of the Company’s shares by allocating stock options. The
plan covers a total of 840,500 options, of which 797,300 (637,350 already exercised) were allocated to 74 members of
the Executive Committee and senior management as of December 31, 2002.
The options allocated to each participant were vested in installments of 20% per annum each on January 1 for the
previous fiscal year (vesting period 1997 until 2001). Each issued option can be exercised between March 1 and
March 15 of each year, and on March 15, 2006 at the latest.
Options attributable to participants who are not members of the Executive Committee are exercised by buying ordinary
shares of SGL Carbon AG in exchange for payment of the exercise price. This portion of the SAR is recognized directly
in equity in the Group. The exercise of options by members of the Executive Committee results in the members receiving
a cash amount representing the difference between the exercise price and the official average price of the Company’s
shares fixed by the Frankfurt Stock Exchange on March 16 of the year the option is exercised. A provision is recognized
for the options of the Executive Committee in the amount of the difference between the option price and the price at
the balance sheet date. The payment is eliminated against the provision when the option is exercised.
29
30
31
Notes to the Consolidated Financial Statements
79Long-Term Cash Incentive Plan (LTCI)
The Long-Term Cash Incentive Plan (the LTCI Plan), established in 2002, enables the Executive Committee and selected
members of management to receive cash premiums for the years 2002 to 2004, provided that certain performance
targets defined by the Supervisory Board are met in the period 2002 to 2004 inclusive. The maximum total bonus amounts
to €7.8 million. Of the net proceeds from the LTCI premium, an amount equal to 15% of the gross proceeds must be
used by the participants to buy shares of SGL Carbon AG. The shares must be locked up for 12 months. A provision is
recognized ratably to match the performance targets met at the reporting date. The corresponding expense is carried
under other operating expenses as with the SAR plans. The additions to provisions for the Executive Committee in fiscal
year 2002 amount to €275 thousand.
Share Ownership Plan
Under the Share Ownership Plan, all employees of the Company in Germany and Austria were offered 25, 50, or
60 shares at a price of €4.42 per share for the first 25 or 50 shares (basic offer) and at a price of €5.50 per share for the
additional 10 shares (additional offer). 1,631 employees participated in this Plan and purchased a total of 88,775 shares.
These shares were issued on the basis of the capital increase from authorized capital in 2002 (see note 17). The shares
of the basic offer are subject to a two-year internal lock-up until November 30, 2004, and those of the additional offer
to a one-year lock-up until November 30, 2003.
Stock Purchase Plan
The Company’s Stock Purchase Plan was approved by the Ordinary Annual General Meeting on April 27, 2000. There are
plans to issue up to 250,000 new shares from authorized capital to service the Stock Purchase Plan. No shares have
been issued to date under the Stock Purchase Plan.
Under the Stock Purchase Plan, the Supervisory Board is authorized to grant shares of the Company to members of the
Executive Committee, and the Executive Committee is authorized to issue shares to senior executives of the Company
and to members of management and senior executives of Group companies. Shares for participants in the plan who are
not members of the Executive Committee are created from a capital increase for non-cash contributions from bonus
claims. A share buy-back is planned for members of the Executive Committee. Such stock bonuses will be granted to
participants under the Stock Purchase Plan.
To participate in the Stock Purchase Plan, the selected employees and Executive Committee members must purchase
shares of the Company on the stock exchange. The purchase price must not exceed 50% of their bonus in accordance
with the annual bonus plan. The purchased shares are held for participants in safe custody in a blocked securities
account for two years (the lock-up period). During the lock-up period, participants may not dispose of the shares in order
not to forfeit their right to subscribe for matching shares (as defined below) at the end of the Stock Purchase Plan.
After the lock-up period, each non-Executive Committee participant receives new shares from authorized capital and
members of the Executive Committee receive new shares from the share buy-back (the “matching shares”). The number
of new shares and shares from the share buy-back for members of the Executive Committee corresponds to the number
of shares held for participants in safe custody in the blocked securities account. Participants who are not members of
the Executive Committee contribute their bonus claims as non-cash contributions and receive the released shares and
the matching shares.
Notes to the Consolidated Financial Statements
80 A provision is recognized at the balance sheet date for all participants who are entitled to bonuses. The bonus is
measured at the market value of the shares to which the employees are entitled in addition to their own shares. If
employees contribute their bonus entitlements to SGL Carbon AG, the provision is reclassified to issued capital or
the share premium.
Stock Option Plan
The Company’s Stock Option Plan was approved by the Ordinary Annual General Meeting on April 27, 2000. There are
plans to issue up to 1.6 million shares from contingent capital to service the Stock Option Plan. The options will be
granted up until the end of 2004. 507,000 options were granted under the terms of the Stock Option Plan in fiscal year
2002, bringing the total number of options granted to date to 998,500. Under the Stock Option Plan, the Supervisory
Board is authorized to grant stock options on shares of the Company to members of the Executive Committee. The Stock
Option Plan authorizes the Executive Committee to grant stock options to senior executives of the Company designated
by the Executive Committee and to members of the management and remaining senior executives of majority owned
subsidiaries.
The stock options are distributed as follows:
Executive Committee: up to 30%;
senior executives of the Company: up to 20%;
members of management of Group companies: up to 20%; and
remaining senior executives of Group companies: up to 30%.
The term of the options is ten years and begins on the date of grant. The options expire without the holders having
a claim for compensation if they are not exercised before the end of the ten-year term.
The options may not be exercised before the end of a two-year period which begins on the day following the date of
grant. This period is followed by an eight-year exercise period. Within this period, the options may only be exercised
on trading days during defined periods (the “exercise window”). In each calendar year, there are two exercise windows,
each comprising ten trading days following publication of the interim report and the annual report.
The options can only be exercised if the Company has reached its performance target at the time of exercise. The
performance target is to increase the total return on the shares of the Company. The total return is composed of the
share price and the reinvested dividends. The total return must exceed the exercise price for an option by at least 15%.
The exercise price is calculated on the basis of the average closing price of SGL Carbon AG shares in the Frankfurt Stock
Exchange’s XETRA trading system on the 20 trading days prior to issuance of the options. Incidental costs of purchase
are not taken into account. The minimum exercise price to be paid is the notional value of each share.
After exercising the options, participants must retain a minimum number of SGL Carbon AG shares amounting to 15%
of the gross proceeds for a further twelve months.
When the options are exercised, the portion of the subscription price exceeding the notional value is credited directly
to the share premium.
Notes to the Consolidated Financial Statements
81Changes in the equity compensation plans in accordance with IAS 19.147 are as follows:
The SAR and Stock Option Plans are “out of the money”. This means that the fair value is zero, because the exercise
price is higher than the current market price. The various equity compensation programs resulted in a net expense of
€0.3 million in fiscal year 2002.
Exemption in accordance with section 264 (3) of the HGB
The following companies, which are included in the consolidated financial statements of SGL Carbon AG, made use of
the provision in section 264 (3) of the HGB: SGL Carbon GmbH, Meitingen; SGL Carbon Beteiligung GmbH, Meitingen;
SGL Technologies GmbH, Meitingen; SGL Brakes GmbH, Meitingen; SGL Information-Services GmbH, Augsburg.
Declaration of conformity with the German Corporate Governance Principles
in accordance with section 285 (16) of the HGB
The Executive Committee and the Supervisory Board have decided to implement the recommendations of the
Government Commission on the German Corporate Governance Code with the exceptions listed below and have issued
the following declaration of conformity in accordance with section 161 of the Aktiengesetz (AktG – German Stock
Corporation Act):
SGL Carbon AG complies with the recommendations of the Government Commission on the German Corporate
Governance Code with the following exceptions:
SGL Carbon AG’s Articles of Association provide solely for fixed compensation for members of the Supervisory
Board as well as additional compensation for committee work.
The D&O insurance policy taken out by the Company for the Executive Committee and the Supervisory Board
does not include a deductible.
The declaration of conformity is published on the Internet at www.sglcarbon.com.
Wiesbaden, February 27, 2003
SGL Carbon AG
The Executive Committee
Stock purchase Stock option
SAR plan plan
Balance at Jan. 1, 2002 163,550 31,316 491,500
Additions 43,123 507,000
Expired/Returned – 3,600
Exercised
Balance at Dec. 31, 2002 159,950 74.439 998.500
Average exercise price € 33.03 – 42.77
Expiration dates Mar. 15, 2006 2010/2011/2012
Fair value at Dec. 31, 2002/€m 0.0 0.0 0.0
Number of shares/options
32
33
Notes to the Consolidated Financial Statements
82
Employees
Sales at
Interest Interest Equity revenue Dec. 31,
% held via €m €m 2002
1. SGL CARBON AG Wiesbaden (Germany)
2. SGL CARBON Beteiligung GmbH Wiesbaden (Germany) 100 1 167 0 0
3. SGL CARBON GmbH Meitingen (Germany) 100 1 55 543 1,581
4. SGL TECHNOLOGIES GmbH Meitingen (Germany) 100 1 4 28 146
5. SGL BRAKES GmbH Meitingen (Germany) 100 4 5 8 92
6. SGL ACOTEC GmbH Siershahn (Germany) 100 1 75 144 1,210
7. SGL PanTrac GmbH Berlin (Germany) 100 1 1 11 77
8. KCH Beteiligungs GmbH Siershahn (Germany) 100 6 24 0 0
9. SGL CARBON S.A. Nowy Sacz (Poland) 100 2 64 65 494
10. ZEW Zaklady Elektrod
Weglowych S.A. Ratibor (Poland) 97.2 1 20 49 532
11. SGL CARBON S.p.A. Milan (Italy) 99.7 2 48 117 482
12. SGL CARBON S.A. La Coruña (Spain) 99.9 2 47 78 151
13. SGL CARBON S.A. Chedde (France) 100 1 41 36 181
14. SGL CARBON GmbH & Co. Steeg (Austria) 100 1 13 44 140
15. RK Carbon International Ltd. Wilmslow (UK) 100 4 0 0 0
SGL TECHNIC Ltd. Muir of Ord (UK) 100 15 – 9 29 121
P. G. Lawton Ltd. Halifax (UK) 100 15
16. SGL TECHNIC S.A. Grenoble (France) 100 6 8 20 173
17. SGL Risomesa S.p.A. Milan (Italy) 100 2 6 9 59
18. SGL CARBON Ltd. Alcester (UK) 100 1 3 11 42
19. SGL CARBON LLC. Charlotte (USA) 100 2 108 167 560
M.G.P. LLC Topton (USA) 100 19 19 8 37
HITCO CARBON Composites Inc. Gardena (USA) 94 19 50 55 238
SGL TECHNIC Inc. Valencia (USA) 100 19 41 40 166
20. SGL Canada Inc. Lachute (Canada) 100 1 13 52 91
21. SGL ACOTEC S.a.r.l. Houdain (France) 100 8 8 13 129
22. SGL ACOTEC S.a.r.l. Maroc Safi (Morocco) 100 21 1 4 91
23. SGL ACOTEC Ltd. Sandbach (UK) 100 8 2 13 86
24. SGL ACOTEC S.p.A. Milan (Italy) 100 8 3 6 38
25. SGL ACOTEC Polska Sp. z o.o. Kielce (Poland) 51 8 0 2 26
26. Ceilcote Ing.
Corrosion S.A. de C.V. Mexico City (Mexico) 51 8 0 1 11
27. SGL ACOTEC Singapore Pte. Ltd. Singapore (Singapore) 100 8 0 2 18
28. SGL ACOTEC Inc. Strongsville (USA) 100 8 5 20 65
29. SGL ACOTEC Ltda. São Paulo (Brazil) 100 6 0 4 63
30. SGL ACOTEC (Wuhan) Co. Ltd. Wuhan (China) 90 6 0 3 140
Significant consolidated companies
Auditors’ Report
83Auditors’ Report
We have audited the consolidated financial statements of SGL Carbon Aktiengesellschaft for the fiscal year January 1 to
December 31, 2002, comprising the balance sheet, income statement, statement of changes in equity, cash flow
statement and notes. The preparation and content of the consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion based on our audit, whether the consolidated
financial statements are in conformity with International Accounting Standards (IAS).
We conducted our audit of the consolidated financial statements in accordance with German auditing requirements and
German generally accepted standards for the audit of financial statements promulgated by the Institut der Wirtschafts-
prüfer (IDW), as well as in accordance with the International Standards on Auditing (ISA). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatements. Knowledge of the business activities and the economic and legal environment of
the Group and evaluations of possible misstatements are taken into account in the determination of audit procedures.
The evidence supporting the amounts and disclosures in the consolidated financial statements are examined on a test
basis within the framework of the audit. The audit includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements give a true and fair view of the net assets, financial position, results
of operations and cash flows of the Group for the fiscal year in accordance with International Accounting Standards.
Our audit, which also extends to the Group management report prepared by the Company’s management for the
fiscal year January 1 to December 31, 2002, has not led to any reservations. In our opinion, on the whole the Group
management report together with the other disclosures in the consolidated financial statements provides a suitable
understanding of the Group’s position and suitably presents the risks of future development. We also confirm that the
consolidated financial statements and the Group management report for the fiscal year January 1 to December 31,
2002 satisfy the conditions required for the Company’s exemption from its obligation to prepare consolidated financial
statements and a Group management report in accordance with German law.
Munich, February 27, 2003
BDO Deutsche Warentreuhand
Aktiengesellschaft
Wirtschaftsprüfungsgesellschaft
Goppelt Sucker
Wirtschaftsprüfer Wirtschaftsprüfer
Report of the Supervisory Board
84
Report of the Supervisory Board
Communication with the Executive CommitteeIn the year under review, the Supervisory Board of SGL Carbon AG performed the responsibilities
assigned to it in accordance with the law, the Articles of Association as well as its own by-laws,
and monitored and advised the Company’s management. The Executive Committee informed the
Supervisory Board verbally and in writing about the course of business and the Company’s
situation. In addition, the Chairman of the Supervisory Board held regular discussions with the
Executive Committee and the members of the Supervisory Board. He was kept constantly
informed about important business developments and decisions. He was apprised of the content
of resolutions passed in Executive Committee meetings, which were explained as necessary.
The members of the Supervisory Board also held several individual discussions with the Executive
Committee.
Before the four regular Supervisory Board meetings, discussions were held between the
Executive Committee and the employee representatives on the Supervisory Board with the aim
of promoting mutual understanding of the Company's business policy and encouraging ongoing
communication. The Executive Committee also held one additional consultation session with the
shareholder representatives in order to discuss strategic issues and acquisition projects. All
members of the Supervisory Board were present for at least half of the meetings.
Focus of the consultationsThe main topics covered in the consultations were the market environment, the economic and
financial situation of the Company as well as acquisition and divestment projects. Particular
consideration was given to the Company's risk management system, to the budget targets for
2003, and to the medium-term business and financial planning. As agreed with the auditors and
in response to stricter statutory provisions, the Company revised its existing risk management
system and defined the responsibilities for continuous monitoring in specific Group guidelines,
which were presented at the meeting of the Supervisory Board on September 6, 2002. This
extended framework was also used as the basis for the discussion and approval of the core
risks involved in the mid-term planning for 2003 –2006.
At all meetings, the Supervisory Board kept itself informed of the status and success of the
restructuring program in the Carbon and Graphite [CG] and Graphite Specialties [GS] businesses,
as well as of the measures to increase cash flow and reduce debt. In particular, the Supervisory
Board accompanied closely the efforts made by the Executive Committee to refinance the
Company. Following an extensive review of the situation at the meeting on December 5, 2002,
the Supervisory Board approved the refinancing concept unanimously.
Prof. Dr. Utz-Hellmuth Felcht
Chairman of the Supervisory Board
Report of the Supervisory Board
85
Corporate GovernanceIn the year under review, the Supervisory Board addressed the changes in the law regarding
corporate governance in both Germany and the US. In this context, the Executive Committee
drew up a new version of SGL Carbon AG’s Corporate Governance Principles in order to bring
the version approved in March 2002 in line with the recommendations of the German Corporate
Governance Code published in the mean time and, to the extent possible, comply with the
provisions of the US Sarbanes-Oxley Act. The Supervisory Board approved the new Corporate
Governance Principles at the meeting held on December 5, 2002. SGL Carbon complies with
the recommendations of the Code with the following exceptions:
In accordance with SGL Carbon AG’s Articles of Association, members of the Supervisory
Board receive fixed compensation only, as well as additional compensation for committee
work.
The D&O insurance policy taken out by the Company for the Executive Committee and
the Supervisory Board does not include a deductible.
Having settled most outstanding claims, the Supervisory Board also continued to keep itself
informed of the status of the ongoing antitrust investigations into anti-competitive behavior, and
of the related legal proceedings. The consultations were held at the regular meetings, by the
special Ad hoc Committee formed for this purpose, and at an additional extraordinary meeting. In
this context, the Supervisory Board acknowledged the EU Commission’s decision (December 17,
2002) to impose a fine for anti-competitive behavior in Graphite Specialties within the framework
of the ongoing investigations into the graphite industry since 1997, and the Company’s intention
to again appeal against the decision to the European Court. The Supervisory Board emphasizes
that SGL Carbon AG’s Corporate Governance Principles contain a “Global Antitrust Compliance
Policy”, which is backed up by intensive Group-wide training sessions.
2002 annual financial statementsThe Supervisory Board satisfied itself in both the Finance and Audit Committee as well as in the
plenary session held on March 7, 2003 that the accounting, the annual financial statements
of SGL Carbon AG and the consolidated financial statements as of December 31, 2002, as well
as the management reports of SGL Carbon AG and the SGL Carbon Group were audited by BDO
Deutsche Warentreuhand Aktiengesellschaft Wirtschaftsprüfungsgesellschaft, Munich, and that
they were issued with an unqualified audit opinion. The audit was commissioned in due order
by the Supervisory Board. In line with the terms of engagement, the audit was also extended to
cover the Company’s new risk management system. The audit reports on the consolidated and
annual financial statements were forwarded to all Supervisory Board members on a timely basis.
The Supervisory Board reviewed these documents itself and approved the auditors’ findings
Report of the Supervisory Board
86
without any objections. The Supervisory Board approves the consolidated and annual financial
statements. The annual financial statements of SGL Carbon AG have therefore been formally
adopted.
Committee reportsThe Finance and Audit Committee held one meeting in the year under review. In the presence of
the auditors, it dealt in particular with the annual financial statements and the proper accounting
treatment for derivative financial instruments. The members of this Committee were also informed
outside the meetings of the measures taken by the Executive Committee regarding refinancing.
The Personnel Committee met four times. It focused on updating the Executive Committee’s
contracts and pensions, and reviewing the Company’s expiring and new incentive programs.
The issue of additional stock options for the Executive Committee and senior management was
approved.
The Strategy Committee met once. This meeting concentrated primarily on the strategic
reorientation in Graphite Specialties [GS] and the concepts to improve profitability as part of the
Company-wide SGL Excellence initiative.
Personnel issuesKarl-Heinz Schneider resigned from the Supervisory Board on June 11, 2002. Jürgen Kerner was
appointed by the registry court as his successor effective September 13, 2002. Hans-Georg Bartel
passed away on November 20, 2002, following a serious illness. The Supervisory Board honors
the memory of Hans-Georg Bartel, who was highly regarded by all members for his active and
knowledgeable cooperation. Hans-Werner Zorn was judicially appointed as his successor in
February 2003.
In the meeting dated September 6, 2002, Dr. Klaus Warning was reappointed to the Executive
Committee of SGL Carbon AG for the period from July 1, 2003 to June 30, 2006.
In order to assist in the endeavors to ensure a solid long-term financing of the Company,
the Executive Committee signed a temporary consulting contract with Hansgeorg Hofmann on
June 24, 2002, which was approved by the Supervisory Board.
Wiesbaden, March 7, 2003
The Supervisory Board
Prof. Dr. Utz-Hellmuth Felcht
Chairman
Supervisory Board
87
Prof. Dr. rer. nat. Utz-Hellmuth FelchtChairman
Chairman of the Board ofManagement of Degussa AG,DüsseldorfInternal board memberships:Goldschmidt AG1, EssenSKW Stickstoffwerke PiesteritzGmbH1, Lutherstadt Wittenberg(until Aug. 20, 2002)SKW Metallurgie AG1, TrostbergExternal board membership:Gerling-Konzern GlobaleRückversicherungs-AG, Cologne(all Germany)
Franz SchafferDeputy Chairman
Metalworker, SGL CARBONGmbH, MeitingenExternal board memberships:Ökumenische SozialstationMeitingen und UmgebunggGmbH, MeitingenWohnungsbau GmbH MarktMeitingen, Meitingen(all Germany)
Hans-Georg Bartel (passed away Nov. 11, 2002)Electrician, SGL CARBON GmbH,Bonn, Germany
Peter FischerLawyer, SGL CARBON AG,Wiesbaden, Germany
Dr.-Ing. Claus HendricksFormer Member of the Board of Management of ThyssenKrupp Stahl AG, DuisburgInternal board memberships:Berkenhoff GmbH, HeuchelheimEdelstahlwerke Witten-KrefeldGmbH, WittenKrupp Edelstahlprofile GmbH,SiegenExternal board memberships:Pro Lean Consulting AG,DüsseldorfSKW Metall Chemie GmbH,Trostberg
Thyssen Schienen TechnikGmbH, Duisburg(all Germany)
Hansgeorg B. HofmannBanker/Entrepreneur, London, Great BritainExternal board memberships:adv.orga Beteiligungen AG,Munich, GermanyEquinet AG1, Frankfurt/Main,Germany
Jürgen Kerner (since Sep. 13, 2002)2. BevollmächtigerAuthorized Representative of IG Metall VerwaltungsstelleAugsburg, Augsburg, GermanyExternal board membership:Fujitsu-Siemens ComputersGmbH, Munich, Germany
Dr.-Ing. Hubert LienhardMember of the Board ofManagement of Voith AG,Heidenheim, GermanyInternal board memberships:Voith Turbo Beteiligungs GmbH & Co. KG, Heidenheim,GermanyVoith Paper Holding GmbH & Co.KG, Heidenheim, GermanyVoith Fabrics Inc., Raleigh, NC, USAExternal board memberships:Kaefer Isoliertechnik GmbH & Co.KG, Bremen, GermanySulzer AG, Winterthur,Switzerland
Jacques LoppionPrésident du Conseild’AdministrationGroupe SNPE S.A., ParisExternal board memberships:Giat Industries S.A., VersaillesAlgéco S.A., ParisGroupe Gascogne, Saint-Paul-les-Dax(all France)KME AG, Osnabrück, Germany
Lutz MühringRepresentative of IG Metall,Verwaltungsstelle Bonn-Rhein-Sieg, Siegburg, GermanyExternal board membership:WBG WohnungsbaugesellschaftBonn mbH, Bonn, Germany
Karl-Heinz Schneider (until June 11, 2002)Authorized Representative of IG Metall, VerwaltungsstelleAugsburg, Augsburg, GermanyExternal board memberships:Eurocopter Deutschland GmbH,DonauwörthFederal-Mogul GmbH, FriedbergZoo Augsburg GmbH, AugsburgAugsburger Flughafen GmbH,Augsburg(all Germany)
Heinz SchrothBusiness Administrator, SGL ACOTEC GmbH, Meitingen,Germany
Andrew H. Simon OBE MBAConsultant and SupervisoryBoard Member in variouscompaniesExternal board memberships:Associated British Ports plc.,LondonHampson plc., DudleyBrake Bros. Ltd., AshfordDalkia UK plc, LondonZeus Group Ltd.1, DudleyAscent Investments Ltd.1,London(all Great Britain),Kaffee Partner Holding GmbH1,Osnabrück, GermanyFinning International Inc.,Vancouver, Canada
Hans-Werner Zorn (since Feb. 27, 2003)Technician MechanicalEngineering,SGL CARBON GmbH, Bonn,Germany
1 Chairman of the Supervisory Board
Supervisory Board
Executive Committee
88
Robert J. Koehler Chairman
Chief Executive Officer SGL CARBON AGResponsible for:Corporate Development and Strategy,Corporate Communications,Investor Relations, Management DevelopmentExternal board memberships:Benteler AG1, Paderborn, GermanyWacker-Chemie GmbH, Munich, GermanyPfleiderer AG, Neumarkt, GermanyNew Russia Fund, Luxembourg
Theodore H. BreyerResponsible for:Carbon and Graphite, America, PurchasingInternal board memberships:HITCO CARBON COMPOSITES Inc., Gardena, USASGL CARBON LLC., Charlotte, USA
Dr. Hariolf KottmannResponsible for:Graphite Specialties, Corrosion Protection,Asia, Eastern Europe, SGL ExcellenceInternal board memberships:SGL ACOTEC GmbH1, Siershahn, Germany SGL CARBON ASIA PACIFIC Sdn Bhd1, MalaysiaSGL CARBON Japan Ltd.1, Tokyo, JapanSGL TOKAI CARBON Ltd.1, Shanghai, ChinaSGL CARBON Far East Ltd.1, Shanghai, China
Dr. Bruno TonioloResponsible for:Group Treasury, Group Accounting,Management Reporting, Information Services,Internal Audit, Risk Management, Western EuropeInternal board memberships:Radion-Finanziaria S.p.A., Milan, ItalySGL CARBON Finance, Dublin, IrlelandSGL CARBON S.A., Engis, BelgiumSGL CARBON S.A., Chedde, FranceSGL CARBON S.A.1, Nowy Sacz, Poland SGL CARBON S.A., La Coruña, SpainSGL CARBON S.p.A., Milan, ItalySGL TECHNIC S.A., Grenoble, FranceSGL CARBON GmbH1, Meitingen, Germany ZEW S.A.1, Ratibor, PolandSGL ACOTEC GmbH, Siershahn, Germany
Dr. Klaus WarningResponsible for:SGL TECHNOLOGIES GmbH,Human Resources, Legal,Research and Development, Technology, Environmental Protection, Health and SafetyExternal memberships:University Ilmenau/Advisory Council, Ilmenau,GermanyEuropean Carbon and Graphite Association(ECGA)/Board of Directors, Brussels, BelgiumCommerzbank Hessen/State Advisory Council,Frankfurt/Main, Germany
Executive Committee
1 Chairman of the Supervisory Board
Management
89
Business Units
Carbon and GraphiteArmin BruchDr. Franz BergerScott CarltonDr. Reinhard JantaDr. Dieter KleinDr. Alberto Martinez
Graphite SpecialtiesMarkus MirgelerVolker RechtmannDr. Christfried SchlosserDr. Martin SchwarzDr. Gerd Wingefeld
Corrosion ProtectionDr. Thomas KosackDr. Günter HermannBodo MierkeFrank Schulten
SGL Technologies Dr. Jan VerdenhalvenGernot HocheggerDieter Fial
Corporate Service Functions
Reinhard DamerowGroup Treasury
Wilhelm HaufGroup Accounting
Dr. Joachim Heins-BundeCorporate Planning and Coordination
Beate Hillebrecht-HarrisCorporate Center HR
Peter HoffmanPresident SGL CARBON LLC
Dave KucharskiGroup Purchasing
Helmut MühlbradtHR-Senior Management/Legal
Dr. Michael RiedelGroup Quality Leader
Dr. Harald TillmannsGlobal Environment, Health and Safety
Thomas WernerGroup Information Services
Dr. Doug WilsonCorporate Technology
Management
Highlights 2002
90
Highlights 2002
JAN
01
FEB
02
MAR
03
APR
04
MAY
05
JUN
06
JUL
07
AUG
08
SEP
09
OCT
10
NOV
11
DEC
12
March
Five-Point Program
In March 2002, SGL Carbon launches a Five-
Point Program aimed at increasing its enterprise
value. This program aims to increase returns,
improve the Company’s capital structure, optimize
its portfolio, implement SGL Excellence and
establish the Corporate Governance Principles.
In this way, SGL is adjusting to the changes
in both the structure of the market and its
competitive environment.
April
Joint venture with TOKAI in China
In April 2002 in Tokyo, SGL Carbon AG and TOKAI
Carbon Co. Ltd., Tokyo/Japan, sign the contract
for the joint venture agreed the previous year for
the production, marketing, and sale of graphite
electrodes for the Chinese market.
December
Refinancing successfully concluded
In December 2002, SGL Carbon concludes a com-
prehensive financing package of firm loan commit-
ments amounting to €510 million. The syndicated
loan, which is lead-managed by Deutsche Bank and
Dresdner Bank, has a term of two and a half years.
July
Full-scale production of brake discs starts
In July 2002, SGL Carbon starts large-scale
production of its carbon-ceramic brake discs as
planned in its new, certified factory in Meitingen,
near Augsburg, Germany. SGL constructed
and commissioned the new production facility,
which is located at its largest German site,
in only 15 months.
November
HITCO order for the Airbus A-380
In November 2002, HITCO Carbon Composites Inc.,
SGL Carbon’s US subsidiary, secures an order from
Airbus Deutschland GmbH, Hamburg, Germany, to
supply components made of carbon fiber composites
for the tail fin of the new Airbus A-380. The order
covers the design and production of the truss
structure for the fin.
History
91
History
1878 The production of charcoal rods begins in Berlin, Germany, at “Gebr. Siemens & Co” (Gesco).
1892 Production of anodes for chlor-alkali electrolysis starts at Chemische Fabrik, Griesheim, Germany
1896 “Planiawerke AG für Kohlefabrikation”, a factory producing carbon products, is founded inRatibor, Poland.
1910 Gesco establishes a plant for carbon electrodes in Berlin.
1920 Gesco builds a graphitizing plant in Meitingen, Germany.
1928 Planiawerke and Gesco merge to form “Siemens Planiawerke AG für Kohlefabrikate”.
1949 Chemische Fabrik Griesheim merges with Meitingen facility to form “Siemens PlaniaChemisches Werk Griesheim”
1953 “Siemens Plania Chemisches Werk Griesheim” merges with Hoechst AG.
1967 “Siemens Planiawerke AG für Kohlefabrikate” merges with Hoechst AG’s electrode productionfacilities in Griesheim to form “SIGRI ELEKTROGRAPHIT GmbH”.
1985 The Company is renamed SIGRI GmbH.
1992 SIGRI merges with Great Lakes Carbon Corporation (GLC), a wholly owned subsidiary ofHorsehead Industries Inc., (USA). The Company is renamed Sigri Great Lakes Carbon GmbH.
1993 Pechiney S.A.’s graphite activities (France, Belgium, Spain) are integrated into the Company.
1994 The Company is transformed into a stock corporation (AG).
1995 Initial Public Offering (IPO). The Company acquires the Specialty Graphite business belongingto the Carbide/Graphite Group (USA), sells Ringsdorff Sinter GmbH, and hives off SGL TECHNIKGmbH. The Company also acquires Polgraph (Poland) and Vicarb (France, USA).
1996 Placement of the remaining shares held by Hoechst AG. The Company is listed on the NewYork Stock Exchange (NYSE).
1997 The Technology and Specialty Graphite Business Areas are strengthened by the acquisition ofHITCO, RK Carbon, M.G.P., EKL, and David Hart. A joint venture is set up with Shanghai CarbonWorks (China).
1998 SGL CARBON AG becomes a holding company and hives off its operating business to thenewly formed SGL CARBON GmbH.
1999 Acquisition of Keramchemie Germany. Formation of SGL CARBON Beteiligung GmbH.
2000 The Technology Business Area is reorganized into “Corrosion Protection” and “Fibers andComposites”, pursuing the growth businesses of brake discs and fuel cell components.Keramchemie and HAW LININGS are integrated into SGL TECHNIK GmbH and the company is renamed SGL ACOTEC GmbH.
2001 The Fibers and Composites Business Area is reorganized and renamed SGL Technologies.Acquisition of ZEW (Poland).
2002 Merger of the four regional Business Units within Carbon and Graphite and GraphiteSpecialties to form two global businesses reporting directly to the Executive Committee.
Contact Details/Acknowledgements
92
Contact Details
Investor Relations
SGL CARBON AG, Rheingaustrasse 182, D-65203 Wiesbaden, Germany
Phone: +49 (611) 60 29-100, Fax: +49 (611) 60 29-101, e-mail: [email protected]
These materials are available on written request from:
SGL CARBON AG, Corporate Communications, Rheingaustrasse 182, D-65203 Wiesbaden, Germany
Annual Report (German/English)
Form 20-F (English, primarily for shareholders in the US and analysts)
Shareholders’ letters for Q1, Q2 and Q3 (German/English)
These materials and additional information are also available via our homepage: www.sglcarbon.com
Despositary Bank for American Shareholders:
Morgan Guaranty Trust, Company of New York, 60 Wall Street, New York, N.Y. 10260, USA
Acknowledgements
Annual Report: SGL CARBON GROUP
Published by: SGL CARBON AG, Head Office
Concept, design and production: 3st kommunikation
Photos: Stefan Wildhirt, Offenbach (p. 26, 30, 34); Tim Long, Los Angeles, USA (p. 38);
Roger Richter, Wiesbaden (p. 2– 5); Burkhard Domke; SGL Carbon; 3st kommunikation
English translation: Fry & Bonthrone Partnerschaft, Mainz-Kastel, Germany
Editorial support: FinKom Gesellschaft für Finanzkommunikation mbH, Usingen, Germany
AFRICA/ASIA
MoroccoSGL ACOTEC S.a.r.l. MAROC, Safi
SingaporeSGL ACOTEC Singapore Pte. Ltd., Singapore
ChinaSGL ACOTEC (Wuhan) Co. Ltd., Wuhan
AMERICA
BrazilSGL ACOTEC Ltda., São Paulo
CanadaSGL Canada Inc., Lachute
MexicoCeilcote S.A. de C.V., Mexico City
USASGL CARBON LLC., CharlotteM.G.P. Inc., RobesoniaHITCO CARBON Composites Inc., GardenaSGL TECHNIC Inc., Valencia SGL ACOTEC Inc., Strongsville
EUROPE
GermanySGL CARBON AG, WiesbadenSGL CARBON Beteiligung GmbH, WiesbadenSGL CARBON GmbH, MeitingenSGL TECHNOLOGIES GmbH, MeitingenSGL BRAKES GmbH, MeitingenSGL ACOTEC GmbH, SiershahnKCH Beteiligungs GmbH, SiershahnSGL PanTrac GmbH, Berlin
AustriaSGL CARBON GmbH & Co., Steeg
FranceSGL CARBON S.A., CheddeSGL TECHNIC S.A., GrenobleSGL ACOTEC S.a.r.l., Houdain
Great BritainRK Carbon International Ltd., WilmslowSGL TECHNIC Ltd., Muir of OrdP.G. Lawton Ltd., HalifaxSGL CARBON Ltd., AlcesterSGL ACOTEC Ltd., Sandbach
ItalySGL CARBON S.p.A., MilanSGL Risomesa S.p.A., MilanSGL ACOTEC S.p.A., Milan
PolandSGL CARBON S.A., Nowy Sacz SGL ACOTEC Polska Sp. z.o.o., KielceZEW Zaklady Elektrod Weglowych S.A., Ratibor
SpainSGL CARBON S.A., La Coruña
SGL CARBON Europe
Major consolidated companies
SGL
CARB
ON
wor
ldw
ide
SGL CARBON worldwideKey Figures
Key
Figu
res
and
Ove
rvie
w o
f Bus
ines
s A
reas
1 Reclassification of the graphite foils business from
Graphite Specialties to SGL Technologies2 Before provisions for antitrust risks and restructuring
expenses3 Before restructuring expenses4 Ratio of profit from operations to sales revenues5 After adjustments for exchange rate effects
and before antitrust payments6 Please refer to page 48
7 Not including extraordinary depreciation associated
with restructuring8 Carrying amounts of inventories and trade receivables
less trade payables9 Carrying amounts of property, plant and equipment,
intangible assets and working capital10 Ratio of financial liabilities less cash and cash
equivalents to equity
2002 2001 Change
(€ million) (€ million) (%)
Sales revenues 1,112 1,233 – 10
Carbon and Graphite 551 620 – 11
Graphite Specialties1 196 231 – 15
Corrosion Protection 212 236 – 10
SGL Technologies1 150 135 11
Profit from operations2 29 59 – 51
Carbon and Graphite3 52 79 – 34
Graphite Specialties1, 3 2 22 – 91
Corrosion Protection3 5 13 – 62
SGL Technologies1 – 12 – 34 – 65
Return on Sales4 3% 5%
Profit/loss before tax – 27 – 66 – 59
Net loss for the period – 24 – 95 – 75
Earnings per share (€) – 1.08 – 4.42 – 76
Profit from operations before depreciation
and amortization (EBITDA)2 110 145 – 24
Cash provided by operating activities5, 6 149 93 60
Investments in property, plant and equipment 41 91 – 55
Depreciation of property, plant and equipment7 71 78 – 9
Research and development costs 25 31 – 19
Working capital8 385 549 – 30
Capital employed9 967 1,213 – 20
Equity 196 255 – 23
Total assets 1,286 1,495 – 14
Gearing10 2.2 2.1
Number of employees (at end of year) 7,360 8,197 – 10
Market capitalization (at end of year) 175 488 – 64
Overview of Business Areas
Share of Group Sales
Products/Applications
Graphite Electrodes
Cathodes
Carbon Electrodes
Furnace Linings
Customer Industries
Steel
Aluminum
Metallurgy
Share of Group Sales
Products/Applications
Technical Carbon
Semiconductors
Mechanical Carbon
Electrical Contacts
Customer Industries
Chemicals
Energy
Glass and Ceramics
Semiconductor
Technology
Mechanical Engineering
Metallurgy
Automotive
Share of Group Sales
Products/Applications
Process Technology
Surface Protection
Customer Industries
Chemicals
Plant Construction
Energy
Transportation
Pharmaceuticals
Environmental Protection
Metallurgy
Share of Group Sales
Products/Applications
Brake Discs
Fuel Cell Components
Carbon Fibers, Yarns
and Fabrics
Aerospace Applications
Industrial Composites
Expanded Graphite
Customer Industries
Automotive
Electronics
Energy
Aircraft Construction
Defense
Semiconductors
Chemicals
50% 18% 19%13%
Carbon and Graphite [CG] Graphite Specialties [GS] Corrosion Protection [CP] SGL Technologies [T]
230441/SGL/Umschlag_E 12.03.2003 15:07 Uhr Seite 2
AFRICA/ASIA
MoroccoSGL ACOTEC S.a.r.l. MAROC, Safi
SingaporeSGL ACOTEC Singapore Pte. Ltd., Singapore
ChinaSGL ACOTEC (Wuhan) Co. Ltd., Wuhan
AMERICA
BrazilSGL ACOTEC Ltda., São Paulo
CanadaSGL Canada Inc., Lachute
MexicoCeilcote S.A. de C.V., Mexico City
USASGL CARBON LLC., CharlotteM.G.P. Inc., RobesoniaHITCO CARBON Composites Inc., GardenaSGL TECHNIC Inc., Valencia SGL ACOTEC Inc., Strongsville
EUROPE
GermanySGL CARBON AG, WiesbadenSGL CARBON Beteiligung GmbH, WiesbadenSGL CARBON GmbH, MeitingenSGL TECHNOLOGIES GmbH, MeitingenSGL BRAKES GmbH, MeitingenSGL ACOTEC GmbH, SiershahnKCH Beteiligungs GmbH, SiershahnSGL PanTrac GmbH, Berlin
AustriaSGL CARBON GmbH & Co., Steeg
FranceSGL CARBON S.A., CheddeSGL TECHNIC S.A., GrenobleSGL ACOTEC S.a.r.l., Houdain
Great BritainRK Carbon International Ltd., WilmslowSGL TECHNIC Ltd., Muir of OrdP.G. Lawton Ltd., HalifaxSGL CARBON Ltd., AlcesterSGL ACOTEC Ltd., Sandbach
ItalySGL CARBON S.p.A., MilanSGL Risomesa S.p.A., MilanSGL ACOTEC S.p.A., Milan
PolandSGL CARBON S.A., Nowy Sacz SGL ACOTEC Polska Sp. z.o.o., KielceZEW Zaklady Elektrod Weglowych S.A., Ratibor
SpainSGL CARBON S.A., La Coruña
SGL CARBON Europe
Major consolidated companies
SGL
CARB
ON
wor
ldw
ide
SGL CARBON worldwideKey Figures
Key
Figu
res
and
Ove
rvie
w o
f Bus
ines
s A
reas
1 Reclassification of the graphite foils business from
Graphite Specialties to SGL Technologies2 Before provisions for antitrust risks and restructuring
expenses3 Before restructuring expenses4 Ratio of profit from operations to sales revenues5 After adjustments for exchange rate effects
and before antitrust payments6 Please refer to page 48
7 Not including extraordinary depreciation associated
with restructuring8 Carrying amounts of inventories and trade receivables
less trade payables9 Carrying amounts of property, plant and equipment,
intangible assets and working capital10 Ratio of financial liabilities less cash and cash
equivalents to equity
2002 2001 Change
(€ million) (€ million) (%)
Sales revenues 1,112 1,233 – 10
Carbon and Graphite 551 620 – 11
Graphite Specialties1 196 231 – 15
Corrosion Protection 212 236 – 10
SGL Technologies1 150 135 11
Profit from operations2 29 59 – 51
Carbon and Graphite3 52 79 – 34
Graphite Specialties1, 3 2 22 – 91
Corrosion Protection3 5 13 – 62
SGL Technologies1 – 12 – 34 – 65
Return on Sales4 3% 5%
Profit/loss before tax – 27 – 66 – 59
Net loss for the period – 24 – 95 – 75
Earnings per share (€) – 1.08 – 4.42 – 76
Profit from operations before depreciation
and amortization (EBITDA)2 110 145 – 24
Cash provided by operating activities5, 6 149 93 60
Investments in property, plant and equipment 41 91 – 55
Depreciation of property, plant and equipment7 71 78 – 9
Research and development costs 25 31 – 19
Working capital8 385 549 – 30
Capital employed9 967 1,213 – 20
Equity 196 255 – 23
Total assets 1,286 1,495 – 14
Gearing10 2.2 2.1
Number of employees (at end of year) 7,360 8,197 – 10
Market capitalization (at end of year) 175 488 – 64
Overview of Business Areas
Share of Group Sales
Products/Applications
Graphite Electrodes
Cathodes
Carbon Electrodes
Furnace Linings
Customer Industries
Steel
Aluminum
Metallurgy
Share of Group Sales
Products/Applications
Technical Carbon
Semiconductors
Mechanical Carbon
Electrical Contacts
Customer Industries
Chemicals
Energy
Glass and Ceramics
Semiconductor
Technology
Mechanical Engineering
Metallurgy
Automotive
Share of Group Sales
Products/Applications
Process Technology
Surface Protection
Customer Industries
Chemicals
Plant Construction
Energy
Transportation
Pharmaceuticals
Environmental Protection
Metallurgy
Share of Group Sales
Products/Applications
Brake Discs
Fuel Cell Components
Carbon Fibers, Yarns
and Fabrics
Aerospace Applications
Industrial Composites
Expanded Graphite
Customer Industries
Automotive
Electronics
Energy
Aircraft Construction
Defense
Semiconductors
Chemicals
50% 18% 19%13%
Carbon and Graphite [CG] Graphite Specialties [GS] Corrosion Protection [CP] SGL Technologies [T]
230441/SGL/Umschlag_E 12.03.2003 15:07 Uhr Seite 2
Annual Report 2002
SGL CARBON AG
Head Office
Investor Relations
Rheingaustrasse 182
D-65203 Wiesbaden
Germany
Phone +49 (611) 60 29-100
Fax +49 (611) 60 29-101
Website: www.sglcarbon.com
Upcoming Events
2003
March 13 Annual Report,
Year-End Press Conference and Analyst Meeting,
Frankfurt am Main,
Conference Call
April 30 Annual General Meeting, Wiesbaden
May 14 Q1 Shareholders’ Letter, Conference Call
June 30 Form 20-F
August 12 Q2 Shareholders’ Letter, Conference Call
November 11 Q3 Shareholders’ Letter,
Fall Press Conference and Analyst Meeting,
Frankfurt am Main,
Conference Call
2004
March 16 Year-End Press Conference (to be confirmed)
April 30 Annual General Meeting (to be confirmed)
SGL
CARB
ON
GRO
UP
Ann
ual R
epor
t 200
2
Focused on Customers.Understand demands. Develop solutions. Create value.
Mission
Core Businesses
Strengthen global market position.
Achieve cost and technology leadership.
Optimize cash flow.
New Businesses (SGL Technologies)
Develop new businesses with high growth and profit potential.
Leverage carbon fiber to composite value chain.
Concentrate on core competencies: high temperature technology, advanced materials, and engineering.
SGL Excellence
Understand and satisfy customer requirements.
Create value for our customers, shareholders and employees.
Build trust and encourage knowledge sharing,continuous learning, open feedback and communication among all employees.
Take responsibility and lead by example.
Develop people and promote teamwork.
Provide a climate that meets all legal, personnel and environmental obligations.
Build a Corporate Identity throughout the Company.
SGL Carbon is the world’s largest manufacturer of carbon, graphite and composite
materials. In the manufacturing industry and the aerospace sector, our products
and system solutions allow our customers to improve their efficiency, safety,profitability and quality. With around 30 sites and a customer-orientedsales and service network today SGL Carbon is a company with a
global focus.
230441/SGL/Umschlag_E 12.03.2003 15:07 Uhr Seite 1
Annual Report 2002
SGL CARBON AG
Head Office
Investor Relations
Rheingaustrasse 182
D-65203 Wiesbaden
Germany
Phone +49 (611) 60 29-100
Fax +49 (611) 60 29-101
Website: www.sglcarbon.com
Upcoming Events
2003
March 13 Annual Report,
Year-End Press Conference and Analyst Meeting,
Frankfurt am Main,
Conference Call
April 30 Annual General Meeting, Wiesbaden
May 14 Q1 Shareholders’ Letter, Conference Call
June 30 Form 20-F
August 12 Q2 Shareholders’ Letter, Conference Call
November 11 Q3 Shareholders’ Letter,
Fall Press Conference and Analyst Meeting,
Frankfurt am Main,
Conference Call
2004
March 16 Year-End Press Conference (to be confirmed)
April 30 Annual General Meeting (to be confirmed)
SGL
CARB
ON
GRO
UP
Ann
ual R
epor
t 200
2
Focused on Customers.Understand demands. Develop solutions. Create value.
Mission
Core Businesses
Strengthen global market position.
Achieve cost and technology leadership.
Optimize cash flow.
New Businesses (SGL Technologies)
Develop new businesses with high growth and profit potential.
Leverage carbon fiber to composite value chain.
Concentrate on core competencies: high temperature technology, advanced materials, and engineering.
SGL Excellence
Understand and satisfy customer requirements.
Create value for our customers, shareholders and employees.
Build trust and encourage knowledge sharing,continuous learning, open feedback and communication among all employees.
Take responsibility and lead by example.
Develop people and promote teamwork.
Provide a climate that meets all legal, personnel and environmental obligations.
Build a Corporate Identity throughout the Company.
SGL Carbon is the world’s largest manufacturer of carbon, graphite and composite
materials. In the manufacturing industry and the aerospace sector, our products
and system solutions allow our customers to improve their efficiency, safety,profitability and quality. With around 30 sites and a customer-orientedsales and service network today SGL Carbon is a company with a
global focus.
230441/SGL/Umschlag_E 12.03.2003 15:07 Uhr Seite 1