Segment information

7. Segment information

For the Pirelli & C. Group, the business segment constitutes the primary segment whereas the geographical segment represents the secondary segment.

Primary reporting format – business segment

At December 31, 2007, continuing operations of the Group are divided into four main business segments:

Tyre
Real Estate
Broadband
Other businesses

In line with the procedures followed by the Group in monitoring the businesses managed at December 31, 2007, it should be pointed out that the Environment business, which at December 31, 2006 was a reportable segment, has been aggregated in the “Other businesses” sector; the comparative information at December 31, 2006 has been reclassified accordingly.

The remaining part comprises financial companies (including the Parent) and other service companies. None of these constitutes a reportable segment.

Finally, it should also be pointed out that as a result of its sale in 2007, Olimpia S.p.A. at December 31, 2007 no longer constitutes a business segment. However, the results by sector include the economic effects of Olimpia, classified in the income statement under “income (loss) from discontinued operations”.

Segment results for the year ending December 31, 2007 are as follows:

(in thousands of Euros)
	Tyre	Real Estate	Broadband	Other BU	Olimpia	Other	TOTAL 12/31/2007
Sales to third parties	4,160,899	2,139,409	117,080	68,410	-	18,739	6,504,537
Sales to the Group	819	9,236	-	3,028	-	(13,083)	-
Total Sales	4,161,718	2,148,645	117,080	71,438	-	5,656	6,504,537
Amortization of tangible/intangible assets	(190,465)	(11,434)	(2,392)	(883)	-	(8,870)	(214,044)
Depreciation of tangible/intangible assets	(811)	(3,823)	-	-	-	-	(4,634)
Operating Profit (loss)	358,090	50,393	(13,531)	(8,497)	-	(19,565)	366,890
Share of earnings (losses) of companies accounted for by the equity method	159	117,042	-	-	-	1,407	118,608
Financial income (expenses)	(75,755)
Dividends	34,459
Gains (losses) from changes in fair value of financial assets	(20,179)
Income before income taxes	424,023
Income taxes	(133,503)
Income from continuing operations	290,520

Income (loss) from discontinued operations	-	-	-	-	(53,805)	86,875	33,070

Income for the year	323,590

Segment results for the year ending December 31, 2006 were as follows:

(in thousands of Euros)
Tyre		Real Estate	Broadband	Other BU	Olimpia	Other	TOTAL 12/31/2006
Sales to third parties	3,947,159	691,161	129,434	66,261	-	7,209	4,841,224
Sales to the Group	2,343	10,803	-	2,706	-	(15,852)	-
Total Sales	3,949,502	701,964	129,434	68,967	-	(8,643)	4,841,224
Amortization of tangible/intangible assets	(191,309)	(9,371)	(1,323)	(704)	-	(9,984)	(212,691)
Depreciation of tangible/intangible assets	(1,145)	-	-	-	-	(1,492)	(2,637)
Operating Profit (loss)	342,344	103,718	(267)	(224)	-	(44,185)	401,386
Share of earnings (losses) of companies accounted for by the equity method	179	101,570	-	-	-	2,209	103,958
Financial income (expenses)	533,816
Dividends	65,857
Gains (losses) from changes in fair value of financial assets	(55,956)
Income before income taxes	1,049,061
Income taxes	(127,848)
Income from continuing operations	921,213

Loss from discontinued operations	-	-	-	-	(1,940,039)	(30,000)	(1,970,039)

Loss for the year	(1,048,826)

The method of measuring sales among sectors is the same as that applied for sales to third parties.

Segment assets, liabilities and capital expenditures at December 31, 2007 are as follows:

(in thousands of Euros)
	Tyre	Real Estate	Broadband	Other BU	Altro	TOTAL 12/31/2007
Segment assets	3,256,011	905,832	55,803	43,520	107,839	4,369,005
Investments in associates and joint ventures	718	480,341	-	2,410	50,725	534,194
Total allocated assets	3,256,729	1,386,173	55,803	45,930	158,564	4,903,199
Unallocated assets	4,050,041
Total assets	8,953,240
Segment liabilities	1,564,238	518,999	61,686	24,152	213,613	2,382,688
Unallocated liabilities	2,766,481
Total liabilities	5,149,169

Capital expenditures - property, plant and equipment	262,378	6,469	4,093	9,709	4,060	286,709
Capital expenditures - intangible assets	7,089	168,093	308	980	1,966	178,436

Segment assets, liabilities and capital expenditures at December 31, 2006 were as follows:

(in thousands of Euros)
Tyre		Real Estate	Broadband	Other BU	Olimpia	Altro	TOTAL 12/31/2006
Segment assets	3,066,993	891,517	44,985	32,477	-	56,278	4,092,250
Investments in associates and joint ventures	1,010	285,781	-	660	3,487,855	50,622	3,825,928
Total allocated assets	3,068,003	1,177,298	44,985	33,137	3,487,855	106,900	7,918,178
Unallocated assets	2,309,320
Total assets	10,227,498
Segment liabilities	1,484,001	453,061	55,459	17,029	-	345,031	2,354,581
Unallocated liabilities	3,186,360
Total liabilities	5,540,941

Capital expenditures - property, plant and equipment	224,200	12,458	6,942	1,015	-	10,841	255,456
Capital expenditures - intangible assets	4,133	47,045	95	400	-	3,211	54,884

Segment assets mainly consist of property, plant and equipment, intangible assets, assets under finance leases, inventories, trade receivables and other receivables and exclude financial receivables, other financial assets, securities held for trading and current and deferred tax assets.

Segment liabilities mainly include trade payables and other payables, advances from customers, provisions for other liabilities and charges and employee benefit obligations and exclude financial payables and current and deferred tax liabilities.

Capital expenditures mainly refer to the purchase of plant and machinery.

Secondary reporting format – geographical segment

Sales by geographical area, allocated on the basis of the country in which the customer resides, are as follows:

(in millions of Euros)
2007			2006
Europe:
- Italy	1,258.3	19.35%	1,331.9	27.51%
- Other European countries *	3,077.9	47.32%	1,586.9	32.78%
North America	329.5	5.07%	318.8	6.59%
Central and South America	1,187.7	18.26%	1,029.3	21.26%
Oceania, Africa and Asia	651.1	10.00%	574.3	11.86%
	6,504.5	100.00%	4,841.2	100.00%
* In 2007, this line includes the effect of the deconsolidation of DGAG activities for an amount of Euros 1,295.6 million.

Assets by geographical area, allocated on the basis of the country in which the assets are located, are as follows:

(in thousands of Euros)
12/31/2007		12/31/2006
Europe
- Italy	2,253,776	5,467,598
- Other European countries	1,216,412	1,237,908
North America	124,665	132,492
Central and South America	816,790	771,140
Oceania, Africa and Asia	491,556	309,040
Total allocated assets	4,903,198	7,918,178
Unallocated assets	4,050,041	2,309,320
	8,953,231	10,227,498

Capital expenditures by geographical area, allocated on the basis of the country in which the assets are located, are as follows:

(in thousands of Euros)
12/31/2007		12/31/2006
Europe
- Italy	148,333	45,599
- Other European countries	208,543	149,344
North America	2,746	2,228
Central and South America	40,607	81,636
Oceania, Africa and Asia	64,916	31,533
465,145		310,340