24. Borrowings from banks and other financial institutions

The analysis of borrowings from banks and other financial institutions is as follows:

(in thousands of Euros)

12/31/2007

12/31/2006

Total

Non-current

Current

Total

Non-current

Current

bonds

650,000

150,000

500,000

1,150,000

650,000

500,000

borrowings from banks

872,768

536,616

336,152

1,668,780

658,881

1,009,899

borrowing from other financial institutions

69,433

67,936

1,497

31,756

31,115

641

finance lease payables

35,652

32,271

3,381

39,223

35,949

3,274

financial accrued liabilities and deferred income

17,693

420

17,273

40,669

-

40,669

other financial payables

14,411

955

13,456

9,260

1,481

7,779

1,659,957

788,198

871,759

2,939,688

1,377,426

1,562,262

These payables are secured by real guarantees (liens and mortgages) for Euros 179,380 thousand (Euros 73,262 thousand at December 31, 2006).

The carrying amount of current payables is regarded as approximating fair value.

The amount due within one year, totaling Euros 871,759 thousand, includes the current portion of long-term financial payables of Euros 531,200 thousand (Euros 623,300 thousand at December 31, 2006).

The fair value of non-current payables compared to the carrying amount is as follows:

12/31/2007

12/31/2006

Carrying amount

Fair value

Carrying amount

Fair value

Non-current financial payables

788,198

784,594

1,377,426

1,376,976

At December 31, 2007, the breakdown of payables by interest rate and currency of origin is as follows:

(in thousands of Euros)

Fixed rate

Floating rate

Total

EUR

659,443

103,520

 

762,963

USD

19,908

 

 

19,908

BRL (Brazilian Real)

30,658

 

 

30,658

CNY (Chinese Renminbi)

57,931

 

 

57,931

Other currencies

299

 

 

299

Current payables

768,239

88%

103,520

12%

871,759

EUR

367,746

 

371,412

 

739,158

USD

23,579

 

 

23,579

BRL (Brazilian Real)

10,105

 

15,257

 

25,362

EGP (Egyptian Pound)

99

 

 

99

Non-current payables

401,529

51%

386,669

49%

788,198

Total

1,169,768

70%

490,189

30%

1,659,957

At December 31, 2006, the situation was as follows:

(in thousands of Euros)

 

Fixed rate

Floating rate

Total

EUR

699,562

 

787,883

 

1,487,445

USD

36,709

 

 

36,709

BRL (Brazilian Real)

6,502

 

 

6,502

CNY (Chinese Renminbi)

29,207

 

 

29,207

RON (Romanian Leu)

 

400

 

400

Other currencies

 

1,999

 

1,999

Current payables

771,980

49%

790,282

51%

1,562,262

EUR

873,944

 

438,865

 

1,312,809

USD

35,145

 

 

35,145

BRL (Brazilian Real)

6,372

 

23,000

 

29,372

EGP (Egyptian Pound)

100

 

 

100

Non-current payables

915,561

66%

461,865

34%

1,377,426

Total

1,687,541

57%

1,252,147

43%

2,939,688

Fixed-rate payables above include payables denominated by contract at fixed rates and payables denominated by contract at floating rates hedged by derivatives.

The Group’s exposure to interest rate changes on financial payables in terms of either the type of rate or the date of resetting the rate can be summarized as follow:

(in thousands of Euros)

12/31/2007

12/31/2006

TOTAL

Fixed rate

Floating rate

TOTAL

Fixed rate

Floating rate

up to 6 months

756,989

266,800

490,189

2,011,013

758,866

1,252,147

between 6 and 12 months

500,180

500,180

-

12,373

12,373

-

between 1 and 5 years

394,598

394,598

-

808,555

808,555

-

beyond 5 years

8,190

8,190

-

107,748

107,748

-

TOTAL

1,659,957

1,169,768

490,189

2,939,689

1,687,542

1,252,147

With regard to financial covenants on the agreed and utilized credit lines, the following should be noted:

  • on the Syndicated Line granted to Pirelli & C. Real Estate S.p.A. in which 20 banks participate for a total of Euros 750 million (Euros 450 million at December 31, 2006), Pirelli & C. Real Estate S.p.A. is obliged not to exceed a certain threshold in the ratio of the adjusted financial position (expressed gross of shareholder loans to the companies in which minority interests are held) to operating profit including earnings (losses) and financial income from investment holdings;
  • on the line granted on June 29, 2007 by Mizuho Corporate Bank Ltd. Milan Branch for Euros 50 million, Pirelli & C. Real Estate S.p.A. is required to abide by the same covenants as those on the Syndicated Line above;
  • on the line granted on December 21, 2007 by Bayerische Hypo-Und Vereinsbank AG, Milan Branch and Intesa Sanpaolo S.p.A., Pirelli & C. Real Estate Facility Management S.p.A. is required to abide by covenants which impose a certain ratio between (i) operating profit and net financial expenses (that is, net of financial income) - Interest Cover Ratio, (ii) debt (net of cash) and operating profit - Debit Cover Ratio e (iii) cash flows and debt servicing (financial expenses plus debt repayments) - Cash Flow Cover Ratio. Lastly, there is annual limit on the expenses capitalized.

At December 31, 2007, all the covenants were complied with.

Pirelli & C. Real Estate S.p.A. increased the revolving syndicated credit line obtained in 2005 from Euros 450 million to Euros 750 million. All the other conditions remained unchanged compared to those existing at December 31, 2006. The loan, due in August 2010, has a floating rate indexed to the Euribor plus 65 basis points.

The Syndicated Line also carries a negative pledge clause on the shares and on the receivables of the services companies.

Bonds – current portion (Euros 500,000 thousand) – refer to the bonds issued on October 21, 1998 at 4.875 percent by Pirelli & C. S.p.A. repayable in a one-off payment on October 21, 2008.

The non-current portion refers to bonds issued in 1999 by Pirelli & C. S.p.A. for Euros 150,000 thousand at 5.125 percent maturing in April 7, 2009.

The reduction from 2006 is due to the April 4, 2007 repayment of bonds of Euros 500,000 thousand issued in 2002 by the subsidiary Pirelli Finance (Luxembourg) S.A..

These bonds do not contain either financial covenants or clauses which could cause the early repayment of the bonds due to events other than insolvency.

With regard to negative pledge clauses, there is a commitment on these bonds requiring that real guarantees are not to be provided on the relevant debt (bonds and similar securities destined for listing) with the exception for real guarantees on existing debt.

The other financial payables are not covered by financial covenants or clauses which could cause the early repayment of the loans due to events other than insolvency.

There are no significant negative pledge clauses.

Financial accrued liabilities and deferred income mainly include the amount of interest accrued but not yet paid on bonds (Euros 10,474 thousand); the reduction in this item from the end of 2006 is due to the repayment of bonds issued by the subsidiary Pirelli Finance (Luxembourg) S.A. commented above.

As for financial lease payables, reference should be made to Note 8.1 “Finance leases”.

25. Trade payables

The analysis of trade payables is as follows:

(in thousands of Euros)

12/31/2007

12/31/2006

Total

Non-current

Current

Total

Non-current

Current

associates and joint ventures

24,458

-

24,458

8,366

-

8,366

third parties

1,198,417

-

1,198,417

991,137

-

991,137

notes payable

97,073

-

97,073

102,953

-

102,953

payables on construction contracts

3,640

 

3,640

-

-

-

1,323,588

-

1,323,588

1,102,456

-

1,102,456

The carrying amount of trade payables is regarded as approximating fair value.

Payables on construction contracts relating to the Real Estate Sector represent the advances received on progress billings for contracts, equal to Euros 26,818 thousand at December 31, 2007 (Euros 23,627 thousand at December 31, 2006), in excess of costs incurred and recognized profit, equal to Euros 23,178 thousand at December 31, 2007 (Euros 23,627 thousand at December 31, 2006).

26. Other payables

The analysis of other payables is as follows:

(in thousands of Euros)

12/31/2007

12/31/2006

Total

Non-current

Current

Total

Non-current

Current

associates and joint ventures

21,466

-

21,466

3,263

-

3,263

trade and other accrued liabilities and
deferred income

130,776

4,869

125,907

150,002

38,932

111,070

tax payables

98,433

10,288

88,145

92,955

3,409

89,546

payables to employees

131,031

77

130,954

123,059

73

122,986

payables to social security agencies

48,308

2,934

45,374

48,148

2,064

46,084

payables for stock options

494

-

494

1,609

-

1,609

dividends payable

827,252

-

827,252

2,196

-

2,196

advances from customers

4,979

-

4,979

3,796

7

3,789

other payables

155,234

5,132

150,102

244,754

88,395

156,359

1,417,973

23,300

1,394,673

669,782

132,880

536,902

The reduction in non-current accrued liabilities and deferred income is due, for Euros 33,300 thousand, to commissions paid to the financial institutions which took part last year in the private placement of the 38.9 percent interest of Pirelli Tyre S.p.A..

Dividends payable include Euros 826,254 thousand for the reimbursement of share capital approved by the shareholders’ meeting held on December 12, 2007 payable to the shareholders of Pirelli & C. S.p.A..

The reduction in other payables refers to the Real Estate Sector for Euros 81,539 thousand for the sale in the first half of 2007 of junior notes connected with a non-performing loan portfolio of ex-Banco di Sicilia to the Sagrantino B.V. joint venture, as described in the note “other receivables”.

The carrying amount of other current and non-current payables is regarded as approximating fair value.