Pirelli & C. S.p.A. Summary of selected data

Balance sheet and financial position

(in millions of euro)

12/31/2008

12/31/2007

Property, plant and equipment

93.2

97.2

Intangible assets

1.5

1.4

Financial assets:

- Group

1,041.1

718.6

- Associates and others

419.9

540.5

Net working capital

(16.1)

(68.8)

Total

1,539.6

1,288.9

Equity

1,685.6

2,076.0

Provisions

59.4

59.2

Net financial (liquidity)/debt position

(205.4)

(846.3)

Total

1,539.6

1,288.9

The above presents the balance sheet and financial position of the company. The most significant changes during 2008 refer to the following:

  • financial assets record a net increase of Euros 201.9 million compared to the prior year (Group: net increase of Euros 322.5 million, associates and others: net decrease of Euros 120.6 million). In detail:

GROUP (in millions of euro)

Investments

Pirelli & C. Real Estate S.p.A.

22.1

Pirelli Finance (Luxembourg) S.A.

60.0

PGT Photonics S.p.A.

24.9

Pirelli & C. Eco Technology S.p.A.

8.2

Speed S.p.A.

434.4

Other companies

7.5

 

557.1

Divestitures

PGT Photonics S.p.A.

(32.0)

Other companies

(0.2)

 

(32.2)

Impairment losses

Pirelli Finance (Luxembourg) S.A.

(167.1)

Pirelli UK Ltd

(31.8)

PZero S.r.l.

(4.0)

Other companies

(0.3)

 

(203.2)

Reclassifications

0.8

Total

322.5

ASSOCIATES AND OTHERS (in millions of euro)

Investments

Alcatel Lucent Submarine Networks Sas

44.8

CyOptics Inc.

38.2

Alitalia S.p.A.

20.0

RCS Mediagroup S.p.A.

4.0

F.C. Internazionale Milano S.p.A.

1.6

Others

0.8

 

109.4

Divestitures

Intek S.p.A.

(4.0)

Others

(0.1)

 

(4.1)

Impairment losses

RCS Mediagroup S.p.A.

(65.7)

Telecom Italia S.p.A.

(46.1)

CyOptics Inc.

(8.7)

 

(120.5)

Reclassifications

(0.8)

Changes in fair value recognized in equity

(104.6)

Total

(120.6)

At December 31, 2008, the investment in RCS Mediagroup S.p.A. was reclassified from “Other financial assets” to “Investments in associates”. The investment in RCS Mediagroup S.p.A. (equal to 5.3 percent of voting capital) forms part of the shareholders’ agreement which aims to ensure the stability of the shareholder base and guide the management of the operations of the RCS Group in a single direction (the companies in the shareholders’ agreement have contributed 63.5 percent of share capital).

The reason for the reclassification lies in the fundamental strengthening of the single orientation within the shareholders’ agreement and the intensification of other forms of exercising the rights of governance.

At December 31, 2008, the investment was tested for impairment and was adjusted to its value in use of Euros 1.70 per share, with a resulting writedown recognized in the income statement equal to Euros 65.7 million. The value in use was determined, with the assistance of an independent expert, using a discounted cash flow model which takes into account the generalized decline in the profitability of the sector within the context of the negative trend of the financial markets.

At December 31, 2008, Pirelli & C. S.p.A. holds, directly or indirectly through its subsidiary, Pirelli Finance (Luxembourg) S.A., 177,113,185 Telecom Italia S.p.A. ordinary shares equal to 1.32 percent of voting stock. The book value is Euros 1.1492 per share (market value at December 31, 2008) for a total of Euros 203.5 million. An impairment loss of Euros 173 million was recognized during the year.

Pirelli & C. S.p.A. holds directly 24,046,432 Pirelli & C. Real Estate S.p.A. shares equal to 56.45 percent of share capital. The book value is equal to Euros 4.08 per share for a total of Euros 98 million.

The amount of Euros 104.6 million relating to the line item “Fair value change with an offsetting entry to equity” is due almost exclusively (Euros 102 million) to the measurement of Mediobanca S.p.A. shares;

  • equity decreased by Euros 390.4 million compared to December 31, 2007. The main changes in equity are presented in the following table:

CHANGES IN EQUITY (in millions of euro)

Equity at December 31, 2007

2,076.0

Dividends distributed

(93.2)

Effect of purchase of treasury shares

(3.3)

Gains (losses) recognized directly in equity

(104.6)

Loss for the year

(189.5)

Other changes

0.2

Equity at December 31, 2008

1,685.6

The composition of equity is the following:

COMPOSITION OF EQUITY (in millions of euro)

12/31/2008

12/31/2007

Share capital

1,554.3

1,555.9

Share premium reserve

416.5

418.2

Legal reserve

94.3

89.2

Other reserves

24.1

22.5

IAS reserve

(215.1)

(110.5)

Retained earnings

1.0

-

Income (loss) for the year

(189.5)

100.7

Total

1,685.6

2,076.0

The movement in the IAS reserve equity of Euros 104.6 million refers to the fair value measurement of investments with an offsetting entry to equity and is due almost exclusively to the valuation of Mediobanca S.p.A. shares (Euros 102 million);

  • the net financial position at December 31, 2008 is a net liquidity position of Euros 205.4 million (Euros 846.3 million at December 31, 2007). The changes are analyzed in the following table:

Net liquidity position (in millions of euro)

Net liquidity position at 12/31/2007

846.3

Financial investments

(641.0)

Financial divestitures

5.6

Dividends received

147.8

Dividends paid

(93.2)

Change in net working capital

(52.7)

Net financial income

30.5

Other changes

(37.9)

Net liquidity position at 12/31/2008